General Information - Florida State University College of Law

FLORIDA STATE UNIVERSITY LAW REVIEW
VOLUME 37 SUMMER 2010 NUMBER 4
TABLE OF CONTENTS
DISTINGUISHED SCHOLAR SERIES
FINANCIAL OPTIONS IN THE REAL WORLD:
AN ECONOMIC AND TAX ANALYSIS.................................... David Hasen 789
ARTICLES
METHADEMIC:DRUG PANIC IN AN AGE
OF AMBIVALENCE ......................................................... Deborah Ahrens 841
PEARSON, IQBAL, AND PROCEDURAL
JUDICIAL ACTIVISM.......................................................Goutam U. Jois 901
KEEPING SETTLEMENTS SECRET ................................. Erik S. Knutsen 945
NOTES
AN ENERGY-EFFICIENT INTERNET:
THE NEXT REVOLUTION .................................................... Alvan Balent 981
BUSINESS INSURANCE:FIRST-PARTY
COMMERCIAL PROPERTY INSURANCE AND THE
PHYSICAL DAMAGE REQUIREMENT IN A
COMPUTER-DOMINATED WORLD ...................................... Amy R. Willis 1003

The Ausley House: Home of the
Florida State University Law Review
Florida State University
College of Law
The Florida State University College of Law is fully approved by
the American Bar Association and is a member of the Association of
American Law Schools. The College offers a three-year course of study
leading to the Juris Doctor degree with certificate programs in international
and environmental law. Furthermore, a Master of Laws degree
(LL.M.) in American Law for Foreign Lawyers is available for foreign
graduate students who have legal training.
The College of Law has approximately 700 students. Its research
center contains nearly 518,000 volumes and 3,600 current subscriptions.
Educational opportunities are plentiful. The location of the
College—only blocks from the Capitol, the Supreme Court of Florida, a
number of federal and state courts, and various administrative
agencies—makes extensive externship programs possible. Students
publish the Law Review, the Journal of Land Use & Environmental
Law, and the Journal of Transnational Law & Policy. Moot Court and
Mock Trial teams have won national honors. Each summer, the College
conducts a nationally recognized program at Oxford University, England.
These resources support the goal Dean Mason Ladd identified
when the College was founded in 1966: “Its one aim is excellence in the
preparation and education of students so that they will acquire the
knowledge, comprehension, and judgment essential to the performance
of legal services in a complex and rapidly changing society.”
ii

FLORIDA STATE UNIVERSITY COLLEGE OF LAW
ADMINISTRATION
ERIC J. BARRON, B.S., M.S., PH.D., President of the University
LAWRENCE G. ABELE, B.S., M.S., PH.D., Provost and Vice President for Academic Affairs
DONALD J. WEIDNER, B.S., J.D., Dean and Alumni Centennial Professor
WAYNE A. LOGAN, B.A., M.A., J.D., Gary & Sallyn Pajcic Professor and Associate Dean for
Academic Affairs
DONNA R. CHRISTIE, B.S., J.D., Elizabeth C. & Clyde W. Atkinson Professor and Associate Dean
for International Programs
JIM ROSSI, B.S., J.D., LL.M., Harry M. Walborsky Professor and Associate Dean for Research
ROBIN KUNDIS CRAIG, B.A., M.A., PH.D., J.D., Attorneys’ Title Professor and Associate Dean for
Environmental Programs
NANCY L. BENAVIDES, B.S., J.D., Associate Dean for Student Affairs
ROSANNA CATALANO, B.S. J.D., Assistant Dean for Administration
MARK PANKEY, B.B.A., M.S., Associate Vice President for Development
JANEIA DANIELS, B.S., J.D., Assistant Dean for Student Affairs
FACULTY
FREDERICK M. ABBOTT, B.A., J.D., LL.M., Edward Ball Eminent Scholar
KELLI A. ALCES, B.A., J.D., Assistant Professor
PAOLO ANNINO, B.A., M.A., J.D., PH.D., Clinical Professor
ROBERT E. ATKINSON, B.A., J.D., Ruden, McClosky, Smith, Schuster & Russell Professor
BARBARA ANN BANOFF, B.A., J.D., Professor
SHAWN J. BAYERN, B.S., J.D., Assistant Professor
TAMARA G. BLENKHORN, B.A., J.D., Legal Writing Professor
CURTIS BRIDGEMAN, B.A., M.A., PH.D., J.D., James Edmund & Margaret Elizabeth Hennessey
Corry Professor
ELIZABETH CHAMBLEE BURCH, B.A., J.D., Assistant Professor
THOMAS V. BURCH, B.B.A., B.A., J.D., Legal Writing Professor
DONNA R. CHRISTIE, B.S., J.D., Elizabeth C. & Clyde W. Atkinson Professor and Associate Dean
for International Programs
NEIL P. COHEN, B.A., J.D., LL.M., Visiting Professor
ROBIN KUNDIS CRAIG, B.A., M.A., PH.D., J.D., Attorneys’ Title Professor and Associate Dean for
Environmental Programs
JEANNE B. CURTIN, B.S., M.B.A., J.D., Legal Writing Professor
TALBOT D’ALEMBERTE, B.A., J.D., President Emeritus and Professor
JOSEPH M. DODGE, B.A., LL.B., LL.M., Stearns Weaver Miller Weissler Alhadeff &
Sitterson Professor
DINO FALASCHETTI, B.S., M.B.A., A.M., PH.D., Associate Professor of Law and Economics
BRIAN D. GALLE, A.B., J.D., LL.M., Assistant Professor
SALLY C. GERTZ, B.A., J.D., Clinical Professor
STEVEN G. GEY, B.A., J.D., David & Deborah Fonvielle and Donald & Janet Hinkle Professor
ELWIN J. GRIFFITH, B.A., J.D., LL.M., Tallahassee Alumni Professor
TARA LEIGH GROVE, B.A., J.D., Assistant Professor
ADAM J. HIRSCH, A.B., M.A., M.PHIL., J.D., PH.D., William & Catherine VanDercreek Professor
FAYE E. JONES, B.A., M.S., J.D., Director of Research Center and Professor
LAWRENCE S. KRIEGER, A.B., J.D., Clinical Professor and Director of Clinical Externship Programs
JENNIFER P. LAVIA, A.B., J.D., Legal Writing Professor
TAHIRIH V. LEE, A.B., A.M., M.A., M.PHIL., J.D., PH.D., Associate Professor
WAYNE A. LOGAN, B.A., M.A., J.D., Gary & Sallyn Pajcic Professor and Associate Dean for
Academic Affairs
SCOTT D. MAKAR, B.S., M.B.A., J.D., PH.D., Richard W. Ervin Visiting Professor
DAN MARKEL, A.B., M.PHIL., J.D., D’Alemberte Professor
DAVID L. MARKELL, B.A., J.D., Steven M. Goldstein Professor
TRICIA ANN MATTHEWS, B.A., M.A., J.D., Legal Writing Professor
UMA OUTKA, B.A., M.A., J.D., Visiting Scholar
GREGG D. POLSKY, B.A., J.D., LL.M., Sheila M. McDevitt Professor
AMELIA RINEHART, B.S.E., M.S.E., J.D., Visiting Assistant Professor
iii

JIM ROSSI, B.S., J.D., LL.M., Harry M. Walborsky Professor and Associate Dean for Research
J. B. RUHL, B.A., PH.D., J.D., LL.M., Matthews & Hawkins Professor of Property
MARK B. SEIDENFELD, B.A., M.A., J.D., Patricia A. Dore Professor of Administrative Law
NAT S. STERN, A.B., J.D., John W. & Ashley E. Frost Professor
RUTH E. STONE, B.S., J.D., Clinical Professor
CHARLEE MORGAN TAYLOR, B.A., J.D., Legal Writing Professor
FERNANDO R. TESÓN, J.D., LL.M., S.J.D., Tobias Simon Eminent Scholar
FRANITA TOLSON, B.A./B.S., J.D., Assistant Professor
MANUEL ANTONIO UTSET,JR., B.S., J.D., Charles W. Ehrhardt Professor
DONALD J. WEIDNER, B.S., J.D., Dean and Alumni Centennial Professor
LESLEY WEXLER, B.A., J.D., Assistant Professor
JOLEN RAWLS WOLF, B.A., J.D., Legal Writing Professor
RESEARCH CENTER STAFF
FAYE E. JONES, B.A., M.S., J.D., Director of Research Center and Professor
ROBIN R. GAULT, B.A., M.S., PH.D., J.D., Associate Director
MARY M. MCCORMICK, B.A., M.L.I.S., J.D., Assistant Director for Public Services
MARGARET C. CLARK, B.A., M.A., Research Librarian
MARIN DELL, B.S., J.D., M.S., Research Librarian
ELIZABETH FARRELL, B.S., J.D., M.S., Research/Instructional Technology Librarian
ANNE D. BARDOLPH, B.A., M.S., Assistant Director for Acquisitions
PATRICIA BINGHAM-HARPER, B.A., B.M., M.S., M.M., Assistant Director for Cataloging
PATRICIA K. SIMONDS, B.S., M.S., Assistant Director for Interlibrary Loan/Serials
JON R. LUTZ, B.A., M.A., M.S., Assistant Director for Electronic Services
EMERITUS FACULTY
DAVID F. DICKSON, A.B., LL.B., M.S., PH.D., Professor Emeritus
CHARLES W. EHRHARDT, B.S., J.D., Professor Emeritus
ROBERT H. KENNEDY, B.A., LL.B., Professor Emeritus
JOHN W. LARSON, A.B., J.D., Professor Emeritus
JOSHUA M. MORSE, III, J.D., Professor Emeritus
JARRET C. OELTJEN, B.A., J.D., Professor Emeritus
DAVID F. POWELL, B.B.A., J.D., LL.M., Professor Emeritus
EDWIN M. SCHROEDER,PH.B., M.S., J.D., Professor Emeritus
HAROLD P. SOUTHERLAND, B.S., J.D., Professor Emeritus
JOHN W. VAN DOREN, A.B., LL.B., Professor Emeritus
WILLIAM VANDERCREEK, B.S., J.D., LL.M., Professor Emeritus
JOHN K. VINSON, B.A., J.D., LL.M., Professor Emeritus
JOHN F. YETTER, B.S., J.D., LL.M., Professor Emeritus
iv

FLORIDA STATE UNIVERSITY
LAW REVIEW ALUMNI ASSOCIATION
EDITOR’S COUNSEL
DUBOSE AUSLEY
JOANN BLACKWELL
ENRICO GONZALEZ
ED SCHROEDER
LOU WRIGHT
BENEFACTORS
JOHN S. FAGAN
SPONSORS
ILEANA A. CRUZ-BONGINI JASON B. DUBOW
KAREN L. ASHER COHEN
MICHAEL P. BRUYERE
THOMAS V. BURCH
ROBERT S. COHEN
AMY L. COMER
DAVID M. JEFFRIES
ERIC J. KAIDANOW
MATTHEW R. BERNIER
CHRISTOPHER F. BUSCH
MICHAEL A. CAMPBELL
JASON S. FEDER
GARRETT J. HARPER
ALVAN BALENT
TERIN M. BARBAS
ROBERT F. KOHLMAN
PATRONS
CHET KAUFMAN
ALYSSA S. LATHROP
BRUCE A. LEINBACK
REBECCA J. MERCIER-
VARGAS
JEANNE M. MILLER
TRAVIS L. MILLER
DANIEL L. MONROE
MEMBERS
MALINDA L. HAYES
BRETT J. HOROWITZ
CHRISTOPHER S. LINDE
PETER R. MARKSTEINER
DEBORAH J. MEYER
STEVEN D. MUSCATELLO
ASSOCIATE MEMBERS
MATTHEW L. BEVILLE
NORMAN A. BURKETT
v
PATRICK J. RENGSTL
MARVIN P. PASTEL
LINDA SCHMIDT
STEPHEN R. SENN
JENNIFER L. SHELFER
MICHAEL A. SJUGGERUD
LESLEI G. STREET
ROBERTO M. VARGAS
NOAH H. NADLER
RACHEL E. NORDBY
DANIEL C. NORRIS
SARAH E. SPECTOR
MICHAEL L. WENGER
JACOB T. CREMER

The Florida State University Law Review is produced four times
per year at the College of Law, Tallahassee, FL 32306-1601. Periodicals
postage paid at Tallahassee, Florida, and at additional mailing
offices. United States Postal Service Publication Number 991780.
ISSN 0096-3070. POSTMASTER: Send address corrections to Florida
State University, College of Law, Law Review, Tallahassee, FL
32306-1601.
Student activity fees allocated by the Florida State University
Student Government Association and Congress of Graduate
Students provide a portion of the funding for the Law Review.
The views expressed in published material are those of the authors
and do not necessarily reflect the policies or opinions of the Law Review,
its editors and staff, or the Florida State University. We welcome
and will consider for publication letters to the Editor about
work appearing in the Law Review.
Copyright © 2010 by the Florida State University Law Review
Member, National Conference of Law Reviews
The Florida State University Law Review hereby grants permission
for copies of all articles on which it holds the copyright to be
made and used by nonprofit educational institutions, provided that
copies are distributed at or below cost, the author and journal are
identified, and proper notice is affixed to each copy. All other rights
are reserved.
The Florida State University Law Review thanks Reed Elsevier
for the donation of LEXIS research services and West Group for the
donation of WESTLAW research services.
vi

FLORIDA STATE UNIVERSITY LAW REVIEW
VOLUME 37 SUMMER 2010 NUMBER 4
ANDREW GROGAN
Executive Editor
NANCY A. PINZINO
Executive Editor
BRANDON W. WHITE
Managing Editor
HOLLY GRIFFIN
NATHAN HILL
LAURA MCDONALD
TIFFANY RODDENBERRY
Notes & Comments Editors
MATTHEW J. ALLMAN
ALVAN BALENT JR.
TERIN M. BARBAS
BRIAN BOHM
DAVID BOYER
CHRISTOPHER BUSCH
T. BROOKS COLLINS
JACOB T. CREMER
JACQUELINE DAVISON
MATTHEW DEVINE
PATRICK FLEMMING
KEVIN FORSTHOEFEL
JESSICA GALLEGOS
JOHN "EVAN"GIBBS
CHRISTIN F. GONZALEZ
LAWTON GRAVES
EDITORIAL BOARD
AMANDA L. SWINDLE
Editor in Chief
MATTHEW LEE EVANS
TRUMON PHILLIPS
JONATHAN PICARD
MIRIAM SOWINSKI
Associate Editors
MEMBERS
JUSTIN R. INFURNA
REBECCA LEEAN JOHNS
BENJAMIN R. KELLEY
MELANIE R. LEITMAN
FERRELL MAGUIRE
SARA MASON
JON HARRIS MAURER
DONALD MCGRAW
HANNAH MONROE
STEVEN D. MUSCATELLO
YORDANKA NEDYALKOVA
STEFANI CARINA NORRBIN
GLADYS ANDREA ORTEGA
ZACHARY OSWALD
NATHAN PAULICH
HILLARY COPELAND POWELL
ALEX QUIMBY
ROBERT E. ATKINSON
CURTIS BRIDGEMAN
STEVEN G. GEY
Faculty Advisors
BRENDA ELLIS
Office Manager
vii
CHRISTA PLETCHER
Executive Editor
MOLLIE SMITH
Writing &Research Editor
STEVEN M. HOGAN
Senior Articles Editor
JOEL LEPPARD
WILLIAM OURAND
ALEXANDER PYRROS
LUKE WATERS
Article Selection Editors
MICHAEL REDONDO
JASON RUDDERMAN
DAVID RUSSELL
RYAN SAWYER
SAMUEL STARKEY
MATTHEW STEFANY
JUSTIN S. SWARTZ
BRANDI Y. THOMPSON
TRAVIS R. THOMPSON
MICHAEL TITUS
PHILIP S. TRAYNOR
JESSE UNRUH
LAUREN VICKROY
SETH WELNER
CHARLES WHITTINGTON
LAYNE ZHAO

General Information
Cite As. Cite this journal as FLA.ST.U.L.REV.
Submissions. The Florida State University Law Review welcomes
unsolicited manuscripts on topics of interest to the legal profession.
The Law Review acknowledges that unsolicited manuscripts
may be submitted to other journals. All pieces will be evaluated as
expeditiously as possible, but the Law Review assumes no responsibility
for the return of unsolicited manuscripts. Manuscripts should
be typewritten and double-spaced, with notes in footnote form. Citations
should conform to The Bluebook: A Uniform System of Citation
(18th ed.). Citations to Florida sources should conform to the Florida
State University Law Review Florida Style Manual (6th ed.), a copy of
which may be obtained for $5 from the Law Review. The Law Review
accords great deference to an author’s work but reserves the right to
determine the final form in which articles will be published.
Advertising. The Law Review accepts advertisements that may
be of use to its readers. Rates for full- and half-page advertisements
are available from the Editor in Chief at the mailing address and telephone
number below.
Subscriptions. The subscription price is $30 for one year’s four
issues or $10 for a single issue. Florida firms and individuals should
add the appropriate sales tax. Foreign subscribers should add 50
cents per issue or $2 per year for postage. Subscriptions are renewed
automatically unless the subscriber sends a timely notice of termination.
All notifications of address changes should include old and new addresses
with ZIP+4 codes. Article reprints are available for 15 cents per
page by contacting the Office Manager. Back issues more than one year
old may be purchased from William S. Hein & Co., 1285 Main St., Buffalo,
NY 14209 and are also available in electronic format for all your research
needs on HeinOnline (http://heinonline.org).
Correspondence. Address all correspondence to the Florida
State University Law Review, College of Law, Florida State University,
Tallahassee, FL 32306-1601. Direct manuscripts and manuscript
inquiries to “Submissions.” Direct all other advertising and
business matters to the Editor in Chief. Contact the editorial and
business staff at (850) 644-2045.
Errata. Bring errors in this volume to the attention of the Editor
in Chief. The Law Review will publish corrections when necessary.
Access. This document is available upon request in other formats
for individuals with print-related disabilities. Contact the ADA Office,
301 Westcott Administration Building, Florida State University,
Tallahassee, FL 32306-1470, (850) 644-5283 (Voice) or (850) 644-
6693 (TDD).
The Law Review is also available on the World Wide Web at
http://www.law.fsu.edu/journals/lawreview.
viii

THE MISSION OF THE
FLORIDA STATE UNIVERSITY LAW REVIEW
To provide a forum for contemporary legal discourse, we must:
Adhere to the highest standards of analysis, accuracy, and
timeliness in publishing the Law Review;
Distinguish the College of Law as a leading institution, known for
its support of scholarship and academic pursuit;
Attract the College of Law’s finest legal communicators
by encouraging independent legal thought, offering positions
of responsibility, and maintaining a tradition of service to
our College;
Inform our profession about the compelling issues of our time
by providing a forum for student scholars, practitioners, and
legal educators;
Offer our profession a selection of articles balanced between the
theoretical and the practical;
Uphold the honor and decorum of our profession by championing
the highest standards of conduct;
Stand together as advocates of quality legal education and strive
to improve the reputation of our Law Review and of our school;
Inspire cooperation, commitment, and camaraderie among our
membership and the College of Law at large; and
Safeguard an institutional memory and tradition so that those
who follow will benefit from our experience.
ix

FINANCIAL OPTIONS IN THE REAL WORLD: AN
ECONOMIC AND TAX ANALYSIS
DAVID HASEN *
ABSTRACT
Many of the consequences of issuing and purchasing options on publicly traded property
have been well understood since Black and Scholes developed a model for option pricing. No
model of options, however, provides an accurate economic analysis of the actual transactions
that issuers and purchasers engage in when options are bought and sold. One consequence
of this gap in understanding is that the rules for taxing options remain poorly developed.
This Article provides a transactional analysis of option sales for the first time. The focus
is on covered options, but the analysis also has implications for options in which the underlying
property serves merely as a reference obligation and is owned by neither party to the
transaction. The analysis demonstrates that while all options have as one component a
swap of variable risks or returns on the underlying property for a fixed payment, “in the
money” options involve, in addition, a forward transfer of the benefits and correlative burdens
of a part of the underlying property that is equivalent to a forward sale of that part.
Commentators have not identified this embedded forward sale because the payment arrangement
between the parties to the option transaction obscures it; however, a comparison
of option prices derived under the Black-Scholes model with the theoretical prices of such
forwards demonstrates that the transactions are identical. The analysis also illuminates the
relationships between options and other common financial transactions, such as collars,
and it permits a clear assessment of the advantages and disadvantages of possible tax rules
for financial options.
I. INTRODUCTION .................................................................................................. 790
II. OPTION BASICS.................................................................................................. 795
A. Options Generally ...................................................................................... 795
B. Tax Rules.................................................................................................... 797
1. Options Not Subject to Special Rules .................................................. 797
2. Special Situations ................................................................................ 800
C. Problems in Option Taxation ..................................................................... 801
1. Basic Call Option ................................................................................. 802
2. Basic Put Option .................................................................................. 804
3. Special Situations ................................................................................ 805
III. SUGGESTED CONCEPTUAL APPROACH ............................................................... 805
A. Statement of the Theory ............................................................................. 806
B. Demonstration ............................................................................................ 811
1. Risk Neutrality and Zero Risk-Free Rate ............................................ 811
a. Neutral Disposition of Upside Potential and Downside Risk ....... 812
b. Neutral Disposition Plus OTM Put Option ................................... 813
c. Extension to Call Option ............................................................... 816
2. Positive Risk-Free Rate ........................................................................ 817
a. Neutral Disposition of Upside Potential and Downside Risk ....... 817
b. Neutral Disposition Plus OTM Put Option ................................... 818
c. Accounting for the Time Value of Money ....................................... 819
3. Risk Premium ...................................................................................... 822
C. Conclusion .................................................................................................. 824
IV. TAX ANALYSIS ................................................................................................... 825
* Professor, Penn State Law School, Penn State University. I thank Joshua Coval,
Arturo Estrada, David Gamage, Rebecca Harrigal, Andrew Kleit, Pamela Lew, Robert
Martin, John Rogers, Reed Shuldiner, Lon Smith, Patrick White and participants at the
Northern California Tax Roundtable for comments and suggestions. I remain solely responsible
for any errors.

790 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
A. Underlier Owned ........................................................................................ 826
1. Ownership Throughout the Option Term ............................................ 828
a. Non-ITM Option ............................................................................ 828
b. ITM Option .................................................................................... 830
2. Ownership Acquired After Option Sale ............................................... 832
B. Underlier as Reference Obligation ............................................................. 834
C. Possible Tax Approaches ............................................................................ 835
1. Basic Problems Under Current Law .................................................... 835
2. Proposals .............................................................................................. 837
a. Option Sale Date ........................................................................... 837
b. Option Exercise .............................................................................. 838
c. Option Lapse or Cancellation ........................................................ 839
V. CONCLUSION ..................................................................................................... 839
I. INTRODUCTION
The treatment of options is a vexed area in the tax law. At its
most basic, an option is a contract between two parties under which
one of them purchases from the other the right, but not the obligation,
to purchase or sell property (an “underlier”) at a fixed price (the
“strike price”) on a particular date in the future (the “exercise date”
or “strike date”). 1 Long subject to “open-transaction” treatment, the
sale of an option represents one of the few cases in which money can
change hands in a commercial setting without triggering any immediate
income tax consequences. 2 Instead, the grantor of an option typically
includes nothing in income on receipt of payment for the option
(the “option premium”), while the option purchaser is entitled neither
to an immediate deduction of the option premium 3 nor to amortize
the premium prior to the exercise date. 4 Further, unless it is highly
likely on the option sale date that the option will be exercised, 5 no
sale of the underlier is deemed to have occurred for tax purposes on
sale of the option, even though, in economic terms, the option sale is
often similar to a partial sale of the underlier. Instead, tax consequences
first arise when something further happens in respect of the
option, such as its exercise, 6 lapse, cancellation, or disposition. 7
1. JOHN C. HULL, OPTIONS, FUTURES, AND OTHER DERIVATIVES 179-184 (7th ed.
2009).
2. See Va. Iron Coal & Coke Co. v. Comm’r, 99 F.2d 919, 921-22 (4th Cir. 1938); see
also Rev. Rul. 78-182, 1978-1 C. B. 265; 26 U.S.C. § 1234 (2006). The other major exception
to the taxation of cash on receipt rule is the nontaxation of loan proceeds. Cases in which a
non-cash exchange of property for property goes untaxed are more common. They include
exchanges of certain like-kind properties, 26 U.S.C. § 1031, and the contribution of property
to a controlled corporation in exchange for the corporation’s stock, 26 U.S.C. § 351(a), or
to a partnership in exchange for an interest in the partnership. 26 U.S.C. § 721.
3. Rev. Rul. 78-182, 1978-1 C.B. 265.
4. See 26 C.F.R. § 1.263(a)-(4)(c)(1)(iii)(E).
5. Rev. Rul. 80-238, 1980-2 C.B. 96.
6. Rev. Rul. 78-182, 1978-1 C.B.265 .
7. 26 U.S.C. § 1234A.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 791
Most commentators view this regime as incorrect, 8 but beyond
that partial consensus little agreement exists on how the tax law
should apply to options. Options have been variously described as, or
as analogous to, services transactions, 9 carved-out property interests,
10 partnerships, 11 amounts received under a claim of right, 12 instances
of “dynamic hedging,” 13 and wagers. 14 Each of these characterizations
would theoretically support a different set of rules for option
taxation. Each has virtues, but none is fully satisfactory. For example,
under the carved-out interest approach, the option sale would
be viewed as its own complete disposition of a contingent property interest,
regardless of whether the option was exercised. This approach
has intuitive appeal for call options, which give the option purchaser
the right to buy property, but in the case of a put option, where the
option purchaser acquires the right to dispose of the underlier, it is
difficult to see how the disposition on the option sale date of what appears
to be a potential liability counts as a property transaction. Similarly,
under a claim of right analysis, the option premium might be
viewed not as part of a property transaction, but as a separate transaction
creating income for the option grantor because the premium is
not subject to limitation on its use by the recipient. 15 Under such an
analysis, the premium would be immediately includible in income,
though possibly subject to adjustment later on. Immediate inclusion
seems to be a sensible result, except that amounts received on condition
of providing a service or subject to a future obligation generally
are not treated as received under a claim of right, 16 though they
might be taxable on other grounds. 17 Further, where the option is
“deep in the money” and so highly likely to be exercised, the option
sale appears to be more analogous to a forward sale of the underlier
8. See, e.g., Eric D. Chason, Naked and Covered in Monte Carlo: A Reappraisal of Option
Taxation, 27 VA. TAX REV. 135, 138-39 (2007); Noël B. Cunningham & Deborah H.
Schenk, Taxation Without Realization: A “Revolutionary” Approach to Ownership, 47 TAX
L. REV. 725, 775-76 (1992); Calvin H. Johnson, Taxing the Income from Writing Options, 96
TAX NOTES TODAY 201-54 (1996); Yoram Keinan, United States Federal Taxation of Derivatives:
One Way or Many?, 61 TAX LAW. 81, 146-57 (2007). But see Kevin J. Liss, Rationalizing
the Taxation of Options in the Age of Derivatives, 61 TAX LAW. 855, 856 (2008) (arguing
that holding option transactions open for tax purposes until exercise, lapse, disposition or
cancellation is correct).
9. Johnson, supra note 8, at 6.
10. Cunningham & Schenk, supra note 8, at 780-81.
11. Bruce Kayle, Realization Without Taxation? The Not-So-Clear Reflection of Income
From an Option to Acquire Property, 48 TAX L. REV. 233, 277 (1993).
12. Id. at 248-54.
13. David M. Hasen, A Realization-Based Approach to the Taxation of Financial Instruments,
57 TAX L. REV. 397, 429-49 (2004).
14. Liss, supra note 8, at 856-57.
15. N. Am. Oil Consol. v. Burnet, 286 U.S. 417, 424 (1932).
16. See, e.g., Rev. Rul. 58-234, 1958-1 C.B. 279.
17. See, e.g., Schlude v. Comm’r, 372 U.S. 128, 133-37 (1962) (requiring an accrualmethod
taxpayer to include sums paid for dance lessons to be provided in the future).

792 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
than to a payment subject to a claim of right. Comparable difficulties
arise under the remaining characterizations mentioned above.
Prior to the advent of modern financial products, the failure of the
tax law to tax options correctly (for those who so view the current
rules) amounted to little more than an irritation. Options were relatively
uncommon, tended to be short-lived, and typically were not entered
into for tax avoidance purposes. 18 In short, even if options were
wrongly taxed, not much hung in the balance. This relatively tolerable
state of affairs no longer holds. Modern financial products have
rendered options ubiquitous, 19 have made the choice to purchase or
sell them depend in many cases solely upon tax considerations, and
have extended the terms of many options to economically significant
periods. 20 At least three significant problems in option taxation have
emerged as a consequence. First, under the current regime, a large
class of taxpayers is taxed incorrectly in ways that are economically
significant, simply because the option premium goes untaxed for a
significant period of time. Second, because the open transaction doctrine
differs so dramatically from the accrual or accrual-type regimes
commonly applied to other, similar financial instruments, 21 taxpayers
can elect their tax treatment at little if any economic cost. For example,
a taxpayer seeking an immediate deduction for an option-like
premium can enter into an economically similar notional principal
contract that permits deduction of the option premium-like payment
over time, whereas the same taxpayer can purchase a conventional
and economically similar option if deferral of the deduction is preferable.
Third, and in a related vein, taxpayers can opt into tax arbitrage
without much difficulty through the expedient of entering into
arrangements that largely offset for economic purposes but not for
tax purposes. Amplifying on the previous example, a taxpayer might
purchase an option-like notional principal contract that generates
current deductions while selling an economically similar option in return
for an option premium that is not taxed in the current period.
Added to these difficulties is the fact that much of the justification
for the wait-and-see regime under the open transaction doctrine does
not carry over to financial options anyway. Formerly, option purchases
tended to be associated with transactions in unique underlying
18. See generally Tony Ware, Financial Derivatives—A Brief Introduction, MITACS
6th Annual Conference, May 11, 2005, available at http://finance.math.ucalgary.ca/papers/
MitacsShortCourse2005.pdf.
19. See generally id.
20. See, e.g., 26 C.F.R. § 1.446-3(f)(3) (addressing the tax consequences of options embedded
in notional principal contracts having a multi-period life).
21. In addition to CPDIs, the following instruments are subject to accrual or accrualtype
taxation: notional principal contracts, 26 C.F.R. § 1.446-3, original issue debt instruments,
26 U.S.C. § 1272, “dealer” property, 26 U.S.C. § 475, certain foreign currency contracts,
26 U.S.C. § 988.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 793
property, 22 and as a consequence the establishment of a financial
equivalent for the option would be difficult if not impossible. In the
typical case, the reason for the option purchase was that at or near
the time of potential purchase of the underlier, some question existed
about whether the purchaser wanted or would be able to acquire or
retain it. 23 That decision may not have depended upon objective, readily
observable financial information, but on imponderables such as
whether the particular underlier in question best satisfied the purchaser’s
personal or business needs or whether financing for the purchase
of the underlier would be available. 24 An individual might be
willing to buy an antique dresser as long as nothing better was offered
at the flea market; Blackacre might suit a farmer’s plans to expand
operations, but the availability of a bank loan could be uncertain
on the day the property is offered for sale. The purchase of a call
option in either case would enable the prospective buyer to resolve
these contingencies in exchange for a fee. However, quantifying the
economic effect of paying the fee—the premium paid for the option—
to either party in such a situation is a difficult if not impossible task.
In particular, it typically will not be possible to establish a readily
observable value for an option of that kind.
By contrast, modern financial options typically are written on
fungible property, which means that information about the true value
of the option is readily available. 25 Unlike Blackacre and Whiteacre,
there is no material difference between an option on share A of
IBM stock and one with the same terms on share B because there is
no difference in the shares. Consequently, the economic characteristics
of the derivative financial option are readily ascertainable, and
worries about mistaxation if valuation occurs on the option purchase
date are largely absent.
These two general phenomena—the failure of the tax law to reach
appropriate rules for the taxation of financial options and the collapse
of the practical justifications for applying the open transaction
doctrine to such options—indicate that much is to be gained from an
analysis of financial options that can disclose their actual economics
and explicate how a realization-based income tax should apply to
them. This Article seeks to accomplish these goals through an application
of standard and well-understood concepts in the tax law, informed
by the Black-Scholes model of option pricing. The primary focus
here is so-called “covered options,” or options in which one of the
parties owns the property that is subject to the option. However, the
22. See, e.g., E. ALLAN FARNSWORTH,CONTRACTS 175-79 (4th ed. 2004).
23. See id.
24. See generally ROBERT F. BRUNER,APPLIED MERGERS &ACQUISITIONS 425 (2004).
25. Thomas A. Smith, The Efficient Norm for Corporate Law: A Neotraditional Interpretation
of Fiduciary Duty, 98 MICH.L.REV. 214, 258-59 (1999).

794 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
analysis also has ramifications for the tax analysis of options that are
mere bilateral contracts because the payout structure of such contracts
is the same as that of a covered option. Consequently, the two
types of transactions often are close substitutes for each other. To
give a sense of the tax stakes involved, consider that millions of options
contracts having a combined value of several billions of dollars
are traded daily in the United States alone. 26
Under the analysis developed here, the purchase of an option is
properly viewed as consisting of the cashing out of a possible gain or
loss, together with (in the case of “in the money” options) a forward
property transaction, where the term property is understood in its
standard tax sense of ownership of the economic benefits and correlative
burdens associated with an asset or part of an asset. 27 Critically,
this analysis applies equally to put and call options, despite the apparent
incongruity of treating the off-loading of risk in the case of the
purchase of a put option as a property disposition. The basic teaching
is that true “option” arrangements arise only to the extent that options
are exchanges of fixed for uncertain returns or risks. The balance
of any option transaction—that is, the portion that is “in the
money” on the option sale date—is a property transaction. In this
transaction, the opportunity for gain and the risk of loss that straddle
the expected value of the underlier on the exercise date are transferred
to the party that would formally purchase the underlier (or its
equivalent) on exercise. The fact that in the money options constitute
transfers of risks and correlative burdens explains how options shade
into simple forward contracts as they move deeper into the money on
the option sale date.
So understood, it becomes possible to formulate rules for the taxation
of options that respect the lines that exist between the types of
returns options generate. On one hand, out-of-the-money options are
closely akin to the purchase of a service that should be taxed as ordinary
income to the option writer, but on the other hand, certain options
have property disposition-like characteristics. Without an understanding
of how the risk-shifting part of any option shades into
the property-shifting part of some options, it has not been possible to
formulate tax rules that are consistent with both of these aspects of
options. Further, the understanding of options developed in this Article
makes it possible to devise rules that are consistent with principles
that have long operated in the tax system, particularly the following
two: 1) that the taxpayer does not realize the gain or loss as-
26. In 2008, nearly 1.2 billion options having a total cash value of nearly $1 trillion
were traded on the Chicago Board Options Exchange. See Chicago Board Options Exchange,
CBOE 2008 Market Statistics, at 1, available at http://www.cboe.com/Data/
marketstats-2008.pdf (last visited Aug. 27, 2010).
27. See Grodt & McKay Realty, Inc. v. Comm’r, 77 T.C. 1221, 1243-45 (1981).

2010] FINANCIAL OPTIONS IN THE REAL WORLD 795
sociated with an asset until the asset is disposed of (known as the
“realization rule”), and 2) that capital income is taxed differently
from ordinary income. 28 While the analysis here does not decisively
point to any particular tax regime for options, it suggests that certain
approaches will be more effective and appropriate than others, and it
illustrates the extent to which differing approaches involve, and do
not involve, legitimate trade-offs. The analysis also helps to explain
the flaws in the current law as well as the strengths and weaknesses
of others’ suggestions for the taxation of options.
The approach developed here has eluded commentators because
they typically have not focused on the entire stream of payments in
an option transaction. Instead, commentators have tended to separate
the option purchase from the option payout (or lapse), focusing
on the rights delivered on exercise of the option separately from those
involved in the payment of the option premium itself. Stated otherwise,
they have let the optics of option transactions drive their analyses.
However, once the total sequence of payments in an option
transaction is taken into account, the property transaction inherent
in any in the money option becomes manifest. The portion, if any, of
the option premium that is economically attributable to the in the
money aspect of the option is nothing more than a shift in the timing
of the payouts from ownership of a part of the underlier.
Part II reviews the basic law for the taxation of options. Part III
offers a novel analysis that aspires both to explain the economics of
an option transaction and to clarify the ways in which options are
similar to, but distinct from, the various instruments and arrangements
to which others have compared them. The analysis in Part III
relies heavily on the Black-Scholes option pricing model, but it elaborates
significantly on the model in its explanation of the on-theground
facts that correspond to the results produced under the model.
Part IV sets forth possible tax rules for options in light of the economic
analysis of options developed in Part III.
II. OPTION BASICS
A. Options Generally
Options come in two basic forms. 29 A call option, or “call,” gives the
owner of the option the right but not the obligation to purchase a given
item of property at a given price on one or more dates in the future.
A put option, or “put,” gives the owner the right but not the obligation
to sell a given item of property at a given price on one or
28. See 26 U.S.C. § 1(h) (2006) (discussing favorable rates for long-term capital gain of individuals);
26 U.S.C. § 1001 (discussing gain or loss on property generally taxed when realized).
29. See generally HULL, supra note 1, at 179-84.

796 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
more dates in the future. In standard parlance, a call option is said to
be “in the money” (“ITM”) at any time that the fair market value of
the underlier exceeds the option exercise price; “at the money”
(“ATM”) if the fair market value equals the exercise price; and “out of
the money” (“OTM”) at any time that the fair market value is less
than the exercise price. Similarly, a put is ITM if the value of the underlier
is less than the exercise price, ATM if the values are equal,
and OTM otherwise. Thus, an option will not be exercised if it is
OTM on the exercise date.
The following example demonstrates these concepts.
Simple call option: On Day 1, A pays $Y to B in exchange
for an option to purchase 100 shares of XYZ Company stock
from B at $X on Day 2, one year later.
If the fair market value of 100 shares of XYZ stock on Day 2 exceeds
$X, the option will be ITM, and A will exercise the option; otherwise,
the option will lapse unexercised. 30 If the option provided A the right
to sell, rather than to buy, 100 shares of XYZ stock, the option would
be a put and A would exercise only if the fair market value of the
XYZ stock were not greater than $X on Day 2.
Options that may be exercised on just one date are referred to as
European options, while options exercisable on more than one date
are referred to as American options. 31 Options also may be either
physically settled or cash settled. A physically settled option requires
the purchase or sale of the underlier to occur if the option is exercised,
while a cash settled option is exercised through the option
writer’s transfer of the net option value to the option holder on the
exercise date. In the previous examples, a physical settlement of either
option would require the option holder to tender, in the case of
the call, $X to the option writer on Day 2 in order to receive the stock,
or in the case of the put, the underlying XYZ stock in order to receive
$X. If, by contrast, the options were cash-settled, then the holder of
the option would be entitled to a cash payment equal to the difference
between the fair market value of the stock and $X in the case of the
call, or between $X and the fair market value of the stock in the case
of the put. Thus, as contrasted with a physically settled option, neither
party to a cash settled option need own the underlier at any
time. Where the underliers are fungible, publicly traded property
30. For ease of exposition. I disregard the case where the option is ATM on the exercise
date. In that case, it is a matter of indifference whether the option is exercised or not.
31. HULL, supra note 1, at 179-81.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 797
such as publicly traded stock, commodities, or futures, the difference
between cash and physical settlement often approaches nil. 32
Lastly, options may be contingent in the sense that some condition
beyond the option’s being ITM on the exercise date must be satisfied
in order for the option to be exercisable. In a now common product
known as a credit default swap (a “CDS”), the writer of the swap may
promise to pay for the decline in value of an underlier on one or more
dates, but only when the decline is due to some factor other than
changes to general market conditions. 33 In economic terms, a CDS of
this type is economically equivalent to a contingent put option. Most
forms of insurance also are economically equivalent to contingent put
options, as long as the purchaser of the insurance has an insurable
interest in the underlier. 34
B. Tax Rules
A welter of rules governs the taxation of options. Some of the
rules are statutory, some are administrative, and some derive from
decisional law.
1. Options Not Subject to Special Rules
The open transaction doctrine applies to options not subject to a
special statutory regime. 35 The doctrine itself dates from the 1931
Supreme Court case Burnet v. Logan, 36 which did not deal with options
but with contingent payment rights. In Logan, the taxpayer
sold an interest in a mining company and received payment in the
form of cash plus rights to a percentage of future mine earnings over
an indefinite period. The Court held that the taxpayer was entitled to
recover her basis in the property sold before reporting any of the
payment for her mining stock as gain from the transaction because
the uncertainty inherent in the timing and amount of future payouts
32. Even where the option is on a commodity such as wheat, physical settlement
commonly occurs in connection with the separate transfer of the underlier to a person in
the trade or business of selling the underlier. Id. at 10.
33. As its name implies, the associated trigger is generally a default of some kind by
the issuer on the reference obligation, or else some similar event such as a downgrade in
the creditworthiness of the issuer of the underlier. See Roberto Blanco et al., An Empirical
Analysis of the Dynamic Relation Between Investment-Grade Bonds and Credit Default
Swaps, 60 J. FIN. 2255, 2256 (2005).
34. As a simple example, homeowner’s insurance is equivalent to a put option on the
home with a strike price equal to the fair market value of the home (or its insured amount,
whichever is less) where the decline in value is due to certain events, such as a fire or a
flood. True insurance relationships also generally require the option holder to have an insurable
interest in the underlier. Bertram Harnett & John V. Thornton, Insurable Interest
in Property: A Socio-Economic Reevaluation of a Legal Concept, 48 COLUM. L.REV. 1162,
1162-63 (1948).
35. See Va. Iron Coal & Coke Co. v. Comm’r, 99 F.2d 919, 921-22 (4th Cir. 1938).
36. Burnet v. Logan, 283 U.S. 404, 413-14 (1931).

798 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
made taxation inappropriate, given that the consequences of the sale
would be determined with certainty in subsequent periods.
In Virginia Iron Coal & Coke Co. v. Commissioner, 37 the open
transaction rule was extended to options at the behest of the government.
The taxpayer received payments over a three-year period
for an option it had sold to a third party that provided the third party
the right to purchase stock or mineral lands. When the option holder
let the option lapse in 1934, the taxpayer filed amended returns for
the years in which it had received payments, treating the amounts
received as ordinary income in those years. 38 The government argued,
and the court agreed, that the open transaction doctrine applied because
at the time the payments were received “it was impossible to
determine whether they were taxable or not” and, because the nature
of option payments received in a particular year might first become
ascertainable after the statute of limitations had closed for that year,
only a rule that the taxable event occurred in the year of lapse or exercise
would be administrable. 39
Although the problem of uncertainty lingering beyond the statute
of limitations motivated the decision in Virginia Iron, the kind of uncertainty
that commonly has been considered to justify application of
the open transaction doctrine is that of character of the option premium.
40 If the option purchaser exercises its right to buy or sell under
the option, a transfer of property will occur, and it would seem that
the tax consequences attending a property disposition should also
apply to the option sale. That is, the two transactions together appear
to constitute a single property disposition and should be so
treated for tax purposes. 41 If, however, the option goes unexercised,
then at least in a formal sense no property changes hands, and the
tax consequences of the option sale would seem to differ too, assuming
that the tax consequences of nonproperty transactions generally
differ from those of property transactions. Accordingly, because it is
not possible to get the “right” answer with any certainty on the option
sale date, it is better to hold the transaction open – that is, to
wait and see. 42
Although subsequent developments, both administrative and legislative,
have substantially narrowed the scope of application of the
open transaction doctrine, 43 the doctrine’s basic rationale—
37. 99 F.2d at 921.
38. Id. at 919-21.
39. Id. at 921-22.
40. See Rev. Rul. 78-182, 1978-1 C.B. 265.
41. Id.
42. See Burnet, 283 U.S. at 413, (articulating the justification for the open transaction
doctrine, albeit in a nonoption setting);Va. Iron Coal & Coke Co., 99 F.2d at 919 (extending
the rationale to options).
43. See, e.g., Temp. Reg. § 15A.453-1(d)(2)(iii).

2010] FINANCIAL OPTIONS IN THE REAL WORLD 799
uncertainty in the tax consequences of a transaction in the taxable
period—continues to serve as the basis for the tax treatment of most
options. 44 Accordingly, under current practice for options not subject
to special rules, receipt of the option premium is a nontaxable
event. 45 If the option is exercised, the option writer treats the premium
as part of the amount realized in the case of a call and as a reduction
in the purchase price in the case of a put. The holder treats
the premium symmetrically, adding the premium to basis in the case
of a call and subtracting the premium from the amount realized in
the case of a put. 46 Under the sample transaction above, on exercise
of the call, B would treat $X + $Y as the amount received as payment
for the XYZ stock, and A’s basis in the stock would be the same
amount. If the option were a put, then A’s amount realized and B’s
amount paid would be $X - $Y. The character of any gain or loss recognized
is generally the same as that of the underlier in the hands of
the seller of the property. 47
When an option is not exercised, or is disposed of in some way prior
to its possible exercise, different rules apply to holders and writers of
options. Holders are generally subject to the rules of § 1234(a), which
provide that gain or loss to the option holder on disposition (including
lapse) 48 of the option has the character as short- or long-term capital
that the underlier does or would have in the holder’s hands. If, however,
the underlier is or would be inventory or not otherwise a capital asset
in the holder’s hands, gain or loss generally will be ordinary. 49 The
same rules apply where the option is cancelled by mutual agreement of
the parties (with or without a cancellation payment). 50
Writers of options are generally subject to the rules of § 1234(b) when
the option is not (or not yet) exercised. In the case of an option on stock,
securities, or commodities, the disposition, lapse, or cancellation of the
option generally will produce short-term capital gain or loss, unless the
underlier is not a capital asset in the holder’s hands or the option is
granted in the ordinary course of the taxpayer’s trade or business of
granting options, in either of which cases gain or loss is ordinary. 51
44. Rev. Rul. 78-182, 1978-1 C.B. 265.
45. Id.
46. Id.
47. Id.
48. 26 U.S.C. § 1234(a)(2) (2006).
49. See 26 U.S.C. § 1222 (defining capital gain or loss as gain or loss from the sale or
exchange of a capital asset).
50. 26 U.S.C. § 1234A.
51. See Rev. Rul. 78-182, 1978-1 C.B. 265; 26 U.S.C. § 1234A.

800 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
2. Special Situations
The rules described above do not apply to a variety of options and
persons. Most importantly, under § 475, mark-to-market rules apply
to taxpayers who are either (1) dealers in options, 52 or (2) traders in
options who elect to have mark-to-market rules apply to income and
loss from their option transactions, regardless of the nature of the
underlier. 53 Under the mark-to-market rules, dealers and electing
traders value, or mark to market, their inventory annually and either
pay tax on the net increase in value of the inventory or take a deduction
for the net decrease over the previous year. Gain or loss is ordinary
in character. 54 In the case of a dealer in options, the mark-tomarket
regime means that while open transaction treatment still applies
when the option is entered into, the tax system will take into
account the appreciation or decline in value of the option during the
year. Persons in the trade or business of writing options generally
treat option premiums as ordinary income, but again subject to deferral
under the open transaction doctrine. 55
The rules described in Section II.B.1 also do not apply in a number
of special situations. First, they do not govern options on “section
1256 contracts.” 56 Section 1256 contracts comprise a variety of publicly
traded financial contracts, most of which are valued on a daily basis
by the exchanges on which they are traded. 57 Like options held as
inventory or by dealers in securities, section 1256 contracts (some of
which are themselves options), and options on them are subject to a
mark-to-market regime, 58 but unlike inventory or dealer property, §
1256 mandates that gain and loss on section 1256 contracts be 40%
short-term capital and 60% long-term capital in character. 59
Second, holders of nonexercised put options entered into in connection
with certain short sales are subject to § 1233. 60 In a short
sale, one party borrows property that it then sells to a purchaser. The
seller later “closes out” the short sale by delivering to the lender
52. Taxpayers who are dealers in securities may hold securities, including options, as
inventory or not. Subject to limited exceptions, if held as inventory, the option is generally
subject to inventory accounting. See 26 U.S.C. § 475(b) (2006); see also 26 U.S.C. § 475(a)(1)
(requiring annual fair market valuation of the option). If the option is not held as inventory,
essentially the same MTM rules apply. See 26 U.S.C. § 475(a)(2).
53. 26 U.S.C. § 475(f).
54. See 26 U.S.C. § 1221(a)(1) (excluding inventory from the definition of “capital asset”
and therefore from capital treatment on sale or exchange).
55. See, e.g., I.R.S. Priv. Ltr. Rul. 78-46-059 (Aug. 18, 1978) (treating income from option
premiums in the case of a person in the trade or business of granting options).
56. 26 U.S.C. § 1234(c)(1). Certain options are themselves “section 1256 contracts.” See
26 U.S.C. § 1256(b)(3)-(4). These too, of course, are subject to the general rules of § 1256.
57. 26 U.S.C. § 1256(g)(4)-(6).
58. 26 U.S.C. § 1256(a)(1).
59. 26 U.S.C. § 1256(a)(3).
60. 26 U.S.C. § 1234(a)(3)(c).

2010] FINANCIAL OPTIONS IN THE REAL WORLD 801
property identical to the property borrowed. Section 1234(a)(3) provides
that the rules of § 1233(c) apply to losses resulting from the
nonexercise of put options described in that section. Section 1233(c)
in turn states that if the taxpayer acquires a put option to sell property
on the same date it acquires the property to which the option, if
exercised, will apply, then any loss on the nonexercise of the option is
added to the basis of the property so acquired.
Lastly, the general rules may not apply to situations in which the
option is embedded in another instrument or is treated as part of
another arrangement. Examples of the first situation include the
previously discussed case of an option embedded in an NPC as well
as options embedded in contingent payment debt instruments. For
these instruments, the option premium is generally accounted for
over the term of the instrument on the basis of assumptions about
the returns the option will generate. Any disparity between the projections
and the actual returns is accounted for either periodically or
at term. Examples of explicit integration or quasi-integration regimes
include options entered into as hedges, 61 as parts of a straddle, 62 or in
connection with a wash sale. 63 In these cases, the tax treatment of
the option depends in some way on the treatment of the asset or instrument
with which it is associated.
C. Problems in Option Taxation
This Subpart identifies some of the difficulties that options pose to
the tax system. The discussion involves variations on the following
basic fact pattern:
Suppose A is the owner of 100 shares of XYZ stock, which
does not pay dividends. On Day 1, A and B enter into an option
transaction pursuant to which the option, if exercised,
will result in the transfer of the XYZ stock to B on Day 2,
one year later. The stock is worth $100 on Day 1, and A’s adjusted
basis in the stock is $10. As of Day 1, A has held the
XYZ stock for more than one year. XYZ stock has moderate
volatility of 30%. In the case of a call option, A will be the
seller of the option and B the buyer, while in the case of a
put, these roles will be reversed. At all times, the risk-free
rate of return is 10%. Neither A nor B is a trader or dealer
in stock or options.
Throughout this discussion, the terms ATM, ITM and OTM are
defined relative to the forward price of the underlier on the exercise
61. See 26 C.F.R. § 1.446-4.
62. See § 1092.
63. See § 1091.

802 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
date, as determined on the option sale date. This usage differs from
standard usage, which defines the terms relative to the value of the
underlier on the date the determination (as ATM, ITM or OTM) is
made. Further, interest is assumed to accrue on a continuously compounded
basis rather than periodically. For example, under an assumed
rate of 10% compounded continuously, property worth $100 on
Day 1 would have a forward price of $110.52 on Day 2, one year later.
64 The assumption of continuous compounding is made to simplify
the analysis because the Black-Scholes model of option pricing on
which the analysis rests assumes continuous compounding. The
analysis here would hold if Black-Scholes were modified to assume
periodic compounding, but it is easier to hold Black-Scholes constant
and to assume continuous compounding rather than to hold constant
the assumption that interest compounds periodically and modify
Black-Scholes. Under these parameters, a call option sold on the
property on Day 1 having an exercise date of Day 2 would be ATM if
the strike price is $110.52, OTM if it is above $110.52, and ITM if it
is less than $110.52. For a put option, the ITM and OTM designations
would be reversed.
1. Basic Call Option
Consider first an ATM call option that A sells to B. Since the riskfree
rate is 10%, an ATM option will have a strike price of $110.52. It
would sell for $11.92. 65 Under the open transaction doctrine, A does
not take the $11.92 into income on Day 1 but instead waits until
something further happens. In the meantime, A can invest the premium.
While investment earnings would be subject to tax, the exemption
of the principal from tax is equivalent to taxing the premium
but exempting the yield on it. 66 In other words, it is equivalent to
consumption taxation of the premium. 67 The nondeductibility of the
premium to B may provide some comfort from a tax revenue perspective,
but the fact remains that on an individual basis, the parties are
not properly taxed. 68 And if the parties are not subject to the same
marginal rates, revenue neutrality also is not preserved. This last
64. The general formula for continuous compounding is: A = Pe rt , where A is the
amount, P is the initial principal, r is the rate expressed as a decimal, and t is the number
of years.
65. The pricing is based on the Black-Scholes theorem and can be derived using a
Black-Scholes pricing calculator, many of which are available online. See, e.g., The Derivatives
‘Zine, http://www.margrabe.com/OptionPricing.html (last visited Aug. 27, 2010).
66. Cary Brown, Business-Income Taxation and Investment Incentives, in INCOME,
EMPLOYMENT, AND PUBLIC POLICY:ESSAYS IN HONOR OF ALVIN H. HANSEN 300, 301 (1948).
67. Joseph Bankman & David A. Weisbach, The Superiority of an Ideal Consumption
Tax Over an Ideal Income Tax, 58 STAN.L.REV. 1413 (2006).
68. One can view the overall arrangement as a kind of surrogate taxation.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 803
problem may be particularly acute where B is a non-U.S. person not
subject to U.S. tax generally.
The fact that A acquires an investment opportunity suggests that
there is an exchange in the transaction because parties dealing at
arm’s length do not exchange value for nothing. The fact that no
payment occurs on the option sale date suggests further that the
transaction contains a loan of some sort. In short, if parties dealing
at arm’s length do not provide something for nothing, the investment
opportunity that A acquires will have been paid for. 69 Therefore, the
absence of explicit interest indicates that the price of the option is
discounted. 70 B pays an amount for the option that reflects the forgone
opportunity to earn a return on the premium during the year
prior to exercise. Stated otherwise, $11.92 represents the discounted
present value of the option premium on Day 2. Under the assumed
10% risk-free rate of return, if the option premium were due on that
day (regardless of exercise), B would pay $13.17. This analysis suggests
that interest should be deemed to accrue on the premium for
tax purposes, with a corresponding deduction to A.
The failure to tax the interest on the premium is not the only
troubling feature of the option sale. 71 Considering the possible outcomes
of the transaction, it seems clear that on Day 1, A has locked
in gain no matter what happens. On that day, A receives $11.92. If
the option is exercised, A will receive an additional $110.52 on Day 2,
for a total of $122.44, in exchange for the stock. A’s taxable gain will
be $112.44. If the option is not exercised, A gets to keep the $11.92,
again fully taxable, without parting with the stock. It is therefore unclear
why A should not be taxed in some fashion on the $11.92 on receipt
(with, under current law, a corresponding basis adjustment).
The justification for open transaction treatment would not seem to
apply in this instance, since it is known on Day 1 that there will be
income and that under current law it is capital in nature. Although,
under current law, it is not known on Day 1 whether the gain will be
short-term or long-term, 72 the justification for short-term gain to option
writers in the nonexercise case is not that such gain is “inherently”
short-term, but that grantors will manipulate the timing of
capital gains if the character of the gain depends on the holding pe-
69. William A. Klein, Tailor to the Emperor With No Clothes: The Supreme Court's
Tax Rules for Deposits and Advance Payments, 41 UCLA L. REV. 1685, 1695 (1994) (“From
an economic perspective there are no interest-free loans, only hidden, or imputed, interest.
The hidden interest . . . is always there.”).
70. See id.
71. See Johnson, supra note 8, at 4-8 (criticizing the failure to tax interest on the premium).
72. If the option lapses, the premium is considered short-term capital gain under
§1234(b). If the option is exercised, it is considered long-term capital gain under §1234(a),
given the facts of the discussion example.

804 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
riod of the underlier. 73 Accordingly, it is unclear why the granting of
an option on appreciated property is not taxable on the grant date to
the extent of at least the lesser of the appreciation or the option premium,
with the character of the gain determined by up-front rule,
possibly with adjustment down the road.
2. Basic Put Option
Under the facts of the discussion example, the mirror put option
would have A transferring the $11.92 to B on Day 1 in exchange for
the right, but not the obligation, to sell B the 100 shares of XYZ stock
at $110.52 on Day 2. 74 As the grantor of a put, B does not own the
property subject to the option, so the worry that the receipt of the option
premium represents partial payment for the underlier would
seem to be misplaced. Again, however, the grantor receives the option
premium with no tax consequences, raising questions about whether
interest should be imputed to the transaction or the grantor should
include the full premium on receipt under a claim of right or prepayment
analysis. Claim of right generally requires a taxpayer to include,
in income, an amount received that may be subject to a future
return, as long as the taxpayer is not subject to restriction. 75 However,
if later return is required, the taxpayer typically may take a deduction.
76 Similarly, amounts received as prepayments for future services
generally are includible, 77 subject to limited exceptions. 78
The transaction also has sale elements that would seem to point to
possible recognition of gain for A. Although A does not receive cash, A
does obtain protection against downside loss because A can cash out
the stock at any time prior to Day 2 for at least the present discounted
value of $110.52 on Day 2. A thereby has disposed of risk of loss, one of
the primary indicia of ownership. 79 Whether that disposition ought to
be sufficient to trigger recognition of gain or loss is less certain. Numerous
provisions in the tax law treat the disposition solely of risk of
loss as something short of a sale but different from simple ownership,
73. 26 U.S.C. §1234.
74. As in the case of the call option, the put price is derived using the Black-Scholes
option pricing formula. See supra note 64-65. Where an option is ATM, the put and call
prices are the same on the option sale date.
75. N. Am. Oil Consol. v. Burnet, 286 U.S. 417, 424 (1932).
76. Id.; see also 26 U.S.C. § 1341 (providing deduction or credit choice to taxpayer for
certain amounts returned).
77. 26 C.F.R. § 1.451-1(a) (cash-method taxpayers); Schlude v. Comm’r, 372 U.S. 128
(1963) (discussing accrual-method taxpayers).
78. See, e.g., Artnell Co. v. Comm’r, 400 F.2d 981 (1968) (holding that deferral for accrual-method
taxpayer was allowed where amount and timing of future associated expenses
clearly ascertainable at time of receipt); Rev. Proc. 2004-342004-22 IRB 991 (describing
one-year deferral for certain prepayments).
79. See Grodt & McKay Realty Inc. v. Comm’r, 77 T.C. 1221, 1237-38 (1981) (identifying
risk of economic loss as a primary aspect of tax ownership).

2010] FINANCIAL OPTIONS IN THE REAL WORLD 805
typically by tolling applicable holding periods. 80 By the same token, no
provision treats a transfer solely of risk of loss as sufficient to trigger
recognition of income. 81 Again, however, the idea that nothing of significance
for tax purposes has occurred seems questionable.
3. Special Situations
When an option is subject to a special regime, additional problems
arise. These problems are not unique to the option setting but instead
result from the inconsistent tax treatment of parties to the same
transaction. As an example, a dealer in options may purchase a call
from a non-dealer grantor. The dealer does not amortize the premium,
but the option is marked to market annually. 82 Consequently, income
or loss is registered by just one side of the transaction while it is open.
Similarly, and as discussed in the Introduction, taxpayers may take
advantage of the different rules that apply to options embedded in notional
principal contracts or to options entered into as hedges 83 to obtain
a timing or character benefit or to arbitrage a return.
III. SUGGESTED CONCEPTUAL APPROACH
This Part develops an economic analysis of options that explains
them in terms of the actual transactions that the parties to an option
sale enter into. For purposes of this basic analysis, it is assumed that
either the put purchaser or the call writer owns the underlier—that
is, the analysis here applies to “covered” options. Subpart A states
the theory and Subpart B provides a demonstration. The object is to
provide an account of the economic consequences of option sales that
illuminates the basic tax issues they raise. These issues are explored
in Part IV.
The approach developed here relies on the Black-Scholes model for
option pricing, but it does not assume that the model describes what
80. See, e.g., 26 U.S.C. § 246(c)(4) (holding period for purposes of dividend received
deduction is not met during periods in which the taxpayer does not bear the risk of loss of
ownership); 26 U.S.C. § 1058(b)(3) (requiring that the owner of securities in a securities
lending transaction transfer to the borrower neither the risk of loss nor the opportunity for
gain in the securities for the purpose of qualifying for nonrecognition treatment under 26
U.S.C. § 1058(a); 26 U.S.C. § 1059(d)(3) (relying on § 246 rules to toll the holding period for
purposes of satisfying the holding period exception to the application of the extraordinary
dividend basis and gain rules).
81. For example, § 1259, which applies to “constructive sales” of “appreciated financial
positions,” deems a disposition of such a position to occur where, among other things, a
transaction has the effect of disposing of the benefits and burdens of ownership. See 26
U.S.C. § 1259(c) (listing transactions). In Woodsam Associates, Inc. v. Commissioner, 16
T.C. 649, 655 (1951), the court refused to treat the taxpayer’s nonrecourse borrowing, in
excess of its basis in the property securing the debt, as a disposition of the property.
82. 26 U.S.C. § 475(a)(2).
83. 26 C.F.R. § 1.446-4(b) (2010) (requiring taxpayers to match the timing of a hedging
transaction with the item hedged in a manner that clearly reflects income).

806 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
the parties to an option transaction actually do. Rather, it treats
Black-Scholes as providing the correct mechanism for the pricing of
financial options, recognizing that Black-Scholes itself is an idealized
model that has great relevance but not direct application to the real
world. 84 Black and Scholes demonstrated how to model the purchase
of an option as a combination of borrowing and purchasing or lending
and selling fractional parts of the underlier, with continuous adjustment
of the initial loan and equity amounts as the determinants of
the option price varied over time. The equivalence they established
makes possible the accurate valuation of any financial option under
idealized terms, and this valuation in turn is instrumental in explaining
the actual transactions that parties to an option engage in.
The equivalence does not imply, however, that the parties to the
transaction should be treated as having engaged in the hypothetical
debt and equity transactions that the model posits. 85
A. Statement of the Theory
A covered option is properly viewed as a division of the benefits
and burdens of ownership of the underlier. To the extent the division
is asymmetrical, so that one party assumes risks or acquires benefits
of the underlier not associated with correlative benefits or risks of it,
the option represents a transfer solely of either risk of loss or opportunity
for gain in exchange for payment, typically cash. 86 This feature
of options has long been well understood. To the extent the division is
symmetrical, so that one party acquires both benefits and correlative
burdens of ownership of the underlier, the option represents an onmarket
forward property disposition. This feature of options has not
been well understood. Assuming as a first approximation that there
is no premium associated with the assumption of risk, the value of
the symmetrical transfer equals the value of a riskless instrument
generating the associated interest during the option term.
84. The Black-Scholes model makes a number of idealizing assumptions about options,
including that volatility of the underlier can be known and that it is constant. The
model also applies to simple options on nondividend paying securities, though it has been
elaborated in various ways. For a general criticism of Black-Scholes as a model for understanding
the pricing of actual options, see Adam H. Rosenzweig, Imperfect Financial Markets
and the Hidden Costs of a Modern Income Tax, 62 SMU L. REV. 239, 288 (2009) (describing
as an “open secret” the fact that Black-Scholes is wrong in assuming constant volatility
of the underlier).
85. In an earlier article, the author suggested rules for the taxation of financial options
based on treating the parties as having engaged in the hypothetical transactions that
Black and Scholes posit. David Hasen, A Realization-Based Approach to the Taxation of
Financial instruments, 57 TAX L. REV. 397, 439-40. Eric Chason later provided a similar,
though more developed, approach. Chason, supra note 8. The present discussion focuses instead
on the transactions in which the parties to an option actually engage.
86. I thank Patrick White for clarification on this point.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 807
As will be seen, under this theory, the point at which what I call
the true “optionality” of an option—either the purchase of a fluctuating
return or the offloading of a fluctuating risk, in either case in exchange
for a fixed fee—reaches its maximum is where the asymmetry
between risk-bearing and benefit-reaping is complete. This point occurs
for options sold at a strike price that equals the forward price of
the underlier on the strike date, in other words, for options sold (in
present value terms) at the money. Beyond this point—that is, for options
issued in the money—there is simply no more possible offloading
solely of risk (put option) or purchase solely of potential benefit
(call option) with respect to the underlier. Rather, any additional
component of the option sale is simply the forward transfer of a portion
of the risk correlative to the potential benefit transferred (call
option) or potential benefit correlative to the risk transferred (put option)
by the owner of the underlier that would have remained with
the owner had the option not been ITM. Because this transfer of correlative
risk and potential benefit is a transfer of both opportunity for
gain and risk of loss, it is, if not a property transaction, closely akin
to one. Further, because the slice is a symmetrical transfer of potential
risk and potential benefit, its value on the option sale date is
simply the value of a debt instrument that would earn the corresponding
time value return during the option period (disregarding, for
the moment, the possibility that risk preferences are asymmetrically
distributed among market participants). 87
Viewed along a spectrum running from options sold out of the
money, to options sold at the money, to options sold in the money, the
following then can be said to occur on the option sale date:
� In the OTM case, a portion of either the risk of loss (put
option) or the opportunity for benefit (call option) associated
with ownership of the underlier is transferred in exchange
for a cash payment;
� In the ATM case, the entirety of either the risk of loss or
the opportunity for benefit associated with ownership of the
underlier is transferred in return for a cash payment; and
� In the ITM case, a portion of either the risk of loss or the
opportunity for benefit associated with ownership of the underlier
is transferred in return for a cash payment, just as in
the OTM case, together with a forward disposition of symmetrical
portions of the benefits and burdens of ownership of
the underlier. Because possession of the opportunity for
benefit together with the correlative risk of loss is typically
87. See infra Part II.B.2.

808 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
paradigmatic of tax ownership, 88 this associated transfer can
be considered a forward property transfer.
In short, an ITM option differs from the corresponding OTM option
not by having more “optionality,” but in that the ITM option has an
associated property transfer that actually reduces the optionality as
compared with an ATM option. This analysis explains how options
shade into forward contracts—the greater the extent to which the option
is ITM on the option sale date, the more the option sale constitutes
a symmetrical transfer of benefits and burdens. At the limit,
where the strike price is zero, all benefits and burdens have been
transferred on the option sale date. An option with a zero strike price
is a forward sale of the underlier. 89
Diagram 1 illustrates these ideas. It contains four pictograms. In
each, the horizontal axis represents the fair market value of the underlier
on the exercise date, and the vertical axis represents the extent of
risk and benefit retained or disposed of on that date; A and B are the
parties to the option transaction, except in the first pictogram. For
ease of exposition, the risk-free rate at all times is assumed to be zero
and the risk preferences of market participants are disregarded.
The first pictogram represents A’s simple ownership of the underlier.
A retains, by definition, all risk of loss and all opportunity for
gain, represented by the arrows going down to zero and up infinitely.
The second pictogram illustrates the effect of A’s sale of a call option
to B having a strike price of S1. B has acquired the upside potential
in excess of S1, while A has retained upside potential to that point
as well as all the downside risk of underlier. Since S1 exceeds the FMV
on the exercise date, the option is OTM. Note that the option purchaser
bears no risk of loss as measured on the option sale date.
The third pictogram represents A’s sale of an ATM call option having
a strike price, S2, equal to the underlier’s FMV. Here the optionality—the
separation of the opportunity for gain from the risk of
loss—reaches its maximum. B is entitled to all opportunity for benefit
and bears no risk of loss, all of which A retains. Under the theory
described above, the option premium paid is at its maximum for this
option, even though ITM options would have higher nominal premiums.
Therefore, although an ITM option, as represented in the
fourth pictogram showing an option with a strike price equal to S3,
88. Grodt & McKay Realty, Inc. v. Comm’r, 77 T.C. 1221,1243-44 (1981).
89. See David F. Levy, Disparities in Tax Treatment Among Prepaid Forward Contracts,
Deep in the Money Options, Prepaid Swaps, and Contingent Debt Instruments, in
TAX STRATEGIES FOR CORPORATE ACQUISITIONS, DISPOSITIONS, SPIN-OFFS, JOINT
VENTURES, FINANCINGS, REORGANIZATIONS &RESTRUCTURINGS, 432 PLI/Tax 729, 745
n.24 (1998) (“Indeed, as the option premium increases and the strike price of the option decreases,
the economic differences between a deep in the money purchase option and a standard
prepaid forward contract begin to disappear.”).

2010] FINANCIAL OPTIONS IN THE REAL WORLD 809
will have a higher nominal option premium than the premium for the
option having the ATM strike price of S2, the higher premium will be
made up for in the stream of future payments under the option. That
is, the timing of payouts under the S3 option hides the fact that the
true swap of fluctuating for nonfluctuating payments is the same as
it is under the S1 option and therefore lower than it is under the S2
option. The optionality pieces of the S1 and S3 transactions—that is,
the portions that represent the transfer of fluctuating benefits for
cash—are the same and are smaller than the optionality piece under
the ATM option (S2).
The fact that the optionality pieces are the same for the depicted
OTM and ITM options does not mean that the two options are the
same. It means only that the way in which they differ has to do with
what else is transferred in the ITM case. In an OTM option, all that
occurs is an exchange of a fixed payment for either the right to a portion
of fluctuating upside returns (in a call) or the off-loading of a
portion of fluctuating downside risk (in a put). In the corresponding
ITM option, that same exchange occurs, but there is, in addition, an
on-market forward transfer of a symmetrical portion of the opportunity
for gain and the risk of loss of the underlier. This portion is
represented in the fourth pictogram by the dual-pointing arrow that
crosses the FMV line. As contrasted with the swap of benefit (or risk
in the case of a put) for cash that characterizes the optionality piece,
the only net consideration that travels in the other direction is the interest
that would be earned on the transfer because the owner of the
underlier transfers a risk that exactly offsets, in expected value, the
benefit that is also transferred. Diagram 2 summarizes these points.
Diagram 1: Simple Ownership and Three Types of Option Transfers

810 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
Diagram 2: Extent of Optionality
The obvious objection to this view is that if the option writer in an
ITM option is considered to be absorbing less risk for cash (in the
case of a put) or parting with less potential benefit for cash (in the
case of a call) than is the writer of an ATM option, and if the related
property transaction under an ITM option is not cashed out until the
exercise date (whether or not exercise occurs), then the price for an
ATM option should exceed the price of both an OTM option and an
ITM option, other things being equal. In fact, of course, the option
price continues to rise as the negotiated terms of the option go farther
into the money on the option sale date. For instance, if an OTM
option costs $X on the option sale date, an ATM option having otherwise
identical terms will cost more than $X on that date and an ITM
option will cost still more. The price structure of options seems to
suggest that the true optionality increases continuously from deep
OTM, through ATM, to deep ITM.
In fact, the price structure is misleading. The higher price for ITM
options reflects nothing more than a payment scheduling arrangement.
The price increase for the option premium attributable to the
option’s having an ITM strike price is precisely made up for in the
payout structure under the option. Viewed as a whole, the portion of
the overall ITM option sale that represents an asymmetrical exchange
of risky returns for nonrisky returns, or what I call the true
option piece of an ITM option, is smaller and therefore costs less than
an ATM option by precisely the amount of the associated property
disposition. The pure option piece of an ITM option, that is, the portion
of the option premium received in exchange for absorbing risk
(put) or providing opportunity for gain (call), has the same cost as the
identical OTM option.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 811
These considerations indicate that the property disposition portion
of an ITM option is actually the mirror image of another common
transaction, known as a “collar.” In a collar, the owner of property
disposes of the potential upside benefit above a certain price as well
as the risk of loss below a certain price, retaining opportunity for
gain and risk of loss in-between. 90 For example, A may own XYZ
stock having a current fair market value of $100. If A sells a call at
$110 and buys a put at $90, A retains the opportunity for gain and
risk of loss within the $90 to $110 band but has disposed of the remaining
opportunity and risk. In the property disposition portion of a
mirror ITM option, the property owner would retain the opportunity
for gain above $110 and the risk of loss below $90 but dispose of the
opportunity and risk in-between. The only difference between this retention
and an actual ITM option is that the on-market property disposition
in the ITM option is married to an OTM option, so that either
the remaining downside risk (in the case of a put) or the remaining
upside potential (in the case of a call) accompanies the symmetrical
disposition of opportunity and risk. This additional transfer also
serves to obscure the forward property disposition that occurs in
the ITM portion of an ITM option.
B. Demonstration
The following illustrations convey these ideas in a series of steps. In
Section 1, the assumed risk-free rate is zero and parties’ risk preferences
are disregarded. These assumptions are made to illustrate the
basic nature of option transactions, and they are relaxed in Section 2.
In addition, the discussion does not begin with an option, but with the
type of nonoption property disposition that occurs in an ITM option.
True option arrangements are then added (i.e., exchanges, for cash, of
risk of loss or opportunity for benefit), showing that the resulting
transactions are identical to options observed in the marketplace.
Throughout this Subpart: (1) Owner is the owner of Underlier, a
piece of fungible property worth $100 on the option sale date; and
(2) Purchaser agrees on the option sale date to purchase some or all
of the property from Owner, to engage in related transactions on the
exercise date, or both.
1. Risk Neutrality and Zero Risk-Free Rate
In this Section, the risk-free rate of return is assumed to be 0%
and risk preferences are assumed to be neutrally distributed among
90. See, e.g., 26 C.F.R. § 1.446-3(f)(2)(v) (2010) (prescribing the tax treatment of collars
embedded in a notional principal contract).

812 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
market participants, meaning that no one pays a premium to assume
risk or to shed it.
a. Neutral Disposition of Upside Potential and Downside Risk
Consider first a basic forward transfer of the opportunity for gain
and the risk of loss on a portion of Underlier.
Transaction 1: On-market division. On Day 1, Owner
sells Purchaser the first 25% of the upside potential and
Purchaser agrees to assume the first 25% of the downside
risk in the price of Underlier as measured on Day 2, one
year later.
In Transaction 1, the only transfer that occurs on Day 1 is of the
risks and benefits associated with the 25% disposition. Because the
interest rate is zero, Purchaser will pay nothing to Owner on Day 1.
(If on Day 1 Purchaser wished to acquire the 25% interest on Day 2,
Purchaser could also promise on Day 1 to pay, on Day 2, 25% of the
value of Underlier as measured on Day 1. Of course, in the financial
instruments context, either party is indifferent between ownership of
the market value of a property right and the property right itself.)
The parties could effect Transaction 1 by entering into (1) a forward
sale of Underlier on Day 1 for $100 with a settlement date of Day 2,
(2) Purchaser’s sale to Owner of a call on Underlier with a strike
price equal to $100 plus the appreciation up to the first 25% of expected
upside benefit as measured on Day 2 and a strike date of Day
2, and (3) Owner’s sale to Purchaser of a put with a strike price equal
to $100 less the decline up to the first 25% of expected downside risk
as measured on Day 2 and a strike date of Day 2. The values of (2)
and (3), by hypothesis, are equal and offsetting. Further, since the
parties are willing to cash-settle Transaction 1, they could do so
simply by agreeing, instead of to transactions (1) through (3), that on
Day 2 Owner would pay Purchaser the actual appreciation, if any, up
to the amount representing the first 25% of the potential upside benefit
in Underlier as measured on Day 1. Purchaser would then pay
Owner the actual decline in value, if any, up to the amount
representing the first 25% of the potential downside risk, also as
measured on Day 1.
The range of values that corresponds to the first 25% of the opportunity
for benefit and risk of loss in Underlier can be computed using
the familiar Black-Scholes option pricing theorem. This is done by
setting the put and call option premiums equal to 75% of the price of
an ATM option (put or call) as measured on Day 2 and deriving the
associated option strike prices. In dollar terms, this range will be
asymmetrical around the Day 2 forward price (as measured on Day
1), or $100, because on Day 2 Underlier can assume any positive val-

2010] FINANCIAL OPTIONS IN THE REAL WORLD 813
ue but no negative value. 91 Assuming moderate volatility of 10%, the
range is $102.27 to $97.94. 92 Thus, Owner will pay Purchaser the
excess, if any, of the value on Day 2 of Underlier over $100, up to
$102.27, and Purchaser will pay Owner the excess, if any, of $100
over the value on Day 2 of Underlier, down to $97.94.
b. Neutral Disposition Plus OTM Put Option
Now suppose that in addition to Transaction 1, Purchaser agrees
on Day 1 to pay the drop in value, if any, of Underlier below $97.94,
as measured on Day 2.
Transaction 2: Division plus put option. The facts are
the same as in Transaction 1, but Purchaser also agrees to
pay the excess, if any, of $97.94 over the FMV of Underlier
on Day 2. Owner transfers $3.00 to Purchaser on Day 1. The
parties agree to cash-settle on Day 2.
Note that Transaction 2 differs from Transaction 1 solely in that it
adds Purchaser’s sale of an OTM put to Owner with a strike price of
$97.94. The put option part of Transaction 2 is the transfer of risk
with respect to possible declines below $97.49. Under the same assumptions
about Underlier as apply in Transaction 1, the put value
under the Black-Scholes formula is $3.00.
On Day 2, the following outcomes are possible in Transaction 2:
1. FMV of Underlier equals or exceeds $102.27: Owner
pays Purchaser $2.27.
2. FMV of Underlier is between $100 and $102.27: Owner
pays Purchaser the excess of the FMV over $100.
3. FMV of Underlier is less than $100: Purchaser pays
Owner the difference between $100 and the FMV. 93
The critical point to recognize is that the precise economic arrangement
that Transaction 2 effects can be replicated under a number
of different payment schedules. Owner can pay less or more up
front in exchange for more or less payment on Day 2, as long as interest
is appropriately accounted for. (And since, under the simplified
91. The Black-Scholes theorem accounts for this asymmetry through the assumption
that returns are log-normally rather than normally distributed about the forward price.
See HULL, supra note 1, at 277-79.
92. These figures represent the strike prices of a call priced at $3 and a put priced at
$3 when an ATM (whether put or call) is priced at $4. The analysis would not change if the
volatility were different, though the range of prices would change.
93. That is, Purchaser pays up to $2.06 under the piece of Transaction 2 that Transaction
1 represents, and Purchaser pays the excess, if any, of $97.94 over the FMV of Underlier
on Day 2, which is Purchaser’s obligation under the put part of Transaction 2. This
sum is the same as what is stated in the text.

814 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
assumptions here, the interest rate is zero, there is no discounting effect
from prepayment.) In particular, suppose the parties wanted to
ensure that Owner’s only payment to Purchaser occurs on Day 1.
They could agree to the following:
Transaction 3: Division plus option plus prepayment.
Same as Transaction 2, but Owner pays an additional $2.27
to Purchaser on Day 1, for a total of $5.27, and receives an
additional $2.27 under each payout scenario. The parties
agree to cash-settle on Day 2.
The payouts of Transaction 3 on Day 2 are as follows:
1. FMV of Underlier equals or exceeds $102.27: No payments.
2. FMV of Underlier is less than $102.27: Purchaser pays
Owner difference between $102.27 and FMV.
The net value of Transaction 3 is exactly the same as that of
Transaction 2 because all that has happened is that $2.27 more has
been paid to Purchaser up front and, in each case, the same $2.27 has
been subtracted from Purchaser’s payout or added to Purchaser’s
payment obligation on Day 2. Because the discount rate is assumed
to be 0% in this pattern, the present value on Day 1 of $2.27 on Day 2
is $2.27.
Note, however, that Transaction 3 has exactly the same payout
structure as an ITM put option.
Transaction 4: ITM put option. Owner pays Purchaser
$5.27 on Day 1 in exchange for the right to sell Underlier to
Purchaser on Day 2 for $102.27. The parties cash-settle the
obligation on Day 2.
It is in fact the case that under the same Black-Scholes pricing
model that produced the price of $3.00 for an OTM put with a strike
price of $97.94, the price of a $102.27 put option for Underlier on
these terms is $5.27. In other words, this ITM put is the same as an
OTM put plus the associated property transfer described in Transaction
1. As explained above, this result should not be surprising because
it is not possible for the option writer to provide more price
protection with respect to the underlier than is available under an
ATM option. 94
94. The statement should be qualified because the parties could enter into an arrangement
in which the option writer agrees to overcompensate the option holder for a
drop in price (or, for that matter, to supplement an increase in price). For example, the
parties to a put option could provide that the option writer would pay the option holder 1.5
times the drop in price, if any, prior to exercise. Such a transaction would in effect mimic
the option holder’s purchase of an additional interest in the underlier, together with more

2010] FINANCIAL OPTIONS IN THE REAL WORLD 815
The preceding discussion suggests the following points:
� An ATM option represents nothing more than the complete
separation of the benefits and burdens of ownership of
the underlier between the parties to the option transaction.
� An OTM option is the same as an ATM option, except
that it is a separation of a smaller percentage of the total
benefits and burdens.
� An ITM option is the same as an OTM option plus the onmarket
forward sale of a portion of the benefits and correlative
burdens of ownership of the underlier. That is, in an
ITM option, some of the exchange of fluctuating returns
(call) or risks (put) for fixed consideration that would otherwise
be supplied in an ATM option is replaced by a correlative
transfer of the risks (call) or fluctuating returns (put) of
some of the underlier, and the balance is an OTM option
transaction. The transfer of fluctuating returns and correlative
risks is a transfer of ownership. On the facts above, the
swap of variable risk for cash in the ITM put option—that is,
the true option piece—is the same as the swap provided under
the OTM put having a strike price of $97.94.
o To the extent the ITM option involves the symmetrical
transfer of risks and benefits about the FMV expected
on the strike date, it is the mirror image of a collar.
In a collar, one party retains the risks and benefits
over a range of values straddling the FMV and disposes
of the benefits above that range and the risks below it.
A party creates a collar by writing a call at the abovemarket
price and purchasing a put at the below-market
price. In general, the put and call prices are the same if
the percentages of risk and benefit disposed of are the
same.
The ITM portion of an ITM option is the mirror image
of a collar in that the purchaser of the collar retains the
value straddling the FMV on the strike date and disposes
of the tails of the distribution, while the call seller
or put purchaser sells the straddling portion and retains
the tails.
� The fact that an ITM option costs more than an OTM or
ATM option reflects nothing more than a payment arrange-
price protection. I omit consideration of such arrangements here, as they are not observed
in the market (as far as I am aware). Further, the same basic analysis would apply, though
with more complexity.

816 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
ment between the parties; no additional consideration is exchanged
for the ITM portion apart from interest or a risk
premium.
c. Extension to Call Option
A call option differs from a put in that the writer disposes of upside
potential instead of assuming downside risk. The net effect,
however, is the same: the option sale effects an asymmetrical distribution
of risks and benefits in the underlier so that the writer possesses
risks not associated with offsetting benefits. As in the case of a
put, the maximum optionality occurs when the option writer ends up
with all downside risk and the option holder has all the upside potential—namely,
an ATM call. When the option is OTM on the option
sale date, there is less potential benefit transferred and, correspondingly,
a lower option price. Where the option is ITM on the option
sale date, there is a greater option price than in the ATM case, but
only because a part of the price represents the same type of forward
transfer that arises in the case of a put—that is, a disposition of a
symmetrical portion of the burdens and benefits of the underlier.
The following examples, which use the same assumptions as in
the case of the put, illustrate these points. First, recall Transaction 1:
On-market division. On Day 1, Owner sells Purchaser the first 25%
of the upside potential and Purchaser agrees to assume the first 25%
of the downside potential in Underlier between Day 1 and Day 2, one
year thereafter.
It was shown that the price range corresponding to the first 25%
of the benefits and burdens is $102.27 to $97.94. Thus, if the parties
cash-settle, then on Day 2, Owner pays Purchaser the excess, if any,
of the difference between Underlier’s FMV and $100, up to $2.27. At
the same time, Purchaser pays the excess, if any, of the difference between
$100 and Underlier’s FMV, up to $2.06.
Additionally, the parties could effect Transaction 1 with a different
schedule of payments. In the case of a call option, Owner writes
the option, so the parties can arrange for a single payment by having
Purchaser rather than Owner prepay.
Transaction 1a: On-market division with prepayment.
Same as Transaction 1, except that on Day 1, Purchaser
pays Owner $2.06, and on Day 2 Owner will net a
$2.06 payment to Purchaser with whatever other payment is
required on that day to effect the transfer of the first 25% of
upside potential and downside risk.
The only difference between Transactions 1 and 1a is that the parties
have rearranged the timing of their payments. In Transaction 1a,

2010] FINANCIAL OPTIONS IN THE REAL WORLD 817
on Day 2, Owner pays Purchaser the excess, if any, of the difference
between Underlier’s FMV and $97.94, up to $102.27.
Finally, suppose that the parties engage in the following transaction,
in addition to Transaction 1a.
Transaction 5: OTM call. On Day 1, Owner separately
sells an OTM call to Purchaser with a strike price of
$102.27, exercisable on Day 2, in one year.
The price of the call is $3.00. Assume again that all transactions
are cash-settled. As in the put option case, the payouts under the
combination of Transaction 1a and Transaction 5 are the same as
under Owner’s simple sale of an ITM call to Purchaser with a strike
price of $97.94. Moreover, Purchaser’s combined payment on Day 1 of
$5.06 is the same as the Black-Scholes price for this ITM call. 95
2. Positive Risk-Free Rate
This Section extends the analysis of Section 1 to the more realistic
setting in which the risk-free rate of return is positive. In this context,
the transfer of funds gives rise to an interest payment for the
use of money, whether or not the interest payment is expressly broken
out. Consequently, in addition to the exchange of risky returns
for a fixed payment and, in the case of an ITM option, the transfer of
beneficial ownership of a portion of the underlier, there also will be
interest paid in the transaction. If the analysis under the zero riskfree
rate holds, the same results should follow as before, except that
this interest piece should be present as well.
All assumptions in this Section are the same as in Section 1,
except that the hypothetical risk-free rate is 10% and it is compounded
continuously.
a. Neutral Disposition of Upside Potential and Downside Risk
Consider again a basic forward transfer of equal and offsetting
opportunity for gain and risk of loss on Underlier.
Transaction 6: On-market division. On Day 1, Owner
sells Purchaser the first 25% of the upside potential and
Purchaser agrees to assume the first 25% of the downside
risk in the price of Underlier as measured on and Day 2, one
year thereafter.
95. The cost of the option is $5.06, rather than $5.27 in the case of a put, because the
cost of offloading the first 25% of the downside potential is $2.06, while the cost of purchasing
the first 25% of upside is $2.27. This difference reflects the fact that in an option, the
minimum value the underlier can take on the exercise date is 0, while there is in principle
no maximum value, and in the call case the payment goes in the other direction. See generally
HULL, supra note 1, at 277-79.

818 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
At a continuously compounded rate of 10%, the expected value of
Underlier on Day 2 is $110.52, 96 and the price of either a call or a put
with that strike price would, as in the case of a zero risk-free rate, be
$4. Analogously, an on-market disposition of the first 25% of potential
upside gain and the first 25% of downside risk would correspond
to a range of values for Underlier on Day 2 bounded by the strike
prices for a call and a put each having a cost of $3.00. This range is
$108.24 as the strike price for the put to $113.02 as the strike price
for the call. The only difference between this case and the zero riskfree
rate case is that the range over which payments will be made on
Day 2 has shifted up and expanded by the amount of interest expected.
97 If on Day 2 Underlier has appreciated, Owner pays Purchaser
the lesser of $2.50 (equal to $113.02 less $110.52) or the difference
between Underlier’s FMV on Day 2 and $110.52. If on Day 2
Underlier has declined in value, Purchaser pays Owner the lesser of
$2.28 (equal to $110.52 less $108.24) or the difference between
$110.52 and Underlier’s FMV on Day 2.
b. Neutral Disposition Plus OTM Put Option
The same ITM put option that was replicated through the combination
of an OTM put and a neutral on-market division when the riskfree
rate was assumed to be zero looks as follows under a 10% rate:
Transaction 7: Division plus OTM put option. Same as
Transaction 6, but Purchaser also agrees to pay the excess,
if any, of $108.24 over the FMV of Underlier on Day 2. Owner
transfers $3.00 to Purchaser on Day 1. The parties agree
to cash-settle on Day 2.
The payout structure under this combination is as follows:
1. FMV of Underlier equals or exceeds $113.02: Owner
pays Purchaser $2.50.
2. FMV of Underlier is between $113.02 and $110.52:
Owner pays Purchaser the excess of the FMV over $110.52.
3. FMV of Underlier is less than $110.52: Purchaser pays
Owner the difference between $110.52 and the FMV. 98
96. The formula for continuous compounding is FV = Pe Yr , where FV is future value, e
is the base of the natural logarithm, Y is the number of years to maturity and r is the interest
rate expressed as a decimal.
97. Thus, the spread between $97.96 and $102.27 is $4.33. The $4.33 invested at 10%
with continuous compounding for one year is $4.78, which is the difference between
$113.02 and $108.24, the spread on Day 2 in Transaction 6.
98. That is, Purchaser pays up to $2.28 under the piece of Transaction 7 that Transaction
6 represents, and Purchaser pays the excess, if any, of $108.24 over the FMV of Underlier
on Day 2, which is Purchaser’s obligation under the OTM put portion of Transaction 7.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 819
As before, this transaction can be replicated under a payment
schedule that is front-loaded so that Owner pays Purchaser just once,
on Day 1, with no change to the underlying economics. As in the zero
risk-free rate case, this adjustment requires that the maximum
amount Owner may be required to pay on Day 2 under Transaction 7
be incorporated into the payments on Day 1. The difference, however,
is that because the risk-free rate is non-zero, the Day 1 additional
payment must be appropriately discounted. In Transaction 7, Owner’s
maximum payout on Day 2 is $2.50. Owner can be guaranteed
not to have to make that payout on Day 2 if on Day 1 Owner pays, in
addition to the $3.00 for the OTM put option, the present value of
$2.50 as measured on Day 2 and, in exchange, receives $2.50 more on
Day 2 than Owner would have received in Transaction 7. The value
on Day 1 of $2.50 as measured on Day 2 is $2.26. 99 Therefore, the
parties can replicate Transaction 7 as follows:
Transaction 8: Division plus option plus prepayment.
Same as Transaction 7, but Owner pays an additional $2.26
to Purchaser on Day 1, for a total of $5.26, and receives an
additional $2.50 under each payout scenario. The parties
agree to cash-settle on Day 2.
The payouts of Transaction 8 on Day 2 are as follows:
1. FMV of Underlier equals or exceeds $113.02: No payments.
2. FMV of Underlier is between $110.52 and $113.02: Purchaser
pays Owner difference between $113.02 and FMV.
3. FMV of Underlier is less than $110.52: Purchaser pays
Owner $2.50 plus difference between $110.52 and FMV, or
difference between $113.02 and FMV.
This payout structure is the same as that for an ITM put having a
strike price of $113.02, and, again, the Black-Scholes price for this
option is $5.26.
c. Accounting for the Time Value of Money
The discussion above indicates that the analysis when the riskfree
rate is positive does not differ from the analysis when the riskfree
rate is zero, except that the time value of money plays a role. Its
presence in the ITM option is easiest to see because the price structure
of the portion of the ITM option that represents a disposition of
economic ownership (risk and correlative benefit) incorporates a discount
rate on the prepayment. Discounting, however, is no less
99. That is, $2.26 invested at 10% continuously compounded yields $2.50 in one year.

820 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
present in the true option piece. If the portion of the option premium
that represents an exchange of fluctuating returns for a fixed payment
were unconditionally due on the exercise date rather than payable
on the option sale date, the premium would be more expensive
by an amount equal to the accrued interest on the premium between
the date of entry into the option and the exercise date. 100
However, the fact that one can impute an interest rate to establish
economic equivalents between payments made on Day 1 and on Day
2 does not settle the question of whether an interest or discounting
element is present in the standard option transaction, where the option
premium is paid on Day 1. In particular, it does not demonstrate
that the option purchaser gets the benefit of a discounted price for
the option. That benefit arises only if the option premium is economically
prepaid—that is, if the benefit that the option purchaser obtains
is received later than the payment date. If so, then there has been an
extension of the use of money for a period of time, which is to say a
loan, rather than a simultaneous exchange of consideration for goods
or services. 101 To illustrate, if on Day 1 A and B agree that A will pay
B today for services to be rendered in one year, interest should be
imputed to A (and deemed paid by B) on the implicit loan that runs
from A to B: the price to A would be higher if A paid for the services
when rendered in one year. 102 The difference between the price A actually
pays and what the services would cost if paid for when rendered
is an interest charge. Analogously, if on Day 1 A and B agree
that B will provide the service to A immediately and A will pay for
them in one year and performance actually occurs in one year, then
the loan runs in the other direction—from B to A.
In the option context, the question is whether the option purchaser
receives an immediate or ongoing benefit from the time the option
is entered into, in which case the premium is at most partially discounted
and therefore partially a loan, or instead the purchaser receives
a benefit only on the exercise date (or dates, for American options).
In the latter case, the loan element is clear: the option writer
is paid now for benefits delivered only later. The considerations developed
in Part II suggest that all benefits of the option transaction
materialize economically on the exercise date (or dates); therefore,
that interest does economically arise on all parts of the premium
prior to that time. Consider first a simple European option, under
which the option purchaser acquires a right that may be exercised on
100. See Daniel I. Halperin, Interest in Disguise: Taxing the “Time Value of Money”, 95
YALE L.J. 506, 512-15 (1986).
101. Klein, supra note 69, at 1709-10.
102. See generally Halperin, supra note 100, at 512-15.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 821
only one exercise date. Although, as one commentator observes, 103 the
option purchaser acquires a valuable right on the option purchase
date, that fact merely establishes that future rights have a present
value, not that benefits are conferred when the future right is acquired.
The purchaser of a remainder interest in property also acquires
valuable rights on purchase, but it does not appear that the
rights are used prior to the ripening of the interest. The question,
therefore, is not whether the option purchaser acquires a valuable
right on the option purchase date. Rather, it is whether any of the
rights so acquired are immediately cashed out, and it seems clear
that they are not. If they were, one would expect a systematic decline
in the value of rights during the period between the option purchase
date and the exercise date. No such decline takes place. Indeed, one
does not imagine that if, after the option sale, the option writer signaled
that it would default on the exercise date, the option holder’s
damages would be discounted by the portion of the pre-exercise period
that had elapsed. Further, on the writer side, nothing is required
until the exercise date. Prior to that time, the writer merely stands
ready to perform.
The question is more difficult for an American option. The analysis
runs the same for the period prior to the first exercise date, but it
is less clear how to analyze the period during which exercise is possible.
In purely legal terms, during the exercise period, the option writer
has an ongoing obligation to do something until the earlier of exercise
or lapse, suggesting that benefits may be provided continuously
during the exercise period. Even so, the fact of an on-going obligation
does not seem to give rise to the transfer of an on-going benefit or
service. Unlike a person who contracts to provide services as needed
over a fixed period of time, the obligation under an option contract is
singular. The option writer has only one obligation; prior to fulfilling
it, the writer need do nothing, just as during the pre-exercise period.
Conversely, once exercise occurs, the duty is fully discharged. The only
difference between the writer’s obligations before the exercise period
and during the period prior to exercise is that the writer may be
more constrained in its use of resources because it must have the resources
on hand at all times from the first exercise date until exercise
or lapse. This heightened obligation appears to be relatively trivial.
Further, the case for treating the service as provided on exercise is
even stronger in economic, as opposed to legal, terms. As a matter of
economic theory, any call option should be exercised on the last day
of the exercise period because of the benefit in ex ante terms that the
103. Kevin J. Liss, Options as Disguised Financings: The Demise of an Urban Tax Legend,
27 VA.TAX REV. 907, 927-30 (2008).

822 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
passage of time has on its value. 104 Under the reasonable assumption
that holders of financial options act solely on the basis of the economic
dictates of their positions, an American call option should be
viewed as equivalent to a European call option whose strike date is
the last day of the American option’s strike period. This general rule
must be qualified for put options because the value of the right to invest
the proceeds of sale on exercise of the put may exceed the value
of the potential fluctuations in the underlier price, depending on the
extent to which the put is ITM during the exercise period, the volatility
of the underlier, and the risk-free rate. 105 Nonetheless, the fact
that all of the value of the put, like that of a call, is realized on exercise
suggests again that all benefits, if any, are realized on exercise.
3. Risk Premium
The discussion to this point has disregarded the market in risk;
instead, it has proceeded on the assumption that market participants
are as apt to take on risk as to lay it off, with the consequence that no
party to the option transaction receives a fee to engage in the transaction.
In practice, however, risk-bearing is costly because of the
marginal utility of wealth, which means there is a systematic bias
against risk assumption. 106 Individuals with low wealth will suffer a
greater subjective cost from the loss of a dollar than they will enjoy a
benefit from the gain of a dollar, while individuals with greater
wealth are less subject to these costs. Thus, wealthier individuals
tend to assume more risk than poorer ones. For example, individuals
increase the proportion of fixed to variable returns in their portfolios
as they age because 107 time is an inchoate form of wealth that investors
transform into material wealth by investing in riskier returns
earlier in their lives. Earlier generations pay later ones to do this.
Similarly, more skilled individuals such as dealers or traders bear
risk as a service to others and receive compensation for doing so. The
compensation is typically observed in such items as the spreads that
dealers charge, insurance fees, and the systematic difference between
fixed and floating rates of interest observed in swap transactions. 108
The phenomenon of fixed-for-floating-exchange that lies at the
core of any option transaction might suggest that put writers and call
purchasers systematically charge a premium to take on downside
risk or to cash out upside benefit in any option arrangement. The in-
104. HULL, supra note 1, at 211-12.
105. Id. at 212-14.
106. See generally Sergio Pastorello et al., Statistical Inference for Random-Variance
Option Pricing, 18 J. BUS.&ECON.STAT. 358 (2000).
107. Nancy Ammon Jianakoplos & Alexandra Bernasek, Financial Risk Taking by Age
and Birth Cohort, 72 S. ECON. J. 981, 983 (2006).
108. See generally id.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 823
tuition is clear in the case of put writers, who enable the option purchaser
to cash out all downside risk for a fixed price while retaining
the opportunity to benefit from market appreciation. The extension to
call purchasers, however, does not hold. The reason for this is that
risk premiums are present because of the unpredictability of losses,
not of returns generally whether losses or gains. 109 It is the prospect
of a loss, which is more costly for persons of relatively lower wealth,
that generates a risk premium. Bearing in mind that the owner of
any underlier can eliminate all risk simply by selling the underlier
and investing in a riskless instrument, the owner of the underlier
will not sell a call to lock in a fixed upside while continuing to bear
downside risk unless the owner is paid a fee. That fee is a risk premium.
Thus, in general, option holders pay option writers a risk
premium. This premium should be observable as a higher option
premium for both puts and calls, to the extent in either case the
holder acquires a floating benefit or disposes of a floating loss.
This analysis suggests a testable hypothesis. The theory developed
in this paper is that all options contain an asymmetric exchange of a
fixed payment either to receive a variable benefit (call option), or to
shed an unknown risk (put option), and that ITM options contain a
shift of a portion of the symmetric benefits and burdens of ownership
of the underlier. The discussion of risk in this Section indicates that
to the extent options are asymmetric exchanges of fluctuating for
known returns (that is, not ITM), the writer of the option will charge
a fee. However, to the extent an option is ITM, a portion of the benefits
and burdens of ownership of the underlier are shifted to the party
that would own the underlier (or an equivalent cash value) should
the option be exercised. Therefore, in the case of an ITM call, one
would expect the risk premium a call writer receives respecting the
non-ITM portion of the option to be offset by the risk premium the
option holder receives respecting the ITM portion, since the ITM portion
involves an assumption of both opportunity and risk. In other
words, observed risk premiums for calls should reach a maximum
when the strike price is ATM on the option sale date and then decline
rapidly for strike prices on the option sale date that are deeper ITM.
Indeed, the net risk premium should shift in the direction of the call
purchaser once the purchaser is bearing more than half the risk of
ownership of the underlier–in other words, well before the strike
price reaches zero, which is simply a prepaid forward contract.
A similar though less dramatic phenomenon should be observable
in the case of a put option. The risk premium reaches its maximum
when the option is sold ATM. For put options sold ITM, no additional
risk premium is collected. Consequently, the portion of the option
109. Id.

824 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
premium attributable to the ITM portion should not reflect any additional
charge to assume risk.
C. Conclusion
Any covered option represents a separation of at least some of the
risks of ownership of the underlier from some of the benefits of ownership.
The extent of separation reaches a maximum when the strike
price of the option is equal to the forward price of the underlier on
the exercise date—that is, when it is ATM as measured on the exercise
date. For options sold out of the money on the option purchase
date, less separation occurs. For options sold in the money on the option
purchase date, less separation also occurs than in an ATM option,
but there is an additional forward property disposition. The
payment arrangement obscures the forward property disposition because
the arrangement makes the ITM portion of the option premium
appear as consideration for additional “optionality,” when in fact the
arrangement is merely a timing mechanism.
Once the forward element of an ITM option becomes manifest, it
becomes clear that the most apt analogy of an option to an existing
instrument is to a partnership. Partnerships commonly exhibit the
kind of sequential ownership involved in an ITM option. Indeed,
Bruce Kayle has noted the substantial affinity between a call option
and certain partnership arrangements, though he does not develop
the point. 110 Rather, he illustrates the idea through a simple comparison.
He notes that the owner of income-producing property
(Partner 1) can contribute it to a newly formed partnership in exchange
for cash and a partnership interest that entitles the partner
to X% of the income from the property over time and to Y% of the appreciation
of the property, if any, after five years, at which time the
partnership will sell the property. Another person (Partner 2) would
then contribute cash to the partnership in exchange for a partnership
interest that entitles the partner to the remaining 100%-X% of the
income and to 100%-Y% of the appreciation on sale. 111 Kayle observes
that the partnership arrangement just described is not very different
from Partner 1’s sale to Partner 2 of an income interest and a separate
option to purchase a portion of the property in five years. 112
Kayle’s point is that the sequential nature of ownership characteristic
of certain option transactions is just the sort of sharing arrangement
commonly found in partnerships. That point is corroborated by
the analysis above, which demonstrates that ITM options involve a
110. Kayle, supra note 11, at 270-75 (Example 10).
111. Id.
112. The cash flows are different in the option and partnership cases, but their present
values should be the same.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 825
kind of sequential sharing of ownership of the underlier. One party
bears the first X% of risk and benefit, and the other party the remainder,
though there is additionally an OTM option that then separates
risk from benefit.
Finally, the discussion in this Part explains the essential similarity
between the forward sale portion of an ITM option and a collar.
The only difference is in the identities of the persons holding the various
interests in the underlier. In a collar, the original owner parts
with risks and benefits at a remove from the forward price and retains
the risks and benefits immediately surrounding the forward
price, while in the forward sale portion of an ITM option the opposite
occurs: the original owner parts with the risks and benefits immediately
surrounding the forward price and retains the risks and benefits
at a remove. As a consequence, the parties end up in the opposite
posture, but the nature of the division of ownership is identical. This
identity is obscured not only by the payment arrangement in an ITM
option but by the fact that the ITM property disposition is married to
a genuine option purchase in which one of the tails is also sold—
through either an offloading of downside risk or the purchase of floating
benefit, in either case in exchange for a fixed payment.
IV. TAX ANALYSIS
This Part evaluates the tax rules that ought to apply to options in
light of the analysis in Part III. Because of the realization rule and
the special treatment that the tax law affords to capital assets, 113 two
basic cases arise: where the party selling upside potential (call writer)
or purchasing downside protection (put purchaser) owns the underlier
(a covered option), and where the underlier serves merely as a
reference obligation for the option writer and holder. The first case
divides into two subcases: where the underlier is held by the relevant
party at all times between the option sale date and the exercise date,
and where it is not, which is akin to a short sale. Subpart A deals
with the cases involving ownership of the underlier, and Subpart B
deals with those in which the underlier serves as a reference obligation.
Finally, Subpart C explores some of the approaches that might
be adopted under current law, or with some variation to current law,
in light of the tax analysis that would apply under basic tax principles
as developed in Subparts A and B.
113. See, e.g., 26 U.S.C. § 1(h) (2006) (discussing preferential rates for certain longterm
capital gains); 26 U.S.C. § 1211 (discussing limitations on capital loss deductions); 26
U.S.C. § 1212 (discussing carryover of excess capital losses).

826 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
A. Underlier Owned
In this Subpart, assume that the put purchaser or the call seller
owns the underlier on the exercise date. In Section 1, ownership
commences no later than the option sale date, while in Section 2, the
consequences of the holder’s acquisition of the underlier after the option
sale but prior to the exercise date are briefly considered.
Throughout, basic income tax principles are applied without regard
to either special statutory and regulatory rules that provide for contrary
treatment or questions of tax administration. Thus, dispositions
of equity are taxable as realization events; 114 services income is
taxed on receipt, 115 subject to certain limited exceptions; 116 and time
value of money income accrues on a constant yield-to-maturity basis
with continuous compounding. 117
The principal tax question raised for any covered option is whether
the option sale is in whole or part a capital transaction, and that
question depends in turn on whether and to what extent the transaction
is a property transaction. 118 In the financial instruments context,
if it is a property transaction, it is likely to be capital, 119 unless the
option is stock in trade or inventory of the taxpayer 120 or is a hedge
with respect to stock in trade or inventory. 121 Capital transactions
generally are treated much differently from noncapital transactions
under the Code. Capital gains and losses are netted, 122 capital losses
generally may not be deducted against ordinary income except to a
limited extent, 123 and long-term capital gains of individual taxpayers
are taxed at favorable rates. 124 Further, income from capital transactions
generally is not registered by the tax system until realized. 125
By contrast, ordinary income is subject to graduated rates; 126 may be
114. 26 U.S.C. § 1001.
115. 26 C.F.R. § 1.451-1 (2010) (discussing cash-method taxpayers); Schlude v. Comm’r,
372 U.S. 128, 138-39 (1963) (Stewart, J., dissenting) (discussing the accrual-method).
116. See, e.g., Boise Cascade Corp. v. United States, 530 F.2d 1367, 1378 (Ct. Cl. 1976)
(accrual-method taxpayer permitted to defer, until performance of related services, inclusion
of prepaid services income for which the associated future expenses were certain in
time and relatively certain in amount).
117. See note 52, supra, for a discussion of the discrepancies between continuous and
periodic compounding. Tax law generally assumes periodic compounding for interest-like
returns, while the Black-Scholes model applies continuous compounding.
118. § 1221(a) defines a capital asset as all property other than certain property excluded
from the definition. 26 U.S.C. § 1221(a).
119. 26 U.S.C. § 1221(a)(1) (2006).
120. 26 U.S.C. § 1221(a).
121. 26 U.S.C. § 1221.
122. 26 U.S.C. § 1222.
123. 26 U.S.C. § 1211 (limitation on capital loss deductions); 26 U.S.C. § 1212 (carryover
of excess capital losses).
124. 26 U.S.C. § 1(h).
125. 26 U.S.C. § 1001(a).
126. 26 U.S.C. § 1(a)-(d).

2010] FINANCIAL OPTIONS IN THE REAL WORLD 827
subject to an accrual or other regime that accounts for income on an
on-going basis, regardless of when it is realized; 127 and may, in the
case of losses, offset capital and ordinary income. 128
Yet, although the concepts of “capital income” and “ordinary income”
are deeply rooted in the income tax, most commentators agree
that there is no pure concept of either that permits a ready or cogent
argument for characterizing any particular item as intrinsically one
or the other. 129 Modern finance theory has long recognized that any
“ordinary” payment stream can be discounted into a present fixed
“capital” sum. Given the economic equivalence between the two, efforts
to identify a principled basis for determining which side of the
line a transaction should fall on when the transaction shares some
characteristics of both seems largely pointless. 130 Rather, a better approach
is probably functional: Which characterization best serves the
goals of the income tax? In light of the favorable treatment of capital
income and the general preference to limit that treatment rather
than to make it widely available, the better approach inclines toward
ordinary characterization in ambiguous cases, unless a reason for a
different result is manifest. Accordingly, in this discussion, capital
treatment is reserved for gain or loss realized from the disposition of
property, where property ownership is understood in its standard tax
sense of possessing the opportunity for gain and the correlative risk
of loss with respect to some item. Transactions involving the disposition
of either just the opportunity for gain or just the risk of loss are
not property transactions but are, instead, “legs” of a property transaction.
Sale of an OTM option is one such leg, and if the option is exercised,
transfer of the other leg occurs as well, meaning that a property
transaction has occurred. If the OTM option is not exercised,
then the initial leg is undone and no property disposition occurs.
Consequently, capital treatment for the disposition that occurs on the
option sale date of an OTM option (or more accurately to the extent
the option is OTM) seems inapposite.
In an ITM option, by contrast, there is, in addition to an OTM option
a property disposition of a portion of the underlier. This occurs
because the transfer of benefits and correlative burdens in the ITM
portion of the option is paradigmatic of a property disposition. Therefore,
a tax system that reaches the “right” answer in the sense that it
127. See 26 U.S.C. § 475 (mark-to-market of dealer inventory); 26 U.S.C. § 1272 (current
accrual of OID); 26 C.F.R. § 1.1275-4 (2010) (current accrual of OID on contingent
payment debt instruments).
128. See, e.g., 26 U.S.C. §§ 62-63 (2006).
129. See, e.g., David A. Weisbach, Line Drawing, Doctrine, and Efficiency in the Tax
Law, 84 CORNELL L. REV. 1627 (1999).
130. See, e.g., Calvin H. Johnson, Seventeen Culls from Capital Gains, 48 TAX NOTES
623 (1990).

828 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
reserves capital treatment for disposition of all and only capital assets
in any option transaction would tax the ITM portion, if any, as a
capital transaction, assuming the underlier was a capital asset in the
relevant party’s hands.
1. Ownership Throughout the Option Term
Under the analysis in Part III, every option involves an asymmetric
division of ownership of the benefits and burdens of the underlier
to the extent it is non-ITM. This asymmetric division seems to bear
some attributes of a property transfer and some attributes of a nonproperty
transfer. Separately, ITM options involve a symmetrical
transfer of benefits and burdens that more closely resembles a forward
property disposition. The following Subsections address these
aspects of option transactions.
a. Non-ITM Option
Part III established that a non-ITM option in effect divides ownership
of the underlier between the option holder and the option writer.
The transaction is not capital in the traditional sense because it is
not a transfer of property, but a peculiar sort of sharing arrangement
in which the option holder retains or acquires certain benefits but not
detriments, while the writer acquires or retains certain detriments
but not benefits. Together, the two parties have all the indicia of
ownership but separately neither does for any range of values covered
by the option. The full consequences of a disposition of the underlier
to a third party would be borne just as they are borne by an
owner, but these consequences would be divided unequally between
the writer and the holder.
Viewed from this perspective, the non-ITM option premium is a
fee that the holder pays for the writer to accept the adverse consequences
of ownership. It is a prepayment for the service of bearing
the risk of property ownership without the associated benefit on the
exercise date. In general, prepayments not for a capital asset are subject
to immediate taxation, unless an exception applies. 131 Apart from
narrow statutory exceptions for certain types of subscription income
132 and club dues, 133 the only exceptions to immediate inclusion
of prepaid services income are for an accrual-method taxpayer that
either satisfies the requirements for administratively granted safe
harbor relief (not here applicable) 134 or can reliably associate the pre-
131. See 26 C.F.R. § 1.451-1 (cash-method taxpayers); Schlude v. Comm’r, 372 U.S. 128
(1963); Am. Auto Ass’n v. United States, 367 U.S. 687 (1961) (accrual-method taxpayers).
132. 26 U.S.C. § 455 (2006).
133. 26 U.S.C. § 456.
134. Rev. Proc. 04-34, 2004-22 I.R.B. 991.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 829
paid item with an obligation to be discharged for a relatively certain
amount in a readily identifiable subsequent tax period. 135 Because of
the contingency of the obligation that an option writer assumes, the
latter exception does not apply either, leading to immediate inclusion.
Although a better theoretical result would be to defer inclusion
(and any associated deduction) until the period of exercise or lapse
and to treat the option premium as a loan, requiring immediate inclusion
instead without any deemed interest or expense on the loan
may not be a bad proxy for taxation of the holder’s interest and the
writer’s associated deduction on a deemed loan. 136
The holder should enjoy mirror treatment. Assuming the option is
entered into in connection with the taxpayer’s trade or business or
other income-producing activity, the premium should be deductible
as, respectively, a business expense 137 or an expense incurred in connection
with the production of income. 138 The deduction should be allowed
in the period in which the exercise date (or, for the reasons
stated previously, the last date of the exercise period) occurs. 139
If the non-ITM option is exercised, the second “leg” of the property
disposition occurs, and at this point it is appropriate to treat the total
transaction (option sale plus exercise) as a property disposition. This
treatment is correct because the original owner of the property has
now parted with the benefits and the associated burdens of ownership.
Consider the simple OTM put option described as part of Transaction
2, under which Owner paid Purchaser $3.00 on Day 1 for the right to
put Underlier to Purchaser on Day 2 for $97.94. 140 Suppose Owner exercises;
i.e., Underlier is not worth more than $97.94 on Day 2. Solely
with respect to the OTM portion of Transaction 2 (and assuming here
that the associated ITM portion of the option had not been entered into),
on Day 1, Owner transferred the risk of loss below $97.94 to Purchaser.
Owner retained the risk of loss down to $97.94 as well as the
potential for upside gain. On Day 2, Owner bears the loss from $100 to
$97.94 and transfers all potential for upside gain to Purchaser. Although
the property transfer appears to be off-market (in that the
135. See, e.g., Artnell Co. v. Comm’r, 400 F.2d 981 (7th Cir. 1968); Rev. Proc. 2004-34.
136. See David Hasen, The Tax Treatment of Advance Receipts, 61 TAX L. REV. 395
(2008).
137. 26 U.S.C. § 162.
138. 26 U.S.C. § 212.
139. If the deduction is under § 212, it may be subject to the 2% floor applicable to certain
taxpayers’ itemized deductions. See 26 U.S.C. § 67. Prior to the 2003 adoption of regulations
under § 263, a cash-method taxpayer arguably was able to deduct the premium in
the period paid, even if the exercise date occured in a subsequent period. See 26 C.F.R.
§ 1.461-1(a)(1) (providing that cash-method taxpayers deduct expenses in the year paid unless
a long-lived asset is created). Under current regulations, however, most premiums
paid for options exercisable in a subsequent year must be capitalized. 26 C.F.R. § 1.263(a)-
4(c)(1)(iii)(E) .
140. See 26 C.F.R. § 1.263(a)-4(c)(1)(iii)(B) (2004).

830 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
property appears to change hands on Day 2 at a price that differs from
its FMV on that day), this is merely an appearance. The transfer of
possession is a formality. The actual transfer of benefits and burdens
took place in two steps—on Day 1 when some of the risk of loss shifted,
and on Day 2 when the opportunity for gain went over as well. The two
transfers, together, are on-market.
If the option lapses, the originally transferred leg is transferred
back and no property disposition occurs. For instance, if Underlier in
the example above is worth any amount greater than $97.94 on Day
2, the loss below $97.94 on Day 2 is zero.
b. ITM Option
For an ITM option, the analysis is more complicated. On the option
sale date there is, in addition to a separation of some of the benefits
of ownership of the underlier from some of the associated burdens,
an on-market forward disposition of a portion of the underlier.
This portion of the option sale, therefore, should be treated as a forward
of a certain sort. Perhaps unfortunately, under current law,
forwards are generally held open, 141 subject to certain exceptions, 142
until the actual transfer of the property takes place. Open transaction
treatment for forwards when the seller owns the underlier seems
even less justifiable than open transaction treatment for options. In a
forward, all the seller retains is a wasting present interest—the value
of which is known on the sale date. With respect to the portion
sold, full transfer of benefits and burdens has occurred. Consequently,
and as a number of commentators have observed, 143 a current
sale of future rights should be accounted for currently even under
our realization-based income tax. If forwards were currently
taxed, then the ITM portion of an ITM option should be treated as a
taxable transaction when the option is sold.
Naturally, the introduction of separate treatment for the property
disposition portion of an ITM option introduces complexity into the
tax rules for options. Moreover, the complexity is compounded by the
fact that the property disposition in an ITM option is of a peculiar
sort. It is not the disposition of a physical portion, a ratable portion,
or a temporal portion of the underlier, but rather of a risk portion.
For each of the first three types of division, the tax rules are relatively
straightforward, at least in conceptual terms. If, for example, the
141. 26 U.S.C. § 1233.
142. 26 U.S.C. § 1256 (certain regulated futures contracts subject to mark-to-market
taxation); 26 U.S.C. § 1259 (constructive sale of appreciated financial positions).
143. See, e.g., Cunningham & Schenk, supra note 8; Hasen, supra note 13; Levy, supra note
89. In addition, certain provisions of the Code already require present accounting for forward
dispositions. See, e.g., 26 U.S.C. § 305(e) (present accounting of certain preferred dividendstripping
transactions); 26 U.S.C. § 1286 (present accounting of bond-stripping transactions).

2010] FINANCIAL OPTIONS IN THE REAL WORLD 831
owner of a share of stock sells a fraction of the share, the extent of
the risk and benefit in the underlier that the purchaser acquires is
proportional to the fraction purchased. Thus, the purchaser of onehalf
the share would assume a risk of loss equal to 50% of the risk
associated with the full underlier and acquire the correlative potential
benefit. 144 The same result applies to cotenants that share an undivided
interest in real property. 145 Similarly, a temporal division of
the underlier results, in conceptual terms, in the creation of a wasting
present interest and a growing future interest. The tax rules for
such property dispositions can be complicated, but the underlying
conceptual analysis is well understood. 146
By contrast, in an ITM option, the transfer of partial ownership in
the underlier is sequential, or “horizontal.” The parties do not share
risk and reward ratably or in temporal succession but rather in
risk/benefit sequence. If the ITM portion of the option represents a
forward sale of X% of the underlier, then the transferee assumes the
first X% of risk and reward, while the transferor retains the remaining
(100 – X)%, which is distributed about the transferred portion.
This division suggests that the transferor should be viewed as disposing
of property “off the top,” in that the portion disposed of is the portion
that is first and exclusively affected by price fluctuations in the
underlier. Once the division occurs, post-option sale fluctuations in
the value of the underlier that do not exceed the range of risk and
benefit transferred have no economic effect on the transferor. This
means that the transferor has no economic stake in those fluctuations.
At the same time, price fluctuations that do exceed the range
have no (additional) effect on the transferee, meaning that the transferee
has no stake in them.
These considerations indicate that the transferor’s tax basis in the
portion of the underlier sold forward should be allocated only to the extent
that it falls within the actual price range of that portion on the option
sale date. If the transferor’s basis does not fall within that range,
the transferor has no tax cost associated with the disposition at all,
and therefore no basis should be allocated to offset the proceeds. This
approach tends to result in a more certain but smaller recognition of
gain or loss on disposition than would a ratable allocation rule.
Transaction 4, discussed previously, illustrates the basic analysis:
Transaction 4: ITM put option. Owner pays Purchaser
$5.27 on Day 1 in exchange for the right to sell Underlier to
144. See 26 C.F.R. § 1.616 (2009) (providing basis rules for partial dispositions of property).
145. Id.
146. See, e.g., Kenneth F. Joyce & Louis A. Del Cotto, The AB (ABC) and BA Transactions:
An Economic and Tax Analysis of Reserved and Carved Out Income Interests, 31 TAX
L. REV. 121 (1976).

832 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
Purchaser on Day 2 for $102.27. The parties cash-settle the
obligation on Day 2.
Transaction 4 consists of an OTM put having a strike price of $97.94
and a prepaid, on-market disposition of the first 25% of opportunity
for gain and risk of loss of Underlier, corresponding to the range of
values on Day 2 between $97.94 and $102.27. In the transaction, the
risk-free rate was assumed to be zero, no risk premium was paid, and
Underlier’s FMV on Day 1 was $100.
If we suppose that Owner’s basis is anything less than $97.94,
then under the theory that basis should be allocated to the disposition
only to the extent Owner has basis over the disposed of range,
Owner should be treated as recognizing $100 - $97.94, or $2.06, of
gain. Thus, if Owner’s basis is $80, Owner has $2.06 of gain. By contrast,
if Owner’s basis is $98, Owner has $2 of gain.
One might object that if Owner has basis in excess of 75% of the
Underlier’s FMV, Owner should get a partial basis offset on the option
sale date because only 25% of Underlier is sold. Thus, if Owner’s
basis is $80, it might seem Owner should recognize four-fifths
($80/$100) of $2.06, rather than the full $2.06. However, because the
sale is not of a ratable portion but of an identifiable horizontal slice,
and because the risk and benefit disposed of is associated only with
that slice, a ratable basis allocation rule would seem to be incorrect;
it does not associate “paid-for” basis with a “paid-for” portion of the
underlier sold. Note further that although less basis offset occurs
than in a ratable disposition, the amount of gain recognized on the
option sale date is smaller. Although Owner has disposed of 25% of
the opportunity for gain and risk of loss and Owner allocates no basis
to the portion sold, Owner’s gain is $2.06 rather than 25% of the entire
$25 of built-in gain, or $6.25.
Analogous treatment occurs where Owner is in a loss position.
Owner may take a loss equal to the lesser of $102.27 - $100 or Owner’s
basis in Underlier - $100. This treatment reflects the fact that,
solely with respect to the ITM portion of the option, Owner has disposed
of tax ownership through that range but not above or below it.
If the option is exercised, the retained portion of Underlier is simply
transferred pursuant to the exercise, as described above in the OTM
case. If the option is not exercised, the sold portion is deemed repurchased
at its FMV and Owner’s basis in that portion simply reflects
the part of the option premium paid on Day 1 that is allocable to it.
2. Ownership Acquired After Option Sale
Under the analysis developed in Part III, only ITM options involve
a property transfer prior to the exercise date. All options, however,
involve a risk-benefit disaggregation transaction on the option sale

2010] FINANCIAL OPTIONS IN THE REAL WORLD 833
date, together with a reunification on the exercise date of the parts
previously separated. If the option is exercised, the “trailing” leg that
the initial owner (the put seller or call writer) retained goes over to
the property purchaser, while if the option is not exercised, the “leading”
leg that the initial owner transferred is returned to that owner.
Since the non-ITM portion does not involve a property disposition,
the ownership of the underlier prior to the exercise date is irrelevant.
Gain or loss on exercise of the option will continue to be determined
by the difference between exercise price and basis of the underlier
and its basis in the owner’s hands, whether that basis was determined
after the option sale date (because the underlier was purchased
after that date) or not.
A similar approach should apply to the ITM portion, if any, of an
option where the underlier is acquired after the option sale date.
There are two cases in which acquisition of the underlier during the
pendency of the option may have an effect on the tax treatment of the
transaction prior to exercise: where the purchaser of an ITM put and
the seller of an ITM call acquire the underlier. Recall that for both
types of ITM options, on the option sale date the underlier seller
promises to deliver a portion of the underlier (or its equivalent) to the
counter-party on the exercise date. Prior to the seller’s purchase of
the underlier, there should be no tax consequence to the disposition.
Under a realization-based income tax, the tax consequences of entering
into the option transaction should first be reckoned on the option
sale date when the forward transfer occurs. On that date, the expected
cost of satisfying the transfer is zero: the seller conceptually
exchanges a portion of the underlier for a bond of equal value paying
the risk-free rate. The expected cost to the seller on the option sale
date of satisfying that obligation is just the FMV of the portion of the
underlier sold forward, since that is what the seller would have to
pay on the option sale date to procure the portion sold forward.
Once the seller acquires the underlier, additional tax consequences
of the sale may be reckoned. At that time, the seller’s cost of
satisfying its obligation under the forward sale portion of the option
is established. For example, consider the ITM put option in Transaction
4, but assume that Owner does not own Underlier on the option
sale date. If Owner purchases Underlier at $90 six months after the
option sale date, then Owner’s cost of delivering 25% of Underlier on
Day 2 is $0 because the portion of the underlier disposed of in the
ITM piece of the option is entirely in excess of the cost to Owner of
acquiring the property.

834 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
B. Underlier as Reference Obligation
If the parties to the option transaction use the underlier merely as
a reference obligation, the transaction becomes a simple bet. It is a
zero-sum game in which one party’s gain is precisely offset by the
counter-party’s loss. 147 In recent years, the tax law has tended to
treat such bets as generating capital income and loss because of the
risky nature of the returns they generate, 148 but there appears to be
no deep reason why the returns should not be characterized as ordinary
and subject to an economic accrual or similar regime, such as
mark-to-market taxation. 149 There is no particular historical
precedent for according capital treatment to returns just because
they are risk-based, and the policy rationales for deferral and favorable
rates on capital income do not seem to apply to bets. In general,
these rationales center on encouraging the formation of real capital
and avoiding the bunching of income in a single tax year that arises
under the realization rule. Wagers do not involve the formation of
physical capital, and bunching becomes a problem only where an accrual
regime is assumed not to be in place.
If, however, capital treatment of traditional capital assets (such as
where the option involves a physical underlier) is taken as a given,
then the tax rules for wagering-type options should take account of
the avoidance possibilities that dissimilar rules for physical and notional
options would create. 150 The avoidance possibilities derive from
two main problems: discontinuity and inconsistency. Discontinuity
arises when instruments that generate similar returns are subject to
dissimilar tax rules; 151 the general solution is to tax similar instruments
like their close substitutes. 152 Inconsistency arises when the
same return is taxed differently, depending upon the form in which it
is received; 153 the general solution is to adopt a robust method for
147. See Edward D. Kleinbard, Risky and Riskless Positions in Securities, 71 TAXES
783, 784 (1993).
148. See, e.g., 26 U.S.C. § 1234A (2006) (treating certain “closing transactions” as generating
short-term capital gain and loss); 26 C.F.R. § 1.446-3(c) (2010) (bullet swap not
treated as subject to NPC rules).
149. See Keinan, supra note 8, at 146 (arguing that all returns from financial instruments
should be treated as ordinary and subject to taxation on an accrual or mark-tomarket
basis); Hasen, supra note 13, at 403-07 (arguing that a better basis for distinguishing
between returns entitled to capital treatment, including deferral under the realization
rule, and ordinary returns accounted for under an economic accrual regime is whether the
taxpayer owns a physical underlier); see also Kleinbard, supra note 147, at 784 (noting that
financial products differ from traditional capital assets in that the former are simple bets
that can be replicated in principle indefinitely).
150. David A. Weisbach, Line Drawing in the Tax Law, 84 CORNELL L. REV. 1627 (1999).
151. Jeff Strnad, Taxing New Financial Products: A Conceptual Framework, 46 Stan.
L. Rev. 569, 573 (1994).
152. Weisbach, supra note 150, at 1661.
153. Id. at 1645.

2010] FINANCIAL OPTIONS IN THE REAL WORLD 835
identifying the overall economic return the taxpayer locks in ex ante,
but the problems with developing such methods are notorious. 154 The
problem in the present context is that from the standpoint of either
the writer or the holder of the option, the returns from the bet may
be similar to the returns from a physically settled option. Accordingly,
the rules ought to be similar for the two types of transactions.
Further, the rules need to require taxpayers to associate offsetting
positions, such as where the taxpayer buys an option in one form and
sells a similar or identical one in another. How the rules might accomplish
these goals falls outside the scope of this discussion; I merely
identify the issues here.
C. Possible Tax Approaches
The rules described in the preceding Subparts suffer from
both complexity and the fact that they diverge considerably from current
law. The question therefore arises how one might simplify
the rules suggested without either sacrificing the basic ideas or introducing
major complexity into current law. The following offers
some general suggestions.
1. Basic Problems Under Current Law
The principal authorities that govern the taxation of options are
Revenue Ruling 78-182 155 and, for options on financial assets (other
than those taxed under § 1256, or held as inventory or by dealers), §§
1234 and 1234A. In general, these authorities provide for open transaction
treatment on the writing of an option and for capital treatment
on sale, exchange, lapse, termination, or exercise of the option
if the underlier is or would be a capital asset in the taxpayer’s hands.
When the option is exercised, in the case of a call the cost of the option
is added to the purchaser’s basis and treated as part of the
amount realized by the seller, and the cost of a put is treated as a reduction
in the amount realized by the seller and as reducing the purchaser’s
basis in the property. There is some question whether any of
these authorities apply to options that by their terms are or may be
cash-settled.
The main differences between these rules and the rules set forth
in Subparts III.A and III.B are as follows:
1. Existing law places most options on open-transaction accounting;
154. Id. at 1663.
155. Rev. Rul. 78-182, 1978-1 C.B. 265.

836 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
2. Existing law treats all portions of the option premium as
capital (assuming the underlier is a capital asset in the
hands of the relevant party), whereas the preceding discussion
suggests that the option premium, to the extent it is for
an OTM option, is ordinary income to the option writer (and
creates an ordinary expense to the option purchaser);
3. No interest income or deduction is imputed to the parties
to an option under present law, whereas economically all
parts of the option premium are discounted to the present
value of the premium payment on the exercise date; and
4. The nonproperty portion of an option transaction is not
separately treated from the property portion.
The first of these differences is the most significant because it
represents a significant deferral opportunity in light of the fact that
many parties to option transactions may be tax-indifferent, or at
least relatively tax-indifferent. 156 The simple solution is to treat option
premiums as generating ordinary income to the writer and as
providing a deduction to the purchaser in the period in which the
strike date (or the last strike date for American options) occurs. Regarding
timing, this change to the law could be accomplished administratively
through the revocation of Revenue Ruling 78-182, except
that it is unclear whether the Service would or should revoke 78-182
in light of Congress’s evident intent to affirm open transaction
treatment through adoption of §§ 1234 and 1234A. Further, character
changes would need to be addressed through amendment of §§
1234 and 1234A directly.
If one wanted to rectify the problem of mixed ordinary and capital
treatment of the premium, it would be necessary for Congress to remove
the statutory obstacles to bifurcation (again, §§ 1234 and
1234A). Having done that, the Treasury likely would have authority
to require bifurcation of the option into capital and noncapital portions
on the option sale date and to require separate accounting of
the various pieces of the option payout on the date of exercise, lapse,
or disposition. 157 This might or might not prove burdensome, but the
fact that parties dealing in financial options tend to be sophisticated
weighs in favor of a relatively robust accounting regime, possibly
156. See David M. Schizer, Balance in the Taxation of Derivative Securities: An Agenda
for Reform, 104 COLUM.L.REV. 1886, 1893-94 (2004).
157. See 26 U.S.C. § 446 (2006) (requiring taxpayer’s method of accounting to “clearly
reflect income”); 26 U.S.C. § 7805 (providing Treasury general authority to prescribe regulations
under Title 26).

2010] FINANCIAL OPTIONS IN THE REAL WORLD 837
augmented by a simplified accounting method that taxpayers could
elect to have apply. 158
As regards the problem of failing to account for interest, one could
impute interest income and deduction to the parties on the option
premium. It is not clear that any provision of current law prevents
such an imputation. A somewhat less accurate but administratively
easier approach would be to treat payment of the option premium as
a closed transaction on the option sale date, as indicated above.
Finally, the failure to tax the ITM portion of an option on the option
sale date mainly becomes an issue only if forwards become subject
to current taxation, as a number of commentators have argued
they should. 159 If forwards were taxed on a current basis, it would be
appropriate if not necessary given the similarity of the ITM portion of
ITM options to forwards to alter the rules for options to require identification
of the ITM portion, if any, with associated treatment under
the forward contract rules. By the same token, it is unclear how
much would be sacrificed on the option side in preserving open
transaction treatment for both standard forwards and the ITM portion
of an option. If the distortion is small, the gain in simplicity may
be worth the cost of incorrect taxation. Of course, that result would
preserve whatever distortions persist as a result of the system’s failure
to tax forwards correctly.
A further, less significant, problem resulting from the failure to
tax the ITM portion of an option as a forward on the option sale date
is that the current rules do not treat any portion of the option sale as
taxable if the option is not exercised. The analysis here has demonstrated,
however, that economically the owner of the underlier should
be taxed on the forward portion of the ITM option regardless of
whether the option is exercised. Nonexercise should be treated as a
sale back to the option writer, resulting in appropriate basis adjustment,
not as though no sale had occurred.
2. Proposals
The discussion above suggests the following rules as a possible regime
for taxing financial options.
a. Option Sale Date
� To the extent the option is OTM, the writer includes the
premium in income. The holder takes a deduction under §
162 or 212 for the premium in the period in which or with
158. See, e.g., Prop. 26 C.F.R. § 1.446-3(e) (proposing a variety of methods to account
for nonperiodic contingent payments made on certain NPCs).
159. See supra Part III.A.

838 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
which ends the last day that the option may be exercised,
subject to any limitations that may apply. 160
� To the extent, if any, the option is ITM, the parties treat
the premium as a loan or a prepayment. The reason for differing
treatment from the OTM piece is that this portion of
the premium is nothing more than a payment arrangement
for the fluctuation in the part of the underlier sold forward.
Interest is imputed to the option holder at the risk-free rate,
with a corresponding deduction to the option writer. Alternatively,
the premium could be included and deducted on receipt,
with corresponding adjustments on exercise.
� For an ITM option, the portion of the option that
represents a forward sale is treated as such on the option
sale date, with gain or loss recognized on that date. This
rule presupposes that the rules for forwards are changed to
provide for taxation on the sale date rather than on the date
of delivery.
o As an alternative, the forward may be held open until
the exercise date, in which case the deemed purchase
price must include an interest factor. Further, on lapse,
the portion sold forward is treated as immediately
sold back.
b. Option Exercise
� For non-ITM options, the transaction is a sale at the exercise
price, with gain or loss recognized. Character depends on
whether the seller of the property holds it as a capital asset.
o A policy question arises regarding the measuring period
for the underlier owner. Where the seller’s holding
period on the option sale date is one year or less and on
the exercise date is more than one year, it is unclear
whether gain or loss on exercise should be short-term or
long-term. 161 As explained above, the sale in effect occurs
in two stages. Administrability considerations suggest
that a bifurcation regime should not apply, while
the general policy of limiting the preferential treatment
of capital transactions suggests that the gain or loss
should be short-term. On the other hand, there may be
160. See, e.g., §§ 68 (phase-out of itemized deductions), 161 (denying double deduction
for any item), 261 (disallowance of deductions for expenditures that must be capitalized).
161. See 26 U.S.C. § 1(h) (2006) (providing for preferential treatment of long-term capital
gains for individuals); 26 U.S.C. § 1222 (defining long-term capital gains as gains on
capital assets held more than one year); 26 U.S.C. § 1223 (defining holding period).

2010] FINANCIAL OPTIONS IN THE REAL WORLD 839
greater deadweight loss from denying long-term capital
treatment in this setting than from permitting it. The
correct answer is not clear.
� For ITM options, exercise represents a sale of the balance
of the underlier, but taking account of basis already assigned
to the portion sold forward on the option sale date.
c. Option Lapse or Cancellation
� On a non-ITM option, there are no consequences on lapse
other than deduction for the premium, if it has not already
been deducted.
� On an ITM option, the property previously treated as sold
forward is treated as sold back; if it was held open on the option
sale date, a sale and sale-back occur.
V. CONCLUSION
Options represent nothing more than a particular type of property
division. They are not spatial, as when a party sells a physical piece
of a larger asset, temporal, as when a party sells a leasehold or a remainder
interest in an asset, or “vertical,” as when a party sells a
ratable share of property so that the two owners share risk and reward
as tenants in common. In their pure form, options are a division
of risk and reward for which the party bearing the risk without the
reward is appropriately compensated. In addition, ITM options become,
in part, a horizontal or sequential transfer of ownership, much
as may occur in a partnership. This horizontal form of ownership divides
the incidents of ownership according to who bears the first risk
and benefit, and who bears the rest. As previously explained, the
ITM portion is identical to a collar transaction, except that in a collar
the original property owner retains the first risk and benefit while
selling the last; while in the ITM portion of an ITM option, the original
owner retains the last and sells the first.
The forward transfer of property that takes place in the ITM portion,
if any, of an option has not been identified previously because the
payment arrangement between the parties to an option transaction
obscures it. This payment arrangement ensures that the option purchaser
makes only one payment to the option seller (apart from a
payment in connection with the exercise of a call), and it reflects appropriate
discounting at the risk-free rate because the payment occurs
on the option sale date, not the exercise date. But the payout structure
of any actual ITM option is identical to the payout structure associated
with a forward transfer of a portion of the underlier coupled with a
garden-variety OTM option. This structure explains why, even though

840 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:789
non-ITM options are fundamentally different from forward sales as regards
the portion of property disposed of, ITM options become partial
forwards and shade into full forwards at the limit.
Our realization-based income tax recognizes a difference between
“ordinary” and “capital” income—however tenuous or unstable the underlying
concepts may be. In light of the difference, and assuming it
persists, the tax system ought to attempt to identify the portions of option
transactions that qualify as ordinary or capital and tax them accordingly,
assuming that administrative costs resulting from complexity
and gamesmanship do not swamp the benefits that might arise from
a more accurate taxation of options. Part III offers one set of possible
solutions in light of these concerns, but it is by no means the only possible
set. It also illustrates some of the tradeoffs that arise in any effort
to develop a workable system that taxes options in approximately the
“correct” manner, where “correct” is understood against a baseline of
realization-based taxation for risky returns generated by capital and
special rates and basketing rules for capital income.

METHADEMIC: DRUG PANIC IN AN AGE OF
AMBIVALENCE
DEBORAH AHRENS *
ABSTRACT
The story of criminal sanctions in modern America is a familiar—and depressing—
narrative. According to the narrative, we live in an era where the dynamics of popular politics,
the practices of the media, and the (often racialized) anxieties of modern life combine to
create a one-way ratchet, in which we identify perceived new threats to public order and respond
unthinkingly with harsh new criminal sanctions. On the surface, the wave of concern
over methamphetamine that swept the nation in the middle part of this decade followed this
script, as a media panic led to substantial popular concern and significant new legislation.
When one digs a little deeper, however, the story is more complicated: Instead of a singular
focus on increased criminal penalties and mass incarceration, we see a multifaceted strategy
focused on educating the public, limiting access to ingredients, and remediating environmental
concerns raised by the manufacture of the drug.
Why has public and legislative concern about a drug described in terms of natural disasters
and communicable deadly diseases generated cold medication restrictions and educational
programs rather than extensive new criminal law? This Article—the first comprehensive
examination of our legal and cultural response to methamphetamine—asks and attempts
to answer that question. After providing a succinct history of modern American drug
policy, the Article narrates the wave of coverage that sparked concern about a possible “Methademic”
and then catalogs state and local responses to the alleged threat. It concludes by
offering some informed speculation about the possible reasons for this surprisingly tepid response.
After considering and rejecting or partially crediting a number of explanations—
most notably that the popular identification of methamphetamine as a “white drug” muted
the expected hostility to its users—the Article concludes that the public response to methamphetamine
was, in fact, the first chapter in a new era of drug policy: the age of ambivalence.
I. INTRODUCTION .................................................................................................. 842
II. A (RELATIVELY)BRIEF HISTORY OF AMERICAN DRUG POLICY .......................... 846
A. The Twentieth Century and Drug Policy Development .............................. 847
1. The Temperance Movement ................................................................. 848
2. The Racialization of Opiates and Narcotics ........................................ 849
3. Marijuana (and LSD) .......................................................................... 851
B. Crackademic: The 1980s and Beyond ........................................................ 852
III. METHADEMIC! ................................................................................................... 859
A. Methamphetamine Use as an “Epidemic” .................................................. 860
B. Legislative Responses to Methamphetamine .............................................. 865
1. Precursor Regulations .......................................................................... 867
2. Methamphetamine Registries .............................................................. 872
3. Property Regulations ........................................................................... 873
4. Child-Protective Measures ................................................................... 875
5. Methamphetamine Prisons .................................................................. 876
6. Drug Treatment Courts ....................................................................... 876
7. Educational Programs ......................................................................... 878
IV. MAKE NEW DRUG LAWS, BUT KEEP THE OLD.................................................... 879
A. Familiar Fourth Amendment Developments ............................................. 880
* Assistant Professor, Seattle University School of Law. JD, New York University;
MPP, Harvard University; BA, Brown University. I would like to thank the University of
South Carolina School of Law and Seattle University School of Law for their generous research
support; fellow panelists at the 2008 Law and Society Conference for their helpful
comments; Andrew Tsoming and James Arsenault for their research assistance; and my
husband, Andrew Siegel, for all of his advice and assistance.

842 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
B. “But What About the Children?” ................................................................ 882
V. WHY IS THIS PANIC DIFFERENT FROM ALL OTHER PANICS? .............................. 884
A. Some Preliminary Theories ........................................................................ 884
1. Race ...................................................................................................... 884
2. Media Coverage.................................................................................... 888
3. Alternative Panics ................................................................................ 890
4. Personal Responsibility as Political Focus .......................................... 892
5. Privatizing/Outsourcing ..................................................................... 894
B. An Age of Ambivalence ............................................................................... 895
VI. CONCLUSION ..................................................................................................... 898
I. INTRODUCTION
The mainstream scholarly read of criminal law and sentencing in
the United States is that the nation has in modern times moved only
in one direction, towards increased criminalization of behavior and
lengthier sentences for crimes. 1 This expansion of law and creation of
prison cells occurs regardless of whether crime is increasing and
whether empirical studies support its need—either the public demands
that the criminal law extend to cover additional conduct and
legislators are only too happy to oblige, or legislators perceive political
gains to be possible if they persuade the public that a given behavior
is particularly socially dangerous and merits criminalization
or increased punishment. In particular, in the area of illicit drugs,
legislators have expanded codes and increased penalties over the
course of the twentieth century—most strikingly, since the mid-
1970s—in ways that have dramatically increased our prison population.
At this point, the United States imprisons both the largest
number of people and the highest percentage of its citizenry of any
1. This phenomenon is sometimes referred to as a “one-way ratchet”: for political
reasons, legislatures can only move in the direction of criminalization and imprisonment.
See, e.g., Lynn Adelman & Jon Deitrich, Rita, District Court Discretion, and Fairness in
Federal Sentencing, 85 DENV. U.L.REV. 51, 54 (2007) (describing the United States Sentencing
Guidelines Commission’s process of creating guidelines as a “one-way ratchet” increasing
sentences); Nancy J. King, Judicial Oversight of Negotiated Sentences in a World
of Bargained Punishment, 58 STAN. L.REV. 293, 301 (2005) (describing Congressional adjustments
to federal sentencing rules as a “one-way ratchet”); Erik Luna, The Overcriminalization
Phenomenon, 54 AM.U.L.REV. 703, 719 (2005) (positing that the criminal code expands
because politicians have a political incentive to criminalize but not to decriminalize);
Alice Ristroph, Desert, Democracy, and Sentencing Reform, 96 J. CRIM. L.&CRIMINOLOGY
1293, 1349 (2006) (describing majority rule as a “one-way ratchet” that expands the penal
state); William J. Stuntz, The Pathological Politics of Criminal Law, 100 MICH. L.REV.
505, 507 (2001) (arguing that “all change in criminal law seems to push in the same direction—toward
more liability”); Ian Weinstein, The Revenge of Mullaney v. Wilbur: United
States v. Booker and the Reassertion of Judicial Limits on Legislative Power to Define
Crimes, 84 OR. L.REV. 393, 399 (2005) (describing a “one-way ratchet” in which legislation
“only begets more penal law and imposes even harsher sentences”). But see Darryl K.
Brown, Democracy and Decriminalization, 86 TEX. L.REV. 223, 225 (2007) (arguing that
“[t]he ratchet of crime legislation turns both ways” and describing ongoing legislative efforts
to decriminalize behavior).

2010] METHADEMIC 843
nation in the world. 2 Scholars and lay commentators, seeking to explain
the striking incarceration increase in modern America, often
point to the widespread criminalization of drug use and, in particular,
to the increased attention to and enforcement of antidrug laws as
part of the “War on Drugs.” 3
After the rash of media articles about methamphetamine in 2005
and 2006, 4 an observant student of American criminal sanctions
might have expected to find, ensconced in new methamphetaminerelated
legislation, exponentially increased penalties, new mandatory
minimum sentences, life imprisonment for multiple offenses—the
sorts of changes in the law that occurred in response to a perceived
epidemic of crack cocaine during the late 1980s and early 1990s. 5 The
one-way ratchet of criminal sanctions would have turned in the direction
of code expansion and punishment increase, and sellers, producers,
and users of methamphetamine would have expected to find
themselves incarcerated.
Those sorts of changes, however, have not broadly characterized
new methamphetamine legislation. Rather, the bulk of changes have
either restricted the ability of potential methamphetamine manufacturers
to access the materials used to generate methamphetamine or
sought to contain the effects of methamphetamine use and production
on innocent bystanders who might be exposed to environmental
toxins and laboratory explosions. 6 Certainly, some themes that we
have seen with past waves of drug legislation and litigation have
been repeated—in particular, the insulation of children from the effects
of drug use and the expansion of Fourth Amendment exceptions
2. The United States has increased its incarcerated population fivefold since the early
1970s. According to the Bureau of Justice Statistics, by the middle of 2007, 1,595,034
persons were incarcerated in state and federal prisons, and an additional 766,010 persons
were either serving sentences in local jails or held in jail pretrial. See WILLIAM J. SABOL &
HEATHER COUTURE, U.S.DEP’T OF JUSTICE, PRISON INMATES AT MIDYEAR 2007, (Jun. 2008)
1, 6, available at http://bjs.ojp.usdoj.gov/index.cfm?ty=pbdetail&iid=840; see also PEW CTR.
ON THE STATES, ONE IN 100: BEHIND BARS IN AMERICA 2008 3, 5 (2008), available at
http://www.pewcenteronthestates.org/uploadedFiles/8015PCTS_Prison08_FINAL_2-1-
1_FORWEB.pdf (finding that one in 100 adult Americans currently are incarcerated in jail or
prison, and providing breakdowns of incarceration rates by race and gender). In addition, a
substantial number of Americans, while not incarcerated, are under probation and parole supervision.
See generally PEW CTR. ON THE STATES, ONE IN 31: THE LONG REACH OF AMERICAN
CORRECTIONS (2009), available at http://www.pewcenteronthestates.org/uploadedFiles/
One%20in%20100.pdf.
3. See, e.g., MICHAEL TONRY, MALIGN NEGLECT—RACE, CRIME, AND PUNISHMENT IN
AMERICA 4 (1995) (discussing the degree to which the “War on Drugs” is responsible for the
mass incarceration of African Americans); Kenneth B. Nunn, Race, Crime and the Pool of
Surplus Criminality: Or Why the “War on Drugs” was a “War on Blacks,” 6 J. GENDER RACE
&JUST. 381, 393 (2002) (arguing that “[t]he mass incarceration of African Americans is a
direct consequence of the War on Drugs” and offering data to demonstrate more generally
the connection between drug policy and increased incarceration rates).
4. See infra Part III.A.
5. See infra Part II.B.
6. See infra Part III.B.

844 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
to accommodate law enforcement needs. 7 Methamphetamine users,
producers, and traffickers have been prosecuted and incarcerated, 8
while some states have increased the penalties for methamphetamine
offenses. 9 However, in general, the law’s response to the methamphetamine
pandemic has been more tempered than recent history
might project. 10
What explains the difference in legislative response? Perhaps
some of it has to do with race. According to some scholarship on drug
control in the United States, drug prohibition tends to dovetail with
cultural attitudes towards particular groups (generally defined by
race, ethnicity, class, or national origin), and anxiety about particular
subgroups manifests itself through draconian new criminal sanc-
7. See infra Part IV.
8. See, e.g., BUREAU JUST. STAT., FEDERAL JUSTICE STATISTICS 2005, BUREAU JUS
STATISTICS BULLETIN 2 (September 2008), available at http://bjs.ojp.usdoj.gov/
index.cfm?ty=pbdetail&iid=1104 (noting that twenty-two percent of Drug Enforcement
Agency arrests in 2005 were for methamphetamine offenses).
9. See, e.g., Act of May 21, 2004, ch. 845, §§2-3, 2004 Tenn. Pub. Acts 1922, 1923 (codified
at Tenn. Code. Ann. §39-17-417 (Supp. 2005)) (lowering the triggering quantity of
methamphetamine for certain sentences from 100 and 1000 grams to 26 and 300 grams).
10. For recent works that note this surprising trend, see DORIS MARIE PROVINE, UNEQUAL
UNDER LAW: RACE IN THE WAR ON DRUGS 165-66 (2007) (citing evidence about methamphetamine
policy and concluding that, when it comes to drug policy, there seem to be “signs that
something may have been learned from past experience”); Michael B. Cassidy, Examining Crack
Cocaine Sentencing in a Post-Kimbrough World, 42 AKRON L. REV. 105, 133-34 (2009) (“Perhaps
a better indicator of Congress’ willingness to change is its handling of the dramatic rise of methamphetamine,
which some have termed the ‘new crack.’ In 2006, Congress enacted the first
comprehensive methamphetamine law, which, surprisingly, focuses less on tougher penalties
and more on cutting off access to the ingredients used to manufacture the drug.”); see also Maureen
P. Smith, Comment, America’s Methamphetamine Crisis: Solving One of America’s Leading
Drug Problems Through Child Abuse and Nuisance Laws, 57 CATH.U.L.REV. 605, 612 (2008)
(advocating the use of nuisance and, to a lesser extent, child abuse laws as primary tools for
fighting methamphetamine despite offering a hyperbolic account of current problems caused by
the drug).
The academic literature on our cultural and legal response to methamphetamine is still in
its infancy. The leading sociologists and criminologists who study drug policy have thus far been
surprisingly silent about methamphetamine. A few law journals have published scattered pieces—often
student works—cataloging and critiquing some meth-related legislations. See, e.g.,
Maureen P. Smith, Note, Cooking Up Solutions to a Cooked Up Menace: Responses to Methamphetamine
in a Federal System, 119 HARV. L.REV. 2508 (2006); see also Elizabeth E. Joh, Imagining
the Addict: Evaluating Social and Legal Responses to Addiction, 2009 UTAH L. REV. 175
(comparing media coverage of and legal response to methamphetamine addiction with the very
different response to tobacco addiction). The Sentencing Project, an academically-inclined advocacy
organization, has published one significant study: RYAN S. KING, THE SENTENCING
PROJECT, THE NEXT BIG THING?METHAMPHETAMINE IN THE UNITED STATES (2006), available at
http://www.sentencingproject.org/doc/publications/dp_nextbigthing_meth.pdf. Popular commentators
have shown a bit more interest. See, e.g., DIRK JOHNSON, METH: THE HOME-COOKED
MENACE: HOW A LETHAL DRUG IS DEVASTATING OUR COMMUNITIES AND WHAT’S BEING DONE
ABOUT IT (2005) (offering a hyperbolic account of meth use and its consequences); NICK REDING,
METHLAND: THE DEATH AND LIFE OF AN AMERICAN SMALL TOWN (2009) (offering a more
nuanced portrait of meth use and its consequences, one that largely portrays meth use as an effect—rather
than a cause—of the decline of rural America).

2010] METHADEMIC 845
tions. 11 A common interpretation of the harsh response to crack cocaine,
for example, is that the perceived epidemic coincided with anxiety
about urban crime and racially-tinged animosity against what
were perceived as mostly African-American users and sellers; the resulting
expansive sanctions reflected racism against African Americans.
12 Perhaps the comparatively sanguine reaction to methamphetamine
results from the fact that the majority of users are white. 13
Relatedly, perhaps the fact that the majority of methamphetamine
users are white has changed the incentives for press, police, and politicians.
If past drug hysteria was fueled by racialized bias and anxiety,
and the press, public, and law enforcement officials have—due to
the race of most methamphetamine users—tempered their responses
and couched descriptions of the perceived methamphetamine epidemic
in less florid language than they have used in the past, they may
have produced a climate in which there is simply less demand for a
draconian legal response. 14 Alternatively, the pressure for legislative
change might flow from legislators and executives themselves: representatives
and administrators might cynically perceive that they can
increase personal or institutional power by persuading the public
that there exists a serious problem with a particular substance or a
group that might be linked to that substance. Perhaps officials believe
that they have less to gain with harsh rhetoric and legislation
where a drug-linked group is Caucasian.
These theories go some distance, perhaps, in explaining the difference
between past legislative responses to drug use and the current
response to the use, sale, and manufacture of methamphetamine, but
they are insufficient to provide a full account. To the contrary, there
is increasing evidence that something bigger is going on: careful and
contextual examination of our cultural and legislative response to
methamphetamine suggests that public attitudes towards drug regulation
more generally seem to be changing. There is increasing evidence
that the current legislative climate seems generally hostile to
ratcheting up criminal sanctions for drug crimes and that the public
appetite for harsh sanctions has begun to wane. 15 The “one-way rat-
11. See, e.g., JAMES B. BAKALAR &LESTER GRINSPOON, DRUG CONTROL IN A FREE
SOCIETY 69 (1998) (“Attitudes toward minorities, work, worldly success and failure, or sex
and family life sometimes turn out to be the real issues in a controversy about drugs.
Drugs are symbols charged with cultural tensions.”).
12. For discussion of the role that race played in fueling the legislative and cultural
response to crack cocaine, see infra Part II.B and the works cited therein.
13. For data on the racial composition of those using or selling methamphetamine, see
infra notes 115-16 & 210 and accompanying text.
14. See infra Part V.A.2.
15. For a discussion of this trend in the context of methamphetamine, see infra Part III.
For some recent high-profile incidents in which the trend has played out more broadly, see,
for example, Theo Emery, Will Crack Cocaine Sentencing Reform Help Current Cons?, TIME ,
Aug 7, 2009, available at http://www.time.com/time/nation/article/0,8599,1915131,00.html

846 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
chet” as applied to drug offenses is beginning, in some high-profile
instances, to spin in the opposite direction.
In Part II of this Article, I offer a brief overview of drug policy in the
United States, focusing on the link between sanctions for drug offenses
and the subgroups against which those sanctions have been targeted.
In particular, I focus on the literature surrounding the crack cocaine
pandemic of the late 1980s and the legislative response to concern expressed
by the public and by the media. In Part III, I provide a synopsis
of state and federal legislative responses to methamphetamine. In
Part IV, I analyze ways in which these responses resemble and depart
from past responses to perceived epidemics of drug use. Finally, in
Part V, I provide explanations for why these responses are more tempered
than what history might have predicted.
President Barack Obama’s administration recently, and with little
fanfare, declared that the “War on Drugs” has come to a close. 16
While that announcement—and the policy shifts it represents—do
not signal that we have entered an era of drug legalization, they do
suggest that we have entered a new era in drug policy. As it turns
out, the American appetite for criminalization and incarceration is
not insatiable.
II. A (RELATIVELY)BRIEF HISTORY OF AMERICAN DRUG POLICY
The application of criminal sanctions to the use, sale, and manufacture
of various drugs is a relatively modern phenomenon. Until
the twentieth century, American criminal law did not encompass
what we would now think of as illicit drugs; substances such as
opium and cocaine were in fact commonly available in products manufactured
legally and designed for mass consumption. 17 In Subpart A,
(quoting President Obama, the Assistant Attorney General in charge of criminal law issues,
and the Chair of Federal Sentencing Commission on the need to eliminate the infamous
crack-powder cocaine sentencing disparity, citing legislative progress on such reform, and
predicting that “this may be the year” that the disparity is eliminated); Gary Fields, White
House Czar Calls for End to “War on Drugs,” WALL ST. J., May 14, 2009, at A3 (quoting new
federal Drug Czar Gil Kerlikowske’s repudiation of the language, and some of the policies, of
the so-called “War on Drugs”); see also Kimbrough v. United States, 552 U.S. 85 (2007) (allowing
judges discretion to sentence individuals convicted of crack cocaine crimes to lesser terms
based on judges’ personal disapproval of crack/powder disparity).
16. See Fields, supra note 15.
17. See LESTER GRINSPOON &JAMES B. BAKALAR, COCAINE: A DRUG AND ITS SOCIAL
EVOLUTION 28 (1976) (noting that cocaine-containing Coca-Cola was essential in putting
drugstore soda fountains at the center of 1890s culture); LESTER GRINSPOON &PETER
HEDBLOM, THE SPEED CULTURE: AMPHETAMINE USE AND ABUSE IN AMERICA 185-86 (1975)
(listing over-the-counter medications available at the end of the nineteenth century, such
as the morphine-laced Dr. Grove’s Anodyne for Infants and Dr. Moffett’s Teething Compound);
Craig Reinarman & Harry G. Levine, Punitive Prohibition in America, in CRACK IN
AMERICA: DEMON DRUGS AND SOCIAL JUSTICE 323 (Craig Reinaman & Harry G. Levine,
eds., 1997) (noting that Coca-Cola, advertised as a temperate “soft drink” alternative to alcohol,
contained cocaine, and groceries vended opium-based medications).

2010] METHADEMIC 847
I offer a short history of legislative decisions to criminalize and increase
penalties attendant to trade and possession of various substances,
viewed through the lens of the most common explanation for
the growth of such policies, which sees them as an attempt to mark
and constrain racial and other minorities who threaten the peace or
self-image of traditional majorities. In Subpart B, I focus on the literature
surrounding legislative responses to crack cocaine, the most
high-profile and thoroughly-dissected recent chapter in American
drug policy.
A. The Twentieth Century and Drug Policy Development
What we now think of as illicit drugs were once widely available
in the United States and untouched by criminal law. 18 The various
legislative developments attaching criminal sanctions to illicit drugs
are creatures of the twentieth century, and those developments have
corresponded, per many academic commentators, with periods of concern
about population groups associated with those substances. 19 According
to perhaps the most common critical narrative of United
States drug policy, changes in the criminal law as applied to illicit
drugs come not at times of actual increases in drug use or drugrelated
social problems; rather, at times of anxiety about particular
disfavored social groups, the panicking public develops drug laws to
regulate and punish the use and sale of drugs stereotypically associated
with the disfavored group. 20 While the substances described
18. See, e.g., DAVID F. MUSTO, THE AMERICAN DISEASE: ORIGINS OF NARCOTIC
CONTROL, 1-2 (3d ed. 1999) (describing the popularity of opium use medically and recreationally
during the nineteenth century and noting that opium use and trade was restricted
only by tariff until 1909).
19. For some of the academic works central to establishing this narrative, see generally
MUSTO, supra note 18; TROY DUSTER, THE LEGISLATION OF MORALITY: LAW, DRUGS, AND
MORAL JUDGMENT (1970); JOSEPH R. GUSFIELD, SYMBOLIC CRUSADE: STATUS POLITICS AND
THE AMERICAN TEMPERANCE MOVEMENT (1963). For a more recent work that effectively
summarizes and updates this narrative, see PROVINE, supra note 10; see also Erik Grant
Luna, Our Vietnam: The Prohibition Apocalypse, 46 DEPAUL L. REV. 483, 486-512 (1997)
(summarizing the history of American drug policy in terms largely consistent with these
works and with this Article).
20. This thesis has not gone unchallenged. For works that are at least skeptical of the
idea that drug policy has primarily been about attacking disfavored social groups, see, for
example, BAKALAR &GRINSPOON, supra note 11, at 68-72 (discussing forces that have contributed
to modern drug control policies and emphasizing the fact that “drugs are not just
symbols; they are substances with distinct chemical properties and physical and psychological
effects”); GRINSPOON &BAKALAR, supra note 17, at 39-40 (“Naturally, then, many
people think that racial prejudice inspired the hostility toward cocaine . . . . But we suspect
that racial prejudice was ancillary.”); Randall Kennedy, The State, Criminal Law, and Racial
Discrimination: A Comment, 107 HARV. L.REV. 1255, 1255-56 (1994) (critiquing scholarship
and a then-recent court decision equating crack-powder cocaine disparity with racial targeting
of African-Americans and arguing that police indifference to effects of crime on African-
American communities is a bigger problem and a more virulent form of racism).

848 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
here doubtlessly can be dangerous for personal use and lead to negative
social consequences for the communities in which users 21 live,
the policy responses to those dangers and consequences are perhaps
not those that rational legislatures would devise.
1. The Temperance Movement
While antidrug movements and legislation are twentieth-century
developments, they were predated by a temperance movement against
alcohol. Temperance advocates linked alcohol consumption to immigrant
groups (particularly Irish and Italian immigrants) who were also
at the time racialized as nonwhite. 22 Advocates blamed alcohol consumption
among these groups for a host of social ills, including domestic
abuse, thievery, and violent crime. 23 In examining the temperance
movement’s reasons for drawing a connection between alcohol use and
these social problems, Joseph Gusfield has argued that temperance
“was one way in which a declining social elite tried to retain some of its
social power and leadership.” 24 The politics of temperance was focused
on reinforcing both the distinction between the rural, middle-class, native
Protestant and the poor urban immigrant and the social dominance
of the former. 25 Still, in terms of operationalizing its goals, the
temperance movement sought “regulatory prohibition”—preventing
persons from accessing alcohol through civil and administrative rules,
rather than through the use of criminal law. While temperance advocates
sought to eliminate the use of alcohol, individual use was never
criminalized. 26 In other words, while the temperance movement
wished to limit consumption of alcohol, and cast its arguments in moral
terms, it did not seek to bring to bear the severe social stigma associated
with criminal conviction and punishment. 27
21. I refer throughout this Article to substance users, rather than substance addicts
or abusers. As discussed below, not all persons who use drugs recreationally use them often
or otherwise exhibit signs of addiction and abuse.
22. The classic account of the racial and ethnic politics at the heart of the temperance
debate is GUSFIELD, supra note 19; cf. MARY P. RYAN, CRADLE OF THE MIDDLE CLASS: THE
FAMILY IN ONEIDA COUNTY, NEW YORK, 1790-1865 (1981) (examining the milieu in which
the American temperance movement first emerged and locating its impulse in a complex
web of ethnic, class, and religious animosities). For two provocatively titled accounts of the
ways in which American culture and politics once racialized particular European ethnic
groups, see NOEL IGNATIEV, HOW THE IRISH BECAME WHITE (1996); DAVID ROEDIGER,
WORKING TOWARD WHITENESS: HOW AMERICAN IMMIGRANTS BECAME WHITE: THE
STRANGE JOURNEY FROM ELLIS ISLAND TO THE SUBURBS (2006).
23. See, e.g., Reinarman & Levine, supra note 17, at 323.
24. GUSFIELD, supra note 19, at 5-6 (arguing that temperance was essential to distinguishing
the middle class, the hard worker, and the native American from the lower class,
the layabout, and the immigrant).
25. Id. at 6, 55-57.
26. See Reinarman & Levine, supra note 17, at 323.
27. The Temperance Movement did enjoy short-lived success in the form of the Volstead
Act and the Twenty-First Amendment. See U.S. CONST. amend. XVIII (1919), repealed
by U.S. CONST. amend. XXI (1933); National Prohibition Act (Volstead Act), 41 Stat.

2010] METHADEMIC 849
2. The Racialization of Opiates and Narcotics
Early efforts to restrict access to substances such as opium, cocaine,
and marijuana similarly involved regulatory prohibition rather
than the use of criminal law. Preliminary state laws required prescriptions
for or otherwise limited the ability of consumers to purchase
opium and cocaine. 28
The linkage between concern about particular social groups and
increased regulations of substances associated with that group, first
noted with regard to the Temperance Movement, manifested itself in
new ways during the early twentieth century. As David Musto argues,
during that era, drug addiction became associated with “foreign
groups and internal minorities who were already actively feared and
the objects of elaborate and massive social and legal restraints.” 29 In
particular, drug use was tied to Chinese immigrants and African
Americans. Americans associated opium smoking, for example, with
Chinese immigrants, against whom they were already mobilizing
other restrictive legal tools (particularly immigration controls). 30
Initially, the response to increased concern about drug use was
once again regulatory. For example, the Harrison Narcotics Act, 31
adopted by Congress in 1914, required producers and distributors to
register with the government, track transactions, and pay special
taxes for handling drugs; unregistered persons could purchase drugs
only by prescription or for medical use. 32 Still, unlawful possession of
a drug was not criminalized; it might furnish evidence that the tax
and regulatory schemes had been violated, but it did not subject the
305 (1919), repealed by U.S. CONST. amend. XXI (1933). States retain wide latitude to regulate
alcohol under the Twenty-First Amendment, but the great bulk of jurisdictions
permit the sale of alcohol and limit themselves to time, place, and manner restrictions
(such as laws confining sales to particular days, hours, or locations, limiting the ability of
buyers to purchase small, inexpensive “minibottles,” prohibiting overservice, restricting
drinking for persons under the age of twenty-one, preventing restaurants from serving alcohol
on Sundays, or prohibiting public drunkenness). Even jurisdictions that prohibit the
sale of intoxicating liquors do not criminalize “responsible” use of alcohol by persons over
the age of twenty-one.
For a new and interesting take on the relationship between alcohol and drug regulation,
see GEORGE FISHER, MARRIED TO ALCOHOL: THE DRUG WAR’S MORAL ROOTS (forthcoming).
28. See GRINSPOON &BAKALAR, supra note 17, at 40 (as of 1912, fourteen states had
established school-based drug education to warn about cocaine and opium; as of 1914, forty-six
states had some restrictions on cocaine purchases, and twenty-nine states had some
restrictions for opium purchases).
29. MUSTO, supra note 18, at 5.
30. See id. at 3; GRINSPOON &HEDBLOM, supra note 17, at 185 (noting a shift in public attitudes
about opiates from a sympathetic association with white, wounded, morphine-addicted
Civil War soldiers to negative associations with opium-using Chinese laborers).
31. Pub. L. No. 63-223, 38 Stat. 785 (1914).
32. See GRINSPOON &BAKALAR, supra note 17, at 41 (describing the Act).

850 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
violator to criminal sanctions. And to the extent that states prohibited
narcotics distribution, enforcement was lax. 33
By 1931, the landscape had changed. As of 1931, thirty-six states
made unauthorized possession of cocaine a criminal offense, and in
1951, federal law began to impose mandatory prison sentences for cocaine
possession. 34 While this shift to criminal regulation has never been
fully explained, it does correlate with an explosion of racialized imagery
and a deepening of social anxiety about minority groups. During this
era, concern about the large Chinese labor force in western states hit a
fever pitch. Stories about Chinese immigrants using opium to lure white
women into sexual slavery proliferated. Similar complaints about the
use of opium by other “inferior” and “debased” people—Italian, Jewish,
and central European immigrants—began to appear; such individuals
were thought to be engaging in behaviors “contrary to white supremacy
and white morality.” 35 By the end of World War II, heroin had largely
supplanted opium as the opiate of choice, and “racial and social prejudices”
against black and Hispanic users “helped solidify national attitudes”
against heroin and opium use. 36
After years of being considered a health tonic, American opinion of
cocaine turned to one of censure, as cocaine use became associated in
the popular mind with various disfavored social groups, 37 in particular
African Americans. 38 Fear of cocaine-using African Americans
came at a time when lynching, disenfranchisement, and legallyenforced
segregation were still central features of the American landscape.
39 Some whites envisioned horrific encounters in which African
Americas cocaine-users would develop violent, superhuman strength
and would foil law enforcement attempts to subdue them; some stories
went so far as to suggest that such cocaine users would act as if
invulnerable to bullets. 40 Narratives abounded about cocaine-fueled
33. See MUSTO, supra note 18, at 9 (explaining that states generally lacked sufficient
manpower to enforce narcotics restrictions).
34. See GRINSPOON &BAKALAR, supra note 17, at 42 (cataloging these changes).
35. GRINSPOON &HEDBLOM, supra note 17, at 185.
36. Id. at 188.
37. See GRINSPOON &BAKALAR, supra note 17, at 39; see also Preface to the Expanded
Edition of MUSTO, supra note 18, at x (noting that cocaine, once viewed as “an ideal tonic,”
was reconstructed as “the most dangerous of all drugs” by 1900).
38. See generally MUSTO, supra note 18, at 43-44 (noting the association between African
Americans and cocaine in a variety of sources). Ironically, African Americans did not in
fact use cocaine in numbers greater than, or even equal to whites. See GRINSPOON &
BAKALAR, supra note 17, at 40 (arguing that African Americans probably had less access to
cocaine because of their relative poverty, and noting that the best documented cocaine addiction
cases were white professional men, particularly doctors); see also MUSTO, supra
note 18, at 8.
39. See MUSTO, supra note 18, at 7.
40. See GRINSPOON &BAKALAR, supra note 17, at 39.

2010] METHADEMIC 851
men raping Caucasian women. 41 It is with regard to cocaine that the
now-familiar narrative first became explicit: we must prohibit and
criminalize drug possession to prevent dangerous people from accessing
dangerous substances. 42
3. Marijuana (and LSD)
Marijuana legislation similarly dovetailed with prejudice. As marijuana
use became linked with Mexican immigrants, government
concern and expanded sanction followed apace. 43 During the 1930s,
for example, the Federal Bureau of Narcotics conducted a raciallytinged
educational campaign describing marijuana as such a potent
criminological agent that a single use could transform an upstanding
citizen into a violent criminal. 44
The history of marijuana regulation nicely illustrates that the disfavored
subgroup theory is not uniformly about race, ethnicity, or
immigration. In the 1960s and early 1970s, a new round of drug
regulation followed quickly 45 as some drugs—marijuana and LSD, in
particular—became associated with a band of political and cultural
dissenters. 46 Drug use became an axis on which dissenters explicitly
set themselves apart and drug policy served as a mechanism through
which the cultural majority reinforced its status as the embodiment
of moral norms. 47 Through this lens, attention to drug use in the
41. See id. at 38-39 (detailing how cocaine was linked in media articles to African-
American convicts, lower economic classes, Jewish vendors, prostitutes, and poorlybehaved
soldiers).
42. See id. at 40. Like with marijuana, see infra notes 43-47 and accompanying text,
the cultural anxieties that spawned the crackdown on cocaine transcended race. Grinspoon
and Bakalar argue that racial prejudice was probably ancillary to a general desire to keep
cocaine out of the hands of all potentially “dangerous” persons, including white women who
might be seduced or corrupted by exposure to cocaine. See id.
43. On the association of marijuana with Mexican immigrants, see, for example, H.
WAYNE MORGAN, DRUGS IN AMERICA: ASOCIAL HISTORY, 1800-1980 93-94 (1981). For the
story of the passage of the first significant federal law regulating marijuana and the climate
of panic that facilitated that legislation, see HOWARD S. BECKER, OUTSIDERS:
STUDIES IN THE SOCIOLOGY OF DEVIANCE 135-46 (1973).
44. See BECKER, supra note 43, at 135-46; GRINSPOON &HEDBLOM, supra note 17, at 182.
Grinspoon and Hedblom note that no data support or supported this assertion. Id. at 183.
45. The most famous (and probably the most draconian) laws adopted during this era
were New York’s so-called “Rockefeller Drug Laws,” which (until their recent amendment)
imposed significant mandatory prison sentences for relatively minor drug infractions. See,
e.g., Act of May 8, 1973, ch. 276 §§220.21, 220.43, 1973 N.Y. Laws 371, 380-81 (codified as
amended in N.Y. Penal Law) (classifying criminal possession of two or more ounces of a
controlled substance and criminal sale of one or more ounces of a controlled substance as
Class A-I felonies).
46. See Reinarman & Levine, Crack in Context, in CRACK IN AMERICA, supra note 17,
at 7-8 (arguing that marijuana in the 1960s and 1970s became associated with youthful rebellion
against achievement and opposition to the Vietnam War, creating a “dangerous”
youth class and “a useful symbol in an essentially political conflict between cultures and
generations.”). This analysis draws upon the earlier work of Professor Becker. See generally
BECKER, supra note, 43.
47. See Reinarman & Levine supra note 46.

852 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
1960s and early 1970s was less about reducing the possible personal
or social harm associated with drug use than it was about reinforcing
the majority’s status; like in the periods preceding and following,
drug legislation during this era was often a proxy for cultural contestation
between competing social groups.
B. Crackademic: The 1980s and Beyond
The crack cocaine panic of the late 1980s probably has received
the most attention, in the scholarly press and in the popular media,
of any of the various drug panics of the past century. Sociologists
Craig Reinerman and Harry Levine have documented exhaustively
and persuasively the press coverage of the crack cocaine “epidemic,”
the timing of that coverage relative to documented trends in crack cocaine
use, the extent to which press coverage reflected accurate information
about crack cocaine effects, and the effects of press and
public response on crack cocaine litigation and legislation. 48 During
the late 1980s and early 1990s, the “one way ratchet” turned with a
vengeance. The resulting system of crack cocaine laws persists into
the present: lengthier terms of imprisonment, mandatory minimum
sentences, parole and probation ineligibility, and penalties that escalate
with increased numbers of convictions. 49
Cocaine was not a new drug when coverage of a purported epidemic
of crack cocaine use began. Cocaine, as discussed earlier, had been
used throughout the twentieth century, and its use had long violated
criminal law. 50 In surveying cocaine use in the United States as of
1976, Lester Greenspoon and James Bakalar observed that cocaine “is
rapidly attaining unofficial respectability . . . . It is accepted as a relatively
innocuous stimulant, casually used by those who can afford it to
brighten the day or the evening . . . . Use of cocaine is gradually
spreading in the upper middle class.” 51 Greenspoon and Bakalar noted
that at the time that they were writing, “[w]ith a few minor exceptions,
no one contends that coca causes any significant crime [or] violence.” 52
Whatever Greenspoon and Bakalar might have predicted about
the trajectory of social attitudes towards cocaine in the mid-1970s, by
the mid-1980s, the trajectory clearly changed, at least with respect to
48. See generally Craig Reinarman & Harry G. Levine, Crack in the Rearview Mirror:
Deconstructing Drug War Mythology, 31 SOC. JUST. 182 (2004); CRACK IN AMERICA, supra
note 17.
49. See, e.g., Reinarman & Levine, supra note 17, at 321-22 (arguing that such escalating
sanctions have typified the U.S. response to drugs and quoting government documents
that demonstrate the intentionality of such a regime).
50. See supra Part II.A.2.
51. GRINSPOON &BAKALAR, supra note 17, at 64.
52. Id. at 218.

2010] METHADEMIC 853
one particular form of cocaine—crack. 53 Smoking cocaine to obtain a
high was not new—cocaine users had for some time used cocaine by
“freebasing.” 54 What was new was the attention to and panic about
smokable cocaine.
The media coverage of crack cocaine began in earnest in 1986, and
was promptly distinguished by both its volume and its remarkable
levels of hyperbole and disinformation. 55 Newsweek quoted an expert
who described crack as a drug that produced an “instantaneous addiction”
more severe than any other; 56 the New York Times and
Newsweek compared crack cocaine to an epidemic or plague; 57 and
media sources generally described the wildfire spread, epidemic use,
plague proportions, and addictive properties of crack cocaine 58 in
ways that their own later coverage found factually incorrect. 59 Crack
cocaine was linked to violent crime. 60 As Reinarman and Levine ar-
53. Crack cocaine is a smokeable form of cocaine produced by “cooking down” a mixture
of powder cocaine, water, and baking powder. While cocaine has long been present in
this country and has been smoked extensively since at least the early 1970s, the diluted,
relatively inexpensive “cooked down” cocaine that came to be know as “crack” emerged in
urban areas in 1984 and 1985. See Reinarman & Levine, supra note 46, at 1, 2 (explaining
the emergence of “crack”). As Professors Reinarman and Levine explain “Crack was not a
new drug . . . . Crack was a marketing innovation.” Id.
54. See Beverly Xaviera Watkins & Mindy Thompson Fullilove, The Crack Epidemic
and the Failure of Epidemic Reponse, 10 TEMP. POL. &CIV. RTS. L.REV. 371, 377 (2001)
(describing 1979 testimony before Congress warning of the dangers of “free-base cocaine”).
55. Reinarman and Levine describe the press coverage of crack cocaine as a “media
frenzy,” noting that in July of 1986, “the three major TV networks offered seventy-four
evening news segments on drugs, half of these about crack.” Reinarman & Levine, The
Crack Attack: Politics and Media in the Crack Scare, in CRACK IN AMERICA, supra note 17,
at 19-22. See generally JIMMIE L. REEVES &RICHARD CAMPBELL, CRACKED COVERAGE:
TELEVISION NEWS, THE ANTI-COCAINE CRUSADE, AND THE REAGAN LEGACY (1994) (cataloging
and critiquing television coverage of drugs during the 1980s and early 1990s); cf.
MARTIN TORGOFF, CAN’T FIND MY WAY HOME: AMERICA IN THE GREAT STONED AGE,
1945—2000, 350-57 (2004) (narrating the key mileposts of the press coverage and explaining
how press portrayal played into themes of a larger culture war).
56. See Reinarman & Levine, supra note 46, at 3 (citing Kids and Cocaine NEWSWEEK,
Mar. 1, 1986, at 58-59).
57. See id. at 3-4; see also Reinarman & Levine, supra note 55, at 24 (citing New York
Times/CBS News polling data that indicated that in January of 1985, 1% of Americans
considered drugs to be the most important problem facing the United States; by September
of 1989, that figure had risen to 64%).
58. See Reinarman & Levine, supra note 55, at 20-22 (describing in depth the nature
and timeline of mass media coverage of crack cocaine and noting that “plague,” “epidemic,”
and “crisis” were descriptors commonly employed in press coverage).
59. See Reinarman & Levine, supra note 46, at 4 (noting that, by 1989 or 1990, many major
news outlets were running stories quietly critical of their own initial coverage of “crack”).
60. See, e.g., Paul J. Goldstein, et al., Crack and Homicide in New York City: A Case
Study in the Epidemiology of Violence, in CRACK IN AMERICA, supra note 17, at 113, 122-24
(noting media coverage and political rhetoric about “crack-related murders” and finding,
based on 1988 homicide data from New York City, that while a majority of drug-related homicides
in New York City did involve cocaine or crack cocaine, most of the homicides had to do
with the risks of the illicit drug market, as opposed to the psychopharmacological effects of
cocaine or crack cocaine); Watkins & Fullilove, supra note 54, at 375 (noting media coverage

854 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
gue, the overwhelming majority of young people in the United States,
during the time of hysterical coverage, were not using crack cocaine,
and the overwhelming majority of people who had used crack cocaine
had not continued to use it with any frequency. 61 By most measures,
in the late 1980s, drug use generally—and cocaine use specifically—
was in decline. 62 Despite the fact that fewer Americans were using
drugs, by 1989, the majority of Americans polled identified the most
important problem facing the United States as “drugs.” 63
Crack cocaine also produced headlines and prosecutions related to
an alleged “crack baby” epidemic, where, per the media and other
sources, crack cocaine caused large numbers of infants to suffer severe,
irreversible health problems resulting from maternal use of
crack cocaine. In 1985 and 1986, major news outlets began reporting
that crack cocaine-exposed babies might comprise a “biological underclass”
suffering from, among other things, permanent mental retardation,
deviance, and an inability to perform basic self-care
tasks. 64 The idea of a permanent underclass of crack-cocaine-ruined
children captured the public imagination. 65 Reports on the “crack baby”
phenomenon proved medically unfounded—cocaine exposure affects
newborns, but does not create a particular “crack baby” syndrome
with the terrifying symptoms and developmental debilitation
of crack cocaine in 1985 and 1986 that, focusing on violence, described crack cocaine addiction
as “growing at alarming rates” and creating “an authentic national crisis.”).
61. See Reinarman & Levine, supra note 48, at 186 (noting that during the period of
the crack cocaine scare into the early 2000s, fewer than five percent of eighteen to twentynine
year olds ever tried crack, and of those who had tried it, 80% had not used crack cocaine
within the past year and over 90% had not used it within the past month); id. at 188
(noting that crack cocaine usage “did not spread far beyond the most marginalized and
vulnerable segments of society”); id. at 189 (noting that per National Institute on Drug
Abuse surveys, the use of crack cocaine among high school seniors declined every year from
1986 through 1991, while media articles were writing about the “epidemic” spread of crack
cocaine use).
62. See Reinarman & Levine, supra note 55, at 18, 27-28 (surveying drug use data to
conclude that by the time crack cocaine coverage began in earnest, drug use generally and
cocaine and crack cocaine use specifically were in decline, and noting that 1982 was the
high water mark for lifetime cocaine use among young Americans). Moreover, during the
period in which media articles about crack cocaine proliferated, most cocaine users were
“sniffing, rather than smoking,” the drug. Id. at 28.
63. See id., supra note 55, at 24 (citing New York Times/CBS News polling data).
64. See generally Reinarman & Levine, supra note 48, at 192 (describing the content of
articles and features in Newsweek, the Washington Post, and on CBS Evening News); Loren
Siegel, The Pregnancy Police Fight the War on Drugs, in CRACK IN AMERICA at 249, 255, supra
note 17, (summarizing late-1980s media articles about the “crack baby” phenomenon).
65. Chapters of Children Requiring a Caring Kommunity (C.R.A.C.K.) can be found in
several major cities; the program pays women who are addicted to drugs $200 to undergo
sterilization or use long-term birth control such as IUDs. See generally Adam B. Wolf, Note,
What Money Cannot Buy: A Legislative Response to C.R.A.C.K., 33 U. MICH. J.L.REFORM
173 (1999) (arguing for legislation to prevent C.R.A.C.K. from offering money in exchange
for permanent sterilization or long-term birth control). The majority of women who have
utilized the program are women of color. Id. at 178 (sixty-three percent of women who have
participated in the C.R.A.C.K. program are African-American or Latina).

2010] METHADEMIC 855
initially described. 66 Rather, many of the health problems found with
babies born to mothers who had used crack were attributable to lack
of prenatal care, poor nutrition and personal care, and co-existing
substance use such as tobacco and alcohol. 67 The “crack baby” image
has, however, endured, and has left in its wake legislative changes
and creative prosecution strategies designed to apply criminal sanctions
to women who expose developing fetuses to crack. 68
66. See, e.g., Deborah A. Frank et. al., Growth, Development, and Behavior in Early
Childhood Following Prenatal Cocaine Exposure: A Systematic Review, 285 JAMA 1613,
1619 (2001) (effects of prenatal cocaine exposure are indiscernible once tobacco and alcohol
exposure are controlled); L.C. Mayesm, et al., Commentary: The Problem of Prenatal Cocaine
Exposure: A Rush to Judgment, 267 JAMA 406-08 (1992) (arguing, fairly soon after
height of “crack baby” scare, that popular fears were likely overstated); Patrick Zickler,
NIDA Studies Clarify Developmental Effects of Prenatal Cocaine Exposure, 14 NAT’L INST.
ON DRUG ABUSE NOTES (Sept. 1999), available at
http://archives.drugabuse.gov/NIDA_Notes/NNVol14N3/Prenatal.html (summarizing the
position of the National Institute on Drug Abuse that cocaine delays motor skill and intellectual
development, but that such effects are “not as profound” as early reports indicated
and that it is difficult for researches to isolate the effects of cocaine from those of poor prenatal
care, poor self-care, coexisting drug use, and other factors known to negatively affect
development); Cocaine Pharmacology, “Crack Babies,” Violence: Hearings Before the U.S.
Sent’g Comm’n, (Feb. 25, 2002) (statement of Deborah Frank, M.D.), reprinted in 14 FED.
SENT’G REP. 191, 196 (2002) (concluding, based on ten years of study at a National Institute
on Drug Abuse project following developmental and behavioral outcomes for crack cocaine
exposed babies, that crack cocaine does not affect babies differently than powder cocaine;
that the effects of the drug are similar to those caused by tobacco; that there is no
“crack baby” syndrome; and that early studies identifying such a syndrome were deeply
flawed); see also 846 ANNALS OF N. Y. ACAD. SCI., John A. Harvey & Barry E. Kosofsky,
eds., COCAINE: EFFECTS ON THE DEVELOPING BRAIN, at xi (1998) (making similar arguments).
Dr. Ira Chasnoff, whose early anecdotal observations of babies born to crack-using
mothers helped fuel the medial coverage, concluded after further research that he had
“never seen a ‘crack kid.’ ” Ira J. Chasnoff, Missing Pieces of the Puzzle, 15
NEUROTOXICOLOGY &TERATOLOGY 287, 288 (1993). Dr. Deborah Frank, a leading expert in
children’s’ failure to thrive, concluded that the public outcry for the punishment of substance-using
mothers and the disenfranchisement of their children as an unsalvageable,
almost demonic “biological underclass . . . rest[s] not on scientific findings but upon media
hysteria fueled by selected anecdotes.” Deborah A. Frank, Commentary: Children Exposed
to Cocaine Prenatally: Pieces of the Puzzle, 15 NEUROTOXICOLOGY & TERATOLOGY 298, 299
(1993).
67. See Ira Glasser & Loren Siegel, When Constitutional Rights Seem Too Extravagant
to Endure: The Crack Scare’s Impact on Civil Rights and Liberties, in CRACK IN
AMERICA, supra note 17 at 229, 241-42.
68. Prosecutors have employed existing child abuse statutes to prosecute women who
test positive for drug use during pregnancy or whose newborn infants test positive for illicit
drug use, particularly cocaine use. Prosecution strategies have ranged from coercive (designed
to convince a drug-using pregnant women to seek treatment or face prosecution and
incarceration) to directly punitive (criminally sanctioning women who use drugs while
pregnant). See LAURA E. GÓMEZ, MISCONCEIVING MOTHERS: LEGISLATORS, PROSECUTORS,
AND THE POLITICS OF PRENATAL DRUG EXPOSURE 78 (1997).
These strategies generally have not survived scrutiny from reviewing courts. See, e.g.,
Siegel, supra note 64, at 249 (describing cases in North Carolina, Virginia, and New York
where prosecutors initially charged women who ingested cocaine while pregnant with assault
with a deadly weapon with intent to kill, felony child neglect, and endangering the welfare of
a child; these indictments, as well as most similar indictments, were dismissed). In Ferguson
v. City of Charleston, 532 U.S. 67 (2001), for example, the United States Supreme Court re-

856 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
Crack cocaine was portrayed and perceived as something far more
addictive and far more menacing than powder cocaine or any other
drug. The legislative reaction to public and media concern about crack
cocaine was swift and severe. 69 States enacted new mandatory minimum
sentences requiring offenders to serve prison time; increased
available statutory maximums; and in some cases, provided mandatory
life without parole for crack-cocaine offenses. 70 At the federal level,
Congress included among its responses the now-infamous “100:1 ra-
jected one such program, a cooperative effort between the Medical University of South Carolina,
the Charleston, South Carolina Solicitor’s Office, the Department of Social Services, the
County Substance Abuse Commission, and the local police. 532 U.S. at 71, 81-82. Per this
program, pregnant patients suspected of illicit drug use were subjected to urine drug screens.
Id. at 71. Patients who tested positive for cocaine use prior to 28 weeks could be charged with
simple possession of cocaine; after 28 weeks, to possession and distribution to a person under
the age of 18; and at delivery, with the additional offense of unlawful neglect of a child. Id. at
71-72. The Supreme Court held that this program comprised a Fourth Amendment search
that did not comport with the special needs exception from the generalized requirement of a
warrant and probable cause. Id. at 81-82.
State courts have similarly rejected prosecutions of women for child abuse based on
drug use during pregnancy. See, e.g., State v. Martinez, 137 P.3d 1195, 1198 (N.M. Ct. App.
2006) (refusing to extend state’s child abuse statute to cover fetuses). Though prosecutors
have attempted to utilize a wide variety of statutes—including child abuse, child endangerment,
and delivery of a controlled substance—most state courts similarly have declined
to read existing statutes as holding drug-using pregnant women criminally responsible for
the potential exposure of their fetuses. See, e.g., Reinesto v. Superior Court of Ariz., 894
P.2d 733, 737 (AZ. Ct. App. 1995) (rejecting use of child abuse statute); People v. Hardy,
469 N.W. 2d 50, 55 (Mich. Ct. App. 1991) (rejecting use of delivery of cocaine charge).; State
v. Gray, 584 N.E.2d 710, 713 (Ohio 1992) (rejecting child endangerment charge); State v.
Dunn, 916 P.2d 952, 956 (Wash. App. 1996) (rejecting use of mistreatment of child statute);
cf. State v. Deborah J.Z., 596 N.W.2d 490, 496 (Wis. Ct. App. 1999) (rejecting use of reckless
homicide and related charges against mother who was drunk when she delivered a
stillborn fetus). South Carolina, on the other hand, has permitted women to be prosecuted
for offenses based on fetal exposure to maternally ingested drugs. See State v. McKnight,
576 S.E.2d 168, 174-75 (S.C. 2003) (permitting woman to be prosecuted for homicide by
child abuse where woman had used cocaine during pregnancy and fetus was stillborn);
Whitner v. State, 492 S.E. 2d 777, 782 (1997) (permitting child endangerment prosecution
where pregnant woman ingested cocaine); see also Ellen Marrus, Crack Babies and the
Constitution: Ruminations About Addicted Pregnant Women After Ferguson v. City of
Charleston, 47 VILL. L.REV. 299, 301-02 (2003) (describing various state strategies for
prosecuting pregnant drug-using women and noting that courts generally have rejected
such strategies). Women not charged specifically with offenses related to ingesting drugs
while pregnant may face stiffer sentences from judges who believe that jail or prison might
ensure that pregnant women stop using drugs. See Siegel, supra note 64, at 250-51.
Legislative efforts to create new statutes to permit specifically the prosecution of
drug-using pregnant women, while popular, never led to specific sanctions against drugusing
pregnant women. See Lynn M. Paltrow et al. Governmental Responses to Pregnant
Women Who Use Alcohol or Other Drugs, Part 1, WOMEN’S LAW PROJECT AND NAT’L
ADVOCATES FOR PREGNANT WOMEN (Oct. 2000), available at http://www.drugpolicy.org/
library/governmental_response_p1.cfm.
69. See Reinarman & Levine, supra note 55, at 21 (noting that in 1986, “overwhelming
majorities of both houses of Congress voted for new antidrug laws with long mandatory prison
terms, death sentences, and large increases in funding for police and prisons”).
70. See, e.g., Harmelin v. Michigan, 601 U.S. 957, 1028 (1991) (rejecting an Eighth
Amendment challenge to a Michigan law providing for a mandatory life sentence for possession
of a relatively minor amount of cocaine).

2010] METHADEMIC 857
tio”—the United States Sentencing Guidelines require 100 grams of
powder cocaine to trigger the same mandatory minimum sentence as
one gram of crack cocaine, and this ratio is included in the Guidelines
generally for cocaine and crack-cocaine offenses. 71 These legislative
responses to crack cocaine, which treated it as a new and more serious
drug than powder cocaine, may explain some of the racial differences
in incarceration rates. 72 What the legislative response to crack cocaine
did not include was much by way of a public health response; government
“focused less on standard public health practice and . . . more on
the courts, the police, and the prisons.” 73
If by the time legislation and media articles were appearing, however,
crack cocaine use—never particularly widespread—was on the
decline, how can we explain the dramatic legislative response, which
suggested that crack cocaine abuse was both rampant and on the rise?
Probably the most common explanation provided for the disconnect
between the reaction to and the reality of crack cocaine has been
that of race—white Americans were panicking about African Americans,
particularly young urban African-American men. 74 Crack cocaine
use and trade was linked through media articles and legislative
debates to violent offenses, degradation of urban centers, family
breakdown, and a host of other social problems. 75 A lack of sympathetic
identification on the part of Caucasian legislators and voters
may have facilitated this linkage as well as the decision to deal with
this constellation of perceived problems through incarceration and
criminal control.
Whether or not enforcement of drug laws is racist in design or intent,
the argument goes, the War on Drugs has been in operation a
war on African-Americans. 76 For many scholars and civil rights lead-
71. Anti-Drug Abuse Act of 1986, Pub. L. No. 99-570, 100 Stat. 3207 (1986) (codified
as amended at 21 U.S.C. § 841 (1994)).
72. See, e.g., Troy Duster, Pattern, Purpose, and Race in the Drug War, in CRACK IN
AMERICA, supra note 17, at 265-66 (describing differences in federal sentencing for powder
and crack cocaine offenses and noting that various federal sentencing laws related to crack
cocaine contribute to a pattern of longer sentences for African-American defendants).
73. Watkins & Fullilove, supra note 54, at 385-86.
74. In addition to the works of Reinarman & Levine, collected in CRACK IN AMERICA,
supra note 48, see the sources cited infra notes 76-77.
75. See supra notes 55-60 and accompanying text.
76. See, e.g., Alfred Blumstein, The Notorious 100:1 Crack: Powder Disparity—The
Data Tell Us that It Is Time to Restore the Balance, 16 FED.SENT’G REP. 87, 87 (2003) (noting
that the crack: powder sentencing differences are “particularly distressing because
crack defendants are primarily black and powder defendants are primarily white and Hispanic,
so the differential treatment can too easily be seen as a manifestation of racial discrimination”);
Duster, supra note 72, at 264-65 (citing statistics to the effect that while in
the early 1990s, African-Americans comprised 15-20% of drug users, in most urban areas,
they comprised half to two-thirds of persons arrested for drug offenses and attributing racial
imbalances in arrest and prosecution rates to “the selective aim of the artillery in the
drug war”); Glasser & Siegel, supra note 67, at 241 (arguing that “fears about crack merged
easily with racial fears”); cf. David A. Sklansky, Cocaine, Race, and Equal Protection, 47

858 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
ers, late twentieth century drug policy was “[t]he [n]ew Jim Crow.” 77
Civil rights activists particularly decried the differences in the federal
sentencing guidelines for powder cocaine and crack cocaine, depicting
this dual sentencing scheme as a transparent attempt to punish
African-American criminality more harshly than its white counterpart.
78 (Many scholars concur, arguing that the current racial imbalances
in incarceration rates are substantially attributable to efforts
to combat crack cocaine.) 79
Some people who have looked at the responses of government bodies
and the public in general to crack cocaine have theorized that part
of the reaction was not only about race, but about the intersection between
race and gender. Prosecutions of drug-using women have primarily
been aimed at African-American women, 80 although drug use
is fairly level among pregnant women of all races. 81 The gender/race
linkage has perhaps reflected a desire to control African-American
women who are considered undesirable mothers and to prevent them
STAN. L.REV. 1283 (1995) (arguing that evidence is overwhelming that race is instrumental
in explaining crack/powder cocaine disparity and faulting existing equal protection doctrine
for not coming to same conclusion).
Some go even further in assessing the relationship between race and the governmental
response to crack cocaine. Nkechi Taifa, currently a Senior Policy Analyst at the Open
Society Policy Center, argues that the federal approach to crack cocaine investigation,
prosecution, and sentencing “is not only a direct reflection of the institutionalization of racism
in the criminal justice system, but of systematic genocide, generally, against Black
people as well.” Nkechi Taifa, Beyond Institutionalized Racism: The Genocidal Impact of
Executive, Legislative & Judicial Decision-Making in the Crack Cocaine Fiasco, NAT’L B.
ASS’N MAG., Sept./Oct. 1996, at 13, 14-16 (arguing that crack cocaine sentences are not
supported by empirical evidence and denote a “racially discriminatory drug enforcement
policy,” and describing the federal crack: powder cocaine sentencing differences as “apartheid-type”).
But see Kennedy, supra note 20, at 1267 (arguing that African Americans are
harmed by under- rather than over-enforcement of drug laws); John P. Walters, Race and
the War on Drugs, 1994 U. CHI. LEGAL F. 107, 144 (arguing that enforcement of drug laws
has not reflected racism or produced racially disparate results).
77. See, e.g., Symposium, U.S. Drug Laws: The New Jim Crow?, 10 TEMP.POL.&CIV.
RTS. L.REV. 303 passim (2001); Ira Glasser, American Drug Laws: The New Jim Crow, 63
ALB.L.REV. 703, 723 (2000).
78. See, e.g., Powder Cocaine, Crack Cocaine, and Race, Hearing Before the U.S. Sent.
Comm’n, (Feb. 25, 2002) (Statement of Wade Henderson, Executive Director of the Leadership
Conference on Civil Rights) (arguing that federal drug policy disproportionately affects
African Americans because of the heightened penalties for crack cocaine as compared
to powder cocaine—as well as racism in criminal investigation and prosecution, and calling
for Guidelines changes that would reduce disparities), reprinted in 14 FED. SENT’G REP.
204, 205 (2002).
79. See, e.g., Blumstein, supra note 76, at 87; Duster, supra note 72, at 265 (noting
that in Virginia, in 1983, 63% of new prison admits for drug offenses were white; by 1989,
34% were white).
80. See Glasser & Siegel, supra note 67, at 242.
81. See Ira J. Chasnoff, Harvey J. Landress, & Mark E. Barrett, The Prevalence of Illicit
Drug or Alcohol Use During Pregnancy and Discrepancies in Mandatory Reporting in Pinellas
County, Florida, 322 NEW ENG. J. MED. 1202, 1204 (Apr. 26, 1990) (finding that in Pinellas
County, Florida, while among pregnant women screened, 15.4% of white women and 14.1% of
African-American women tested positive for drugs, African-American women were ten times
more likely to be reported for substance abuse); Siegel, supra note 64, at 251.

2010] METHADEMIC 859
from continuing to reproduce. 82 For example, critiques of the “Children
Requiring a Caring Kommunity” or “Project Prevention” program
(“CRACK”), which offers drug-addicted women two hundred dollars
in exchange for sterilization, have argued that the program is an attempt
to regulate “bad” mothers—largely poor, African-American
women. 83
Not all critiques of U.S. crack cocaine policy center on race. William
Stuntz, for example, has described the response to crack cocaine
in terms of class. 84 Poor people are easier to spot using and trading
drugs—they do so in public, on street corners, and in denselypopulated
city centers where police may easily patrol, observe, and
make arrests. More affluent citizens can conceal illicit activity with
suburban remoteness, rolling lawns, and spacious homes. Poor people
are reliant on appointed, indigent counsel, while affluent citizens can
hire a choice of counsel and put up greater roadblocks to prosecution.
The cost and effort of pursuing poor people, who are more likely to
use and trade in crack cocaine, versus wealthier people, who might
be more likely to use other drugs, makes the poor a more attractive
target for law enforcement and prosecutors. 85
The response to crack cocaine has thus been the subject of numerous
academic critiques. At the center of most has been the thesis that
the reaction to crack cocaine, publicly and legislatively, was overreaction
fueled by panic and deeply embedded in volatile patterns of race,
class, and gender.
III. METHADEMIC!
Methamphetamine is not a recent drug innovation; the substance
has been around for ninety years and has been the subject of varying
amounts of media coverage and legislative action for some time. Beginning
in 2004 and 2005, however, legislators, media outlets, and
private citizens began paying increased attention to methampheta-
82. See, e.g., Deleso Alford Washington, “Every Shut Eye, Ain’t Sleep”: Exploring the
Impact of Crack Cocaine Sentencing and the Illusion of Reproductive Rights for Black
Women from a Critical Race Feminist Perspective, 13 AM. U.J.GENDER SOC. POL’Y &L.
123, 133-36 (2005).
83. See, e.g., Renee Chelian, Remarks on the “CRACK” Program: Coercing Women’s
Reproductive Choices, 5 J.L. SOC’Y. 187, 193-94 (2003) (describing C.R.A.C.K.’s outreach to
various social service providers and agencies and arguing that the program targets poor,
minority women); Sheila C. Cummings, Foreword: Is CRACK the Cure? 5 J. L. SOC’Y 1, 5-6
(2003) (describing the C.R.A.C.K program); Dana Hirschenbaum, Note, When CRACK Is
the Only Choice: The Effect of a Negative Right of Privacy on Drug-Addicted Women, 15
BERKELEY WOMEN’S L.J. 327, 327-28 (2000) (noting that advertisements for the C.R.A.C.K.
program are, by design, placed primarily in poor urban neighborhoods).
84. William J. Stuntz, Race, Class, and Drugs, 98 COLUM.L.REV. 1795, 1795 (1998).
85. See id.; see also Glasser & Siegel, supra note 67, at 235 (noting that, during the
1980s, large-scale, aggressive drug sweeps focused on poor, minority, urban neighborhoods,
“where drug dealing tended to be open and easy to detect”).

860 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
mine as a social problem, and all fifty states adopted new legislation
related to methamphetamine. It is this period which I refer to as a
“methademic,” 86 a period of public and political panic about a perceived,
raging new epidemic of drug abuse.
In this Part, I provide an overview of methamphetamine’s history
and a synopsis of recent legislative responses to this perceived epidemic
of methamphetamine addiction. In Subpart A, I briefly explain
the characteristics of methamphetamine, media coverage of methamphetamine,
and trends in methamphetamine use and abuse. In Subpart
B, I summarize the legislative response to methamphetamine
from 2004 forward—particularly, the enactment of prevention-based
laws designed to curtail methamphetamine use and production by
discouraging people from experimenting with the drug and curtailing
the availability of the drug’s ingredients.
A. Methamphetamine Use as an “Epidemic”
Methamphetamine, also referred to in its various forms as “ice,”
“crystal,” “crank,” “speed,” and a variety of other slang terms, 87 is a
stimulant drug that acts on the central nervous system to produce a
chemical high by stimulating the release of dopamine. 88 Depending
on its form, methamphetamine can be snorted, injected, ingested, or
smoked, and the method of use affects the rapidity with which the
body processes the drug and the onset of the user’s high. 89 Methamphetamine
can be physiologically addictive according to medical definitions
of addiction, 90 and repeated usage of the drug is associated
with impaired dopamine production and other side effects. 91 Me-
86. References to the purported methamphetamine epidemic as a “methademic” have
been fairly frequent. See, e.g., Jim Lynch, County Combats Growing Meth Crisis: Authorities
in Pierce County, Wash. Say the Easily Made Drug Poses Crime, Health and Environmental
Threats, OREGONIAN, Aug. 20, 2000, at A21.
87. Many articles catalog methamphetamine slang. For one particularly colorful list,
see Douglas Morris, Methamphetamines: Types, Forms, Effects, and the Federal Sentencing
Guidelines, 32 NAT’L ASS’N CRIM. DEF. LAW. CHAMPION MAG., Jan. 2009, at 20 (“Methamphetamine
is known by a plethora of nicknames including, inter alia, meth, crank, speed,
chicken feed, crystal, go-fast, shabu, glass, ice, strawberry quick, and methlies quick.”).
88. U.S. DEP’T OF HEALTH &HUM. SERVS., Methamphetamine: Abuse and Addiction,
2006 NAT’L INST. ON DRUG ABUSE RESEARCH REPORT SERIES 3-4.
89. Methamphetamine is produced in two forms—powder and crystal (and is in this
way similar to cocaine). Powdered methamphetamine is generally ingested, injected, or inhaled.
Jane Carlisle Maxwell, Methamphetamine: Epidemiological and Research Implications
for the Legal Field, 82 N.D. L. REV. 1121, 1121-22 (2006). Crystal forms of methamphetamine
are generally either smoked or heated and inhaled. Id.
90. See, e.g., Anna M. Johnson, A Perspective Regarding Treatment for Methamphetamine
Addiction, 82 N.D. L. REV. 1435, 1435-36 (2006).
91. For a thorough summary of methamphetamine’s major effects and side effects, see
Avi Brisman, Meth Chic and the Tyranny of the Immediate: Reflections on the Culture-
Drug/Drug-Crime Relationships, 82 N.D. L. REV. 1273, 1275-83 (2006).

2010] METHADEMIC 861
thamphetamine is classified federally as a Schedule II drug, 92 but is
available legally, by prescription, under the trade name Desoxyn or
in generic form. 93
Concern about methamphetamine use and addiction also is not
new. Amphetamines, which are chemically similar to methamphetamine,
94 historically received rounds of media and legislative attention.
95 Domestic methamphetamine “home-cooking” probably had its
origin in California in the 1950s, as Korean War veterans may have
imported methamphetamine production methods when they returned
from service. 96 Major media sources covered methamphetamine abuse
by long-haul truckers and motorcycle gangs during the 1970s and
1980s, when articles described the popularity of the drug’s use for
maintaining alertness on overnight drives. 97 A smattering of news articles
and academic works documented methamphetamine production
and distribution, particularly in the western United States, in the
late 1980s 98 and into the 1990s. 99 In particular, between 1996 and
1999, a handful of news articles either predicted that a methamphetamine
“epidemic” was imminent or described such an epidemic as
having already taken root. 100
92. Controlled Substances Act, 21 U.S.C. §§801-971 (2006). Methamphetamine was
added to the Act as a Schedule II drug under in 1971. See Schedules of Controlled Substances:
Amphetamine, Methamphetamine and Optical Isomers, 36 FED. REG. 12,734 (July
7, 1971).
93. On the legal uses of methamphetamine, see JOHNSON, supra note 10, at 7; U.S.
DEPT. OF HEALTH &HUM.SERVS., supra note 88, at 2.
94. Methamphetamine is a “synthetic” drug that draws its active ingredient from its
“parent drug” amphetamine. It is produced by chemically adding a second methyl-group
molecule to an amphetamine compound. On the chemical relationship between methamphetamine
and amphetamine, see, for example, Brisman, supra note 91, at 1275-77, 1276-
77 n.5.
95. The major academic work on the history of American use and regulation of amphetamine
is GRINSPOON &HEDBLOM, supra note 17, passim.
96. On the early history of methamphetamine production and use, including in particular
its substantial use by military personnel during World War II and the Korean War, see,
for example, DAVID T. COURTWRIGHT, FORCES OF HABIT: DRUGS AND THE MAKING OF THE
MODERN WORLD 76-84 (2001); M. Douglas Anglin et al., History of the Methamphetamine
Problem, 32 J. PSYCHOACTIVE DRUGS 137, 137-38 (2000); Brisman, supra note 91, at 1303-04;
see also GRINSPOON &HEDBLOM, supra note 17, at 18-20, 24-25 (discussing amphetamine use
among U.S. soldiers and veterans of World War II and the Korean War, albeit without distinguishing
between methamphetamine and other amphetamines).
97. See, e.g., JOHNSON, supra note 10, at 7 (describing use of methamphetamine by
long-haul truckers and motorcycle gangs in the 1960, 1970s, and 1980s).
98. See, e.g., Jonathan Beaty, Southern California Tales of the Crank, TIME, Apr. 24,
1989, at 10 available at http://www.time.com/time/magazine/article/0,9171,957521,00.html
(describing use and manufacture in Southern California); Richard Lacayo, The Menace of
Ice, TIME, Sept. 18, 1989, at 28 (describing methamphetamine as Hawaii’s number one
drug and noting that methamphetamine was making “serious inroads” in other states and
that “speed kings” were planning “vast expansions in production”).
99. See, e.g., T. Christian Miller, O.C. Meth Lab Bust Points up Boom in Drug, L.A.
TIMES, July 22, 1993, at 1.
100. See, e.g., Charlie Goodyear, Methamphetamine Abuse Called Epidemic, SAN
FRANCISCO CHRON. Apr. 8, 1999, at A15 (describing an existing “epidemic”); Anastasia

862 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
The latest round of press articles describing the menace of methamphetamine
surfaced in 2004 and 2005. 101 In those two years, major
American newspapers and news magazine ran over one hundred
articles discussing and bemoaning the scourge of meth. Accounts continued
to portray methamphetamine use as an “epidemic” 102 or a
“siege.” 103 Coverage was quick to emphasize the prevalence of methamphetamine
in rural areas and to draw connections between methamphetamine
use and rural poverty. 104 (A second strand of coverage
that never gained quite as much traction emphasized the use of methamphetamine
by urban, gay men and expressed concern about the
possibility that meth use among gay men might retrigger the AIDS epidemic.
105 ) Media coverage emphasized a variety of problems related to
Toufexis, There Is No Safe Speed: Three Toddlers’ Deaths Spotlight the Nation’s Latest
Drug Epidemic, TIME, Jan. 8, 1996, at 37, available at http://www.time.com/time/
magazine/article/0,9171,983922,00.html (quoting a Drug Enforcement Administration official
as describing 1996 methamphetamine use as “absolutely epidemic”); Christopher S. Wren,
Sharp Rise in Use of Methamphetamines Generates Concern, N.Y. TIMES, Feb. 14, 1996, at A16
(describing a “startling rise” in methamphetamine use in western states); Walter Kirn, Crank,
TIME, June 22, 1998, at 24, available at http://www.time.com/time/magazine/
0,9263,7601980622,00.html (describing methamphetamine use as “a powdery plague on America’s
heartland”).
101. See, e.g., John-Manuel Andriote, Meth Comes out of the Closet, WASH. POST, Nov.
8, 2005, at F1, available at http://www.washingtonpost.com/wp-dyn/content/article/
2005/11/04/AR2005110402178.html (describing signs of increasing concern about methamphetamine);
Joyce Pellino Crane, Lowell Police Voice Concern on Methamphetamine
Threat, BOSTON GLOBE, Nov. 16, 2005, at A24 (describing police in several Massachusetts
communities as being concerned, based on recent methamphetamine laboratory discoveries,
that methamphetamine, “epidemic” in the Midwest, was establishing a toehold in
Massachusetts); David J. Jefferson et al., America’s Most Dangerous Drug, NEWSWEEK,
Aug. 8, 2005, at 41 (offering hyperbolic account of impending crisis); Dirk Johnson, Policing
a Rural Plague, NEWSWEEK, Mar. 8, 2004, at 41 (describing the use of methamphetamine
as “soaring” and small towns as “[f]eeling under siege”); Paul F. Walsh, Jr., “May You Live
in Interesting Times . . .” , 39 PROSECUTOR, Aug. 2005, at 5, available at http://
www.ndaa.org/ndaa/about/president_message_july_august_2005.html (President of National
District Attorneys Association describing methamphetamine as “continu[ing] to roar
eastward across our country leaving destruction, pain and new criminal issues for prosecutors
to contend with”); United States: Instant Pleasure, Instant Ageing; Methamphetamine,
ECONOMIST, June 18, 2005, at 47 (noting that methamphetamine “is in the eyes of many,
America’s leading drug problem”).
102. E.g., Crane, supra note 101, at A24.
103. E.g., Johnson, supra note 101, at 41.
104. See, e.g., id. (describing methamphetamine as a “rural plague”); Cameron McWhirter
& Jill Young Miller, Meth Stalks Rural Georgia: Cheap, Easily Manufactured Stimulant Is
Countryside’s Fastest-Growing Drug Problem, and Abuse Can Be Deadly, ATLANTA J. &
CONST., June 6, 2004, at C1 (describing linkage between methamphetamine use and rural
poverty); see also Joh, supra note 10, at 180 (identifying the rural white poor as one of the two
groups who the media associated with methamphetamine use during this period).
105. Professor Joh treats this strand of coverage as on par with the depiction of
methamphetamine as a drug of the rural poor. See Joh, supra note 10, at 181-82; see also
id. at 181 n.32 (collecting media sources from this period depicting purported epidemic of
meth use among urban, gay men); David J. Jefferson et. al., Party, Play — And Pay,
NEWSWEEK, Feb. 28, 2005, at 38 (describing a “Party and Play” phenomenon in which gay
men use methamphetamine prior to having risky sexual relations, and arguing that
methamphetamine use is associated with HIV transmission rates).

2010] METHADEMIC 863
methamphetamine manufacturing and consumption, paying particular
attention to the explosiveness of the ingredients used in manufacturing
the drug, 106 the alleged horrific effects of the drug on the oral
health of its users, 107 and the many ways in which meth endangered
children. 108 Advertising campaigns against methamphetamine include
warnings of the environmental hazards posed to innocent bystanders
when local residents manufacture methamphetamine. 109
Has this coverage reflected a real, recent epidemic of methamphetamine
use? As was the case with crack cocaine, the media coverage
has not appeared to accurately depict trends in methamphetamine
usage. 110 Methamphetamine use does not appear, by credible
measures, to be on an upswing. 111 Among teenagers, methamphetamine
use has steadily declined over the past five years, and was in
decline during the 2005 uptick in methamphetamine articles. 112
106. See, e.g., Arian Campo-Flores, The Fallout: ‘I Felt My Face Just Melting,’
NEWSWEEK, Aug. 8, 2005, at 44.
107. See, e.g., Paul Harris Crossville, Tragic Orphans of U.S. Drugs Epidemic: Crystal
Meth Hits Rural Areas, OBSERVER, Aug. 14, 2005, at 22 (describing “meth mouth”). Whether
the effects of “meth mouth” are actually attributable to methamphetamine use quickly
became an object of substantial debate. Cf. Jack Shafer, The Meth-Mouth Myth: Our Latest
Moral Panic, SLATE, Aug. 9, 2005, at A.21, http://www.slate.com/id/2124160 (expressing
skepticism).
108. See, e.g., Crossville, supra note 107, at 22.
109. See, e.g., Steve Suo, Nationwide Ad Campaign Takes Aim at Methamphetamine
Abuse, OREGONIAN, Dec. 3, 2005, at C7 (describing a national anti-methamphetamine
televised commercial campaign by the Partnership for a Drug-Free America, including one
dramatization in which a small child is exposed to methamphetamine fumes from a
neighbor’s manufacturing enterprise, and a second dramatization in which a confused nonsmoker
reports coughing symptoms to his medical care provider while a narrator intones
that the man’s new home is a former methamphetamine lab).
110. In contrast with earlier drug panics, some media sources openly doubted—and even
directly critiqued—their competitors’ hyperbolic coverage of methamphetamine. In particular,
Slate columnist Jack Shafer has mobilized data to aggressively critique some of the more exaggerated
media accounts. See, e.g., Jack Shafer, Meth Madness at Newsweek: This Is Your
Magazine on Drugs, SLATE, Jan. 31, 2007, at 5, http://www.slate.com/id/2123838; Shafer, supra
note 107.
111. A 2006 study suggests that approximately 731,000 Americans were using methamphetamine
in 2006, a number that was roughly unchanged from four years earlier.
See Joh, supra note 10, at 180 n.24. Quest Diagnostics, the largest administrator of
workplace drug tests in the United States, reported similar overall rates of usage, but also
noted a steeper pattern of decline. See Quest Diagnostics, USE OF METHAMPHETAMINE
AMONG U.S. WORKERS AND JOB APPLICANTS DROPS 22 PERCENT IN 2007 AND COCAINE USE
SLOWS DRAMATICALLY, in DRUG TESTING INDEX, (2008), available at http://
www.questdiagnostics.com/employersolutions/dti/2008_03/dti_index.html (reporting that
positive test results for methamphetamine peaked at 0.33% in 2004 and declined by between
15 and 36 percent each year between 2004 and 2007). Those rates are substantially
lower than the positive test results for marijuana (2.59%) or cocaine (0.70%). See id. As
happened with crack cocaine, to the extent that methamphetamine use was at any point on
an upswing—Quest reports that positive methamphetamine screens increased by some
73% between 2002 and 2004—by the time media and public attention turned to the drug,
usage, never particularly widespread, was on the decline. Id.
112. According to in-school surveys conducted by the University of Michigan’s Monitoring
the Future study and supported by grants from the National Institute on Drug Abuse and the
National Institutes of Health, methamphetamine use among teenagers has dropped fairly

864 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
While words like “epidemic” pepper articles about methamphetamine
use, 113 most Americans do not use and have never used methamphetamine,
114 and the 2007 usage figures continue to show decline, suggesting
that most Americans never will. While methamphetamine
use doubtlessly can be devastating, and while usage rates likely have
increased in particular areas or communities, there is not what
steadily since the survey began tracking self-reported methamphetamine use figures in 1999.
In 1999, 4.5% of eighth graders, 7.3% of tenth graders, and 8.2% of twelfth graders reported
having ever used methamphetamine; the 2005 figures were 3.1%, 4.1%, and 4.5% respectively,
and the latest available figures, from 2007, put lifetime usage at 1.8%, 2.8%, and 3.0% respectively.
See L.D. Johnson, et al., Overall, Illicit Drug Use by American Teens Continues
Gradual Decline in 2007, Table 1 http://monitoringthefuture.org/data/
07data.html#2007data-drugs. According to usage figures from 2007, more teenagers have
tried marijuana, inhalants, non-LSD hallucinogens, MDMA (“ecstasy”), cocaine, other amphetamines,
and tranquilizers. See id. Similarly, teens reporting that they have used methamphetamine
at any point within the past year declined (for eighth, tenth, and twelfth graders
respectively) from 3.2%, 4.6%, and 4.7% in 1999, to 1.8%, 2.9%, and 2.5%, respectively, in
2005; the 2007 figures are 1.1, 1.5%, and 1.7%. See id., at Table 2. Self-reported methamphetamine
use within the past thirty days follows the same pattern; in 1999, 1.1% of eighth
graders, 1.8% of tenth graders, and 1.7% of twelfth graders reported such recent use; by 2005,
those percentages had declined to 0.7%, 1.1%, and 0.9%, and they stood at 0.6%, 0.4%, and
0.6% in 2007. See id., at Table 3. These survey results are similar to those produced by the
Youth Risk Behavior Survey (YRBS), a Centers for Disease Control and Prevention survey
that includes self-reported youth engagement in various risky behaviors, including drug use;
according to the YRBS, among 9 th through 12 th graders, the percentage of students who reported
that they ever had used methamphetamines showed “no change” between 1999 and
2001 (hovering between 9.1 and 9.8%), and fell to 6.2% by 2005 and 4.4% by 2007. See CTR.
FOR DISEASE CONTROL, TRENDS IN THE PREVALENCE OF MARIJUANA, COCAINE, AND OTHER
ILLEGAL DRUG USE—NATIONAL YRBS: 1991-2007, available at http://
www.cdc.gov/HealthyYouth/yrbs/pdf/us_drug_trend_yrbs.pdf.
113. See supra notes 100-09.
114. As noted above, see supra note 111, the most recent systematic data suggests that
there are less than three-quarters of a million current users of methamphetamine. According
to 2006 data from the Department of Health and Human Services’ Substance Abuse
and Mental Health Services Administration, as of 2006, there were approximately 731,000
current methamphetamine users in the United States (about 0.3% of the population); about
5.8% of Americans reported that they had tried methamphetamine. DEP’T OF HEALTH &
HUMAN SERVS., SUBSTANCE ABUSE & MENTAL HEALTH SERVS. ADMIN., OFFICE OF APPLIED
STUDIES, RESULTS FROM THE 2006 NATIONAL SURVEY ON DRUG USE AND HEALTH:
NATIONAL FINDINGS 18, available at http://www.oas.samhsa.gov/nsduh/2k6nsduh/
2k6Results.pdf. The same survey reports that about 5.2 million Americans were, in 2006,
current recreational users of prescription drugs; 2.4 million were current cocaine users;
and 14.8 million were marijuana users. Id. at 16, 18. See also KING, supra note 10, at 4-14
(reviewing several different drug usage studies, including emergency room admissions and
positive drug tests among arrestees, and concluding that methamphetamine is used regularly
by a very small percentage of Americans, and that the rate of people using methamphetamine
monthly has been stable over the past several years). Despite this data, even
articles in law journals make statements to the effect that methamphetamine “has become
one of the most abused drugs in America.” Lauren Grau, Comment, Cutting off the Building
Blocks to Methamphetamine Production: A Global Solution to Methamphetamine
Abuse, 30 HOUS. J.INT’L L. 157, 161 (2007). Methamphetamine use does, however, vary by
location—while positive drug tests among arrestees are fairly constant across jurisdictions,
positive drug tests for methamphetamine specifically vary widely, reflecting provincial differences
in drugs of choice. See KING, supra note 10, at 13-14; DEP’T OF HEALTH & HUMAN
SERVS., supra, at 27 (reporting that methamphetamine use was approximately five times
more widespread in the West than in the Northeast).

2010] METHADEMIC 865
would appear to be a large-scale, widespread upswing in methamphetamine
use.
While “epidemic” thus appears an inflation of actual usage rates,
the racial depictions of methamphetamine users are more accurate:
most methamphetamine users are Caucasian. 115 About half of federal
methamphetamine DEA arrests are of individuals identified as Caucasian;
the majority of non-Caucasian methamphetamine DEA arrestees
are Latino/Hispanic. 116
B. Legislative Responses to Methamphetamine
The central and most pervasive legislative responses to the perceived
methamphetamine epidemic have been to constrain the ability
of would-be home manufacturers to obtain necessary production ingredients
and to educate the public against methamphetamine use
and production. Recipes for methamphetamine production are readily
available via print media and the internet 117 and use ingredients and
hardware that historically have been easy to purchase at neighborhood
stores. 118 The most important of those ingredients, pseudoephedrine—the
active ingredient in certain kinds of cold medications—
has anchored legislative action, as states, followed by Congress, have
sought to limit the ability of prospective manufacturers to access necessary
materials as well as to discourage people from becoming new
users or producers of methamphetamine.
In fact, the legislative response to methamphetamine in some areas
preceded the perception of a regional methamphetamine problem.
When, for example, Massachusetts State Senator Harriette L. Chandler,
D-Worcester, introduced legislation seeking to restrict public ac-
115. See, e.g., David E. Smith, Gantt P. Galloway & Richard B. Seymour, Methamphetamine
Abuse, Violence and Appropriate Treatment, 31 VAL. U.L.REV. 661, 667 (1997)
(providing data).
116. See Mark Motivans, U.S. Dep’t of Just. Stat., BUREAU OF JUSTICE STATISTICS,
BULLETIN: FEDERAL JUSTICE STATISTICS 2005 at 2 (Sept. 2008), available at http://
www.bjs.ojp.usdoj.gov/content/pub/pdf/fjs05.pdf (reporting that of 6,461 methamphetamine
arrests conducted by the DEA in 2005, 3,154 of the arrestees were white; 2,809 Hispanic/Latino;
173 Asian/Pacific Islander; 143 black/African American; and 61 American Indian/Alaskan
Native).
117. Debra S. Peterson and R. Michael Jennings, Methamphetamine A Recipe for Disaster,
73 J. KAN.B.ASS’N, Oct. 2004, at 7 (noting that bookstores, internet sites, and even court
decisions provide recipes for manufacturing methamphetamine). For a description of the methamphetamine
production process in laymen’s language, see id. at 8,44.
118. Methamphetamine is similar in chemical structure to ephedrine and pseudoephedrine,
making it relatively easy to synthesize in home- or vehicle-based “laboratories.” See,
e.g., Samantha S. McKinley & Joseph L. Fink III, “Speed Limits”: States’ Approaches to Regulating
Access to Methamphetamine Chemical Precursors with Statutes and Regulations Limiting
Pseudoephedrine Availability, 82 N.D. L. REV. 1217, 1220-21 (2006). Recipes generally include
cold medication (for the active ingredient, ephedrine or pseudoephedrine), lithium extracted
from lithium batteries, ether, and anhydrous ammonia or iodine (depending on the
methamphetamine form produced), as well as other substances such as paint thinner, freon,
drain cleaner, and lye. Id. at 1221-22.

866 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
cess to pseudoephedrine, she did not argue that this restriction was
necessary to combat current methamphetamine production in the
state; rather, she argued that such restrictions were necessary to avoid
developing a methamphetamine problem in the state. 119 Similarly, the
Partnership for a Drug Free America justified a major new government-backed
public education campaign against methamphetamine
manufacturing, launched in late 2005, as “true prevention” and an attempt
to “deal[] with [the drug] before it’s a crisis.” 120
The focus on education, treatment, and pseudoephedrine restriction
has not been one settled on accidently; legislatures and executives
explicitly and intentionally have privileged methamphetaminereduction
options rather than focusing on criminal sanctions. 121 In
the following Sections, I describe state and federal legislative responses
to the perceived epidemic of methamphetamine use and manufacture.
While jurisdictions have in some cases increased criminal
penalties—in particular, where legislatures have believed that “innocent”
nonusers, particularly children, are endangered—by and large,
legislators have focused on preventative rather than incarcerative
strategies, a response we might not have been conditioned to expect
from the literature surrounding legislative reactions to the crack cocaine
“epidemic” in particular.
119. Dan Lamothe, ‘Meth’ Eyed as Latest Menace, REPUBLICAN, Sept. 26, 2005, at A1
(quoting State Senator Chandler as saying, “[w]e’re looking to put [pseudoephedrine] behind
the counter because we’re looking to avoid the problem that places like Oregon have
had . . . . Nothing happens across the country that doesn’t eventually happen here”); see also
Brian Scheid, Officials on the Watch for Meth in Bucks, INTELLIGENCER, Oct. 7, 2005, at
3B (quoting Chief of County Detectives in Bucks County, Pennsylvania, as saying that methamphetamine
could move into his area, and arguing for proactive action because “[i]t’s
perfectly ripe for this problem to get out of hand if we don’t get our hands around it first”);
Jennifer Sinco Kelleher, For Now, Meth’s LI Presence on Fire Island, NEWSDAY, Mar.15,
2004, at A42 (quoting a local Nassau County officer, commenting on crystal methamphetamine,
as saying: “It’s virtually nonexistent . . . . You keep hearing it’s going to come, but
it hasn’t hit here yet”).
120. Kenneth C. Crowe II, Ad Campaign Targets Meth Lab Dangers: TV Commercials are
Designed to Shock to Mobilize Communities, ALBANY TIMES UNION, Dec. 13, 2005, at B8.
121. For example, when Congress began considering comprehensive antimethamphetamine
legislation in 2006, one of the prominent bills included harsh new mandatory
minimum sentences. See Cassidy, supra note 10, at 134. However, after considering
the matter, the House Judiciary Committee voted unanimously to strip them from the bill.
See id.
Some individuals involved in administering the legislative response to methamphetamine
have made similar observations. For example, Anna M. Johnson, Director of Operations
at a North Dakota recovery center, notes that “[d]uring North Dakota’s Fifty-Ninth
Legislative Assembly in 2005, senators and representatives from across the state voted to
respond to the methamphetamine epidemic with treatment rather than incarceration.”
Johnson, supra note 90, at 1437. As Johnson notes, the relevant bill passed the North Dakota
Senate by a 47-0 vote and the North Dakota House by an 88-5 vote (88 yeas, 5 nays, 1
absent). See id., at 1437 n.8.

2010] METHADEMIC 867
1. Precursor Regulations
The primary way in which legislatures have responded to a perceived
methamphetamine epidemic has been to make it more difficult
for prospective methamphetamine manufacturers to obtain essential
production ingredients. Many confused persons first encounter this
central form of legislative response when attempting to self-medicate
cold and allergy symptoms. Puzzled drug store patrons must request
that Sudafed bottles be liberated from locked cabinets and behindcounter
stashes; provide identification as they might for alcohol purchase;
observe limits on the number of capsules they can purchase;
and submit information to the commercial establishment to permit
either the store or law enforcement officials to track the quantity and
frequency of pseudoephedrine purchases. These changes in commercial
practice comport with restrictions that states pioneered and the
United States Patriot Act now essentially requires.
Restrictions on the ability to purchase precursor ingredients for
methamphetamine manufacture are not in themselves new. Western
states began restricting precursor sales in the 1980s, 122 and Congress
passed a half-hearted measure that imposed some restrictions in
1996 in response to the first significant round of media stories positing
a coming meth “epidemic.” 123 However, as described below, 124 the
widespread introduction of precursor regulations did not occur until
2004 to2005, when legislatures began to respond to the perceived epidemic
of drug use described above. 125
Prior to the recent round of relatively uniform restrictions, some
prosecutors attempted to utilize then-existing criminal law to convince
merchants to monitor sales of items associated with methamphetamine
manufacturing and to avoid selling items where they might be
used to manufacture meth. Merchants were, for example, prosecuted
under general conspiracy laws for selling items such as cold medication,
lighter fluid, matches, and ether in quantities or combinations
that, according to law enforcement officials, put the merchants on notice
that a customer intended to use the purchased items to manufac-
122. See, e.g., CAL. HEALTH &SAFETY CODE § 11055(f)(1) (West Supp. 1990); IDAHO
CODE ANN. § 37-2707(g)(1) (Supp. 1990); NEV. REV. STAT. § 453.146(2)(h) (Michie Supp.
1989); OR. REV. STAT. §475.940 (1989); UTAH CODE ANN. §§ 58-37c-3(2)(p)-(q), 58-37c-4
(1990); WASH.REV.CODE ANN. § 69.50.206 (g)(1) (West. Supp. 1990).
123. See generally Comprehensive Methamphetamine Control Act of 1996, Pub. L. No.
104-237, 110 Stat. 3099 (codified as amended in scattered sections of 19, 21, 28, and 42
U.S.C.). As commentators have noted, the 1996 Act was largely ineffective in regulating
precursors as it provided a blanket exception to purchase restrictions for approved overthe-counter
cold medications. See, e.g., Jean C. O’Connor, Jamie F. Chriqui & Duane C.
McBride, Developing Lasting Legal Solutions to the Dual Epidemics of Methamphetamine
Production and Use, 82 N.D. L. REV. 1165, 1177 (2006).
124. See infra notes 129-141and accompanying text.
125. See supra Part III.B.

868 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
ture methamphetamine. 126 An individual who purchases or attempts to
purchase such items in combinations and quantities that seem suspicious
may still be detained by law enforcement officers to investigate
intent to manufacture methamphetamine. 127 Some retailers voluntarily
moved pseudoephedrine products behind their counters prior to any
specific legislation requiring them to do so. 128
The specific set of legal changes described in this Section passed
quickly and without organized opposition. Some drug companies resisted
restrictions on purchases and sales by lobbying against legislation,
129 although those lobbying efforts proved unsuccessful. Also,
some pharmaceutical manufacturers have replaced the pseudoephedrine
in some cold medication products with phenylephrine, an active
ingredient that may not be as effective as a decongestant. 130
Within the past few years, virtually all states have passed legislation
that in essence formalizes the assumption that purchasing partic-
126. In one high-profile law enforcement effort in Georgia, “Operation Meth Merchant,”
undercover agents went to stores in several counties, told clerks in slang terms that
they planned to “cook” methamphetamine, and purchased combinations of products that,
according to prosecutors, should have put merchants on notice that they were selling items
to be pressed into service for methamphetamine manufacture. Defendants were prosecuted
for violating federal statutes that criminalize (i) selling legal but regulated drugs with reason
to believe that the drugs are going to be used to manufacture illegal drugs, see 21
U.S.C. § 841(c)(2) (2006), and (ii) selling materials or products with reason to believe that
they will be used to manufacture illegal drugs, see 21 U.S.C. § 843(a)(7) (2006). See United
States v. Patel, No. 4:05-CR-27-02, slip. op. at 3-4 (N.D. Ga. Aug. 1, 2006), available at
http://www.stopoperationmethmerchant.org/pdf/MotionDeniedOrder.pdf. Civil liberties
groups and others criticized the operation for, as they perceived, targeting stores operated by
South Asian immigrant families with limited English skills and a lack of knowledge of manufacturing
mechanics and methamphetamine lingo, as well as for using an informant who may
have been unreliable, leading to the arrests of misidentified suspects. See, e.g., Jay Bookman,
Editorial, Meth Sting Pointed at South Asians, ATLANTA J. CONST., Oct. 13, 2005, at A15 (noting
that forty-three of forty-nine convenience store clerks and owners arrested in Operation
Meth Merchant were south Asian immigrants); Jay Bookman, War on Crystal Meth Cooks Up
Many Flimsy Charges, ATLANTA J. CONST., Oct. 10, 2005, at A13 (criticizing operation); Feature:
Federal Meth Precursor Sting Targeting South Asian Convenience Stores Draws Protests,
ACLU Intervention, Jan. 13, 2006, http://stopthedrugwar.org/
chronicle/418/convenience.shtml (last visited Aug. 27, 2010). A federal district judge dismissed
the collected defendant’s claim of selective prosecution. See United States v. Patel, No.
4:05-CR-27-02, slip. op. at 3-4 (N.D. Ga. Aug. 1, 2006), available at
http://www.stopoperationmethmerchant.org/pdf/MotionDeniedOrder.pdf.
127. See infra Part III.B.
128. See Jim Puzzanghera, Putting Cold, Flu Drugs Out of Reach, SAN JOSE MERCURY
NEWS, Dec. 15, 2005, at 1A (explaining that Walgreens, Target, Wal-Mart, Longs, and
other stores in California put pseudoephedrine-containing products behind the counter in
early 2005, prior to the passage of precursor restrictions requiring them to do so).
129. For example, Pfizer, the manufacturer of Sudafed, and the Consumer Healthcare
Products Association lobbied unsuccessfully against Oklahoma’s Bill 2176, which requires
pseudoephedrine purchasers to present identification and sign a registry. See Mark Schone,
The Epidemic on Aisle 6, LEGAL AFF., Dec. 2004, available at http://www.legalaffairs.org/
issues/November-December-2004/feature_schone_novdec04.msp. The Consumer Healthcare
Products Association lobbied with similarly unavailing results in several other states. Id.
130. Robert Cohen, Many Cold Meds Aren’t What They Used to Be, MINNEAPOLIS STAR-
TRIB., Nov. 24, 2006.

2010] METHADEMIC 869
ular items denotes an intent to manufacture methamphetamine, and
in general places the burden on stores to prevent customers from purchasing
precursor items. 131 Oklahoma created the “model” for this sort
of legislation in 2004, when it passed H.B. 2176. 132 Legislators hope
that by choking off ingredient supply lines, particularly the sizable
quantities of ephedrine or pseudoephedrine essential to methamphetamine
manufacture, local mom-and-pop methamphetamine producers
will be forced to shut down—positing that when “[y]ou control pseudoephedrine,
you control the meth.” 133 Restrictions on pseudoephedrine
purchase and possession vary from state to state, 134 and while (as discussed
below) federal law now provides a floor for precursor purchase
restrictions, 135 state laws have the following general characteristics.
First, states limit the amount of pseudoephedrine products a customer
may purchase (without prescription) at any given time or location.
A customer may purchase a specified quantity of pseudoephedrine
products at one store or from several stores within a certain period
of time. 136 In order to ensure that customers are not assuming
new identities; returning repeatedly to a store or a series of stores in
an attempt to cobble together a number of small purchases (a tactic
known as “smurfing” 137 ); or otherwise attempting to circumvent purchase
restrictions, legislation requires stores to demand that customers
produce identification at the time of purchase or to sign into a
131. In 2005 alone, thirty-five states passed such laws, generally known as “meth precursor”
restrictions, bringing the total number of states with such restrictions well over forty.
See Monica Cain & Cretson Dalmadge, The Effects of State-Level Methamphetamine
Precursor Restriction on Drug Laboratory Seizures, 8 REV.BUS.RES. 36, 36 (2007) (summarizing
2006 legislation).
132. See Scott Ehlers, State Legislative Affairs Update, NAT’L ASS’N CRIM. DEF. LAW.
CHAMPION MAG., Nov. 2005, at 58.
133. Gaylord Shaw, When Meth Hits Home/Oklahoma Trooper’s Routine Check Turns
Fatal, Prompting Focus on a Powerful Drug Gaining Popularity, NEWSDAY, Mar. 15, 2004,
at A6 (quoting an Oklahoma state narcotics bureau official in an article that describes multiple
killings that state officials attribute to methamphetamine).
134. For one fairly complete list of state regulations, see DUANE C. MCBRIDE ET AL.,
INSTITUTE FOR PREVENTION OF ADDICTIONS, THE RELATIONSHIP BETWEEN STATE
METHAMPHETAMINE PRECURSOR LAWS AND TRENDS IN SMALL TOXIC LABS (STL) SEIZURES
60-61 (2008), available at http://www.ncjrs.gov/pdffiles1/nij/grants/223467.pdf.
135. See 21 U.S.C. § 830(e)(1)(A)(i) (2006) (imposing restrictions and reporting requirements
on retailers who display and sell products identified as potential methamphetamine
precursors); see also Patricia Stanley, Comment, The Combat Methamphetamine
Epidemic Act: New Protection or New Intrusion?, 39 TEX. TECH L. REV. 379, 404-05 (2007)
(summarizing the relevant federal provisions).
136. For a summary of state purchase restrictions that notes some interesting differences
between state laws, see O’Connor et al., supra note 123, at 1182-85; see also Stanley,
supra note 135, at 393-94 (noting variations in state laws, in particular between states that
simply limit the amount that can be purchased during a single transaction and states that
limit the total amount that can be purchased within a given time period).
137. See, e.g., Andrew C. Goetz, Note, One Stop, No Stop, Two Stop, Terry Stop: Reasonable
Suspicion and Pseudoephedrine Purchases by Suspected Methamphetamine Manufacturers,
105 MICH.L.REV. 1573, 1584 (2007) (explaining the term).

870 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
hard-copy or electronic log book so that purchase amounts and patterns
can be tracked. 138
Second, state laws place requirements on retailers who vend
products that contain pseudoephedrine. Jurisdictions mandate that
stores monitor pseudoephedrine products, put pseudoephedrine
products under the control of pharmacists, or keep products secured
behind a counter or in a locked case; and report thefts and suspicious
behavior to authorities. 139 In this manner, some law enforcement
functions are placed on retailers, who monitor customers and merchandise
to ensure compliance with the law.
Third, some states have criminalized possession of particular
amounts of pseudoephedrine or permitted an inference of intent to
manufacture from possession of a specified quantity of pseudoephedrine.
140 While it may have always been possible to get a jury instruction
to the effect that intent to manufacture methamphetamine can
be inferred from the possession of a certain quantity or combination
of precursor materials, this inference has been formalized by states
into a statutory presumption. 141
The efficacy of the relatively new precursor restrictions is debatable.
Most law enforcement officials appear to believe that the restrictions
have reduced the number of mom-and-pop methamphetamine
labs, and media sources and police departments have reported fewer
methamphetamine laboratory raids in many areas since restrictions
have been put into place. 142 Reduced numbers of laboratories detected
138. See O’Connor et al., supra note 123, at 1184-85 (describing a variety of identification
and record-keeping requirements imposed by different states). Since 2006, Oregon has
required a prescription for the purchase of products containing pseudoephedrine. See OR.
REV. STAT. §475.950(2) (2008). Oregon Senator Ron Wyden has recently introduced federal
legislation to impose a similar requirement, but the bill has made no significant legislative
progress. See Dan Schiff, Pseudoephedrine Prescription Bill on the Way, OVER THE
COUNTER TODAY (Feb. 24, 2009), available at http://www.overthecountertoday.com/
2009/02/pseudoephedrine-prescription-bill-on-the-way.html (noting that Senator Wyden
has drafted and was planning on introducing such a ban in “the Meth Lab Elimination Act
of 2009”).
139. For a summary of some such laws, see Stanley, supra note 135, at 395 (discussing
restrictions imposed on retailers in Alabama, Missouri, and Oklahoma).
140. See, e.g., IND. CODE §35-48-4-14.5 (2006) (classifying possession of more than ten
grams of pseudoephedrine or ephedrine as a Class D felony); 35 PA. STAT. ANN. §780.113.1
(2004) (criminalizing possession of any amount of pseudoephedrine or ephedrine if—but only
if—the state can establish an intent to manufacture or distribute methamphetamine);
S.C. CODE ANN. §44-53-375(E)(1) (2005) (criminalizing the possession of more than twelve
grams of pseudoephedrine or ephedrine).
141. See, e.g., MISS. CODE. ANN. § 41-29-313(2)(c)(ii) (2005) (“[P]ossession of one or
more products containing more than twenty-four (24) grams of ephedrine or pseudoephedrine
shall constitute a rebuttable presumption of intent to use the product as a precursor
to methamphetamine or another controlled substance.”); OKLA. STAT. tit. 63, §2-332(B)
(2004) (creating a rebuttable presumption that possession of more than nine grams of
pseudoephedrine evinces an intent to produce methamphetamine).
142. See, e.g., Paul Bird, 3 Stores Cited in Meth Checks, INDIANAPOLIS STAR, Dec. 17,
2005, at 1S (reporting that, as of December of 2005, state police had responded to 941 calls

2010] METHADEMIC 871
can, however, reflect shifting law enforcement priorities or changing
manufacturing strategies. Law enforcement officers might have other
local crises, such as the contemporaneous uptick in violent crime, 143
that shift their attention away from methamphetamine production;
they might rely on precursor restrictions in part to reduce their need to
actively work to detect methamphetamine laboratories; mom–and-pop
producers might shift locations in order to be less detectable (sites that
are more rural, more professional “superlabs,” or mobile such as automobile
trunks). Also, as discussed below, reducing local production
may or may not reduce local methamphetamine use, although it certainly
would reduce the number of persons in the United States exposed
to toxic and volatile methamphetamine production chemicals.
State precursor restrictions of course leave several methods of
pseudoephedrine procurement open for the enterprising methamphetamine
manufacturer. Not all jurisdictions passed precursor restrictions
in the circa-2004 era, and options such as mail-order companies
were not covered by state precursor statutes. In 2006, Congress
stepped in to close some of these loopholes and establish national
standards, adopting the Combat Methamphetamine Epidemic Act as
part and parcel of a larger bill expanding and reauthorizing the Patriot
Act. 144 The Methamphetamine Act created nationwide pseudoephedrine
restrictions that largely mirrored the restrictions recently
put into place in most states and restricted the international and
mail-order sale of pseudoephedrine. 145
about methamphetamine labs, compared to 1061 at the same point the year prior, before precursor
restrictions were enacted); Vic Ryckaert, Meth Makers Outside U.S. Help Fill Void,
INDIANAPOLIS STAR, Dec. 15, 2005, at 4A (quoting John P. Walters, Director of the White
House Office of National Drug Control Policy, as saying that all Midwestern states had seen
declines in home methamphetamine manufacturing since precursor restrictions were
enacted); Michael A. Lindenberger, Law May Be Cutting Number of Meth Labs, (Louisville)
COURIER-JOURNAL, Nov. 4, 2005, at A1 (officials in Kentucky credit precursor restrictions
with reducing methamphetamine laboratory seizures). But see Matthew Hathaway, New Law
Isn’t Reducing Meth Lab Seizures, ST. LOUIS POST-DISPATCH, Dec. 14, 2005, at C5 (Jefferson
County, Missouri drug task force members did not observe a drop in methamphetamine lab
raids in the period following the implementation of precursor regulations in Missouri; according
to one official: “After the law went into effect, the (meth) cooks were confused for a few
weeks . . . but after that it was back to the same-old, same-old”).
Efforts to study the impact of such laws empirically—rather than anecdotally—are
still in their infancy. For some of the early efforts in this vein, see, for example, MCBRIDE
ET AL., supra note 134; Cain & Dalmadge, supra note 131.
143. See, e.g., Dan Eggen, Violent Crime, a Sticky Issue for White House, Shows Steeper
Rise, WASH. POST, Sept. 25, 2007, at A7 (noting that, after a long decline, violent crime
rates rose in 2006 and rose more steeply in 2005).
144. Combat Methamphetamine Epidemic Act of 2005, Pub. L. No. 109-177, 120 Stat.
192 (2006) (codified as amended in scattered sections of 21 U.S.C. and 42 U.S.C.).
145. For the core restrictions adopted by the Act, see 21 U.S.C. § 830(e)(1)(A)(i) (imposing
restrictions and reporting requirements on retailers who display and sell products
identified as potential methamphetamine precursors and on the mail order purchase of
such products). For an effective summary of the new federal provisions, see Stanley, supra
note 135, at 404-05. Congress expressly indicated that the new federal restrictions were

872 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
2. Methamphetamine Registries
Some states have created methamphetamine registries, similar to
sex offender registries, to permit private citizens to track persons convicted
of methamphetamine offenses. Tennessee pioneered the methamphetamine
registry in 2005, providing public access to a web site
that offers the names, dates of birth, offense category, and date of conviction
for persons convicted of methamphetamine manufacturing offenses.
146 Legislatures passed bills creating similar registries in several
other states. 147 These registries in general are less user-friendly and
provide far less personal information than do sex offender registries. 148
Registries are not costless—they require administration and updates—
but they are not as costly as continued incarceration.
meant only as a floor and were not meant to preempt more stringent state restrictions. See
Combat Methamphetamine Epidemic Act §711(g), 120 Stat. at 263 (codified at 21 U.S.C.
§802 note).
146. See Tennessee Meth Offender Database, http://www.tennesseeanytime.org/methorapp/search.jsp
(last visited Aug. 27, 2010).
147. See, e.g., Illinois Methamphetamine Manufacture Registry, http://www.isp.state.il.us/
meth/ (last visited Aug. 27, 2010); Minnesota Methamphetamine Offender Registry,
https://mor.state.mn.us/OffenderSearch.aspx (last visited Aug. 27, 2010); Sexual or Violent Offender
Registry, MT Dep’t of Justice, http://www.doj.mt.gov/svor/ (last visited Aug. 27, 2010).
148. National guidelines for sex offender registries provide minimum standards for
state sex offender registries. According to these minimum standards, states should post to
websites fairly comprehensive information about sex offenders—their names, addresses,
vehicle descriptions and license plate numbers, physical descriptions and current photographs
of registered persons, and the sex offenses for which the person has been convicted.
DEP’T OF JUST., THE NATIONAL GUIDELINES FOR SEX OFFENDER REGISTRATION AND
NOTIFICATION 33-34 (2008).
When Oklahoma’s state legislature considered legislation to create a registry, Speaker
Todd Hiett, who introduced the bill, argued that “Oklahomans have the right to know if
a meth lab could be in their own neighborhood or community,” while Representative John
Nance, who carried the bill, offered that the registry would “be a useful tool to families as
they look to buy a home. You need to be able to check out all aspects of that home’s history,
including whether there has been a meth lab close by.” Press Release, Speaker of the Oklahoma
House of Representatives Todd Hiett (Mar. 1, 2006), available at http:
/www.okhouse.gov/OkhouseMedia/pressroom.aspx?NewsID=512. The focus was on protecting
property values and avoiding nuisances, not on stigmatizing offenders. Even still, Oklahoma
never adopted a registry, and most of the established registries have been even less
useful. See infra notes 149-150.
The Illinois registry requires a last name to be submitted in order to search for a
convicted person; unlike sex offender registries, a private citizen accessing the registry
cannot, for example, generate a neighborhood map showing where persons convicted of methamphetamine
offenses reside. The publicly-accessed record provides the convicted person’s
full name, date of birth, and offense of conviction; no photograph or address may be
publicly accessed. See Illinois Methamphetamine Registry, supra note 147. In contrast, the
Illinois sex offender registry, available at http://www.isp.state.il.us/sor/, permits the general
public to access lists of sex offenders by city and zip code; to, in addition to viewing dates
of birth and offenses of conviction, access maps of sex offender residence locations; and to
view photographs, full physical descriptions, specific offense details, and complete addresses
of registered sex offenders. Other states with methamphetamine registries similarly
provide less information and less ease of access than offered through sex offender registries.
Compare Tennessee’s methamphetamine registry, supra note 146, which permits
citizens to search for persons convicted of methamphetamine manufacturing offenses by
county or by last name with a first initial, and provides the name, birth date, offense title,

2010] METHADEMIC 873
This methamphetamine registration trend never took root in most
states, however. While a handful of states ultimately passed legislation
creating registries, most states never formally considered methamphetamine
registries as a strategy for reducing methamphetamine production,
and not all jurisdictions that have considered methamphetamine
registries actually created them. 149 In 2006, for example, Georgia, Oklahoma,
West Virginia, and Washington State all considered legislation to
create registries but ultimately declined to do so. 150
The story of state legislative dalliance with methamphetamine registries
is a telling allegory. Legislators looking for ways to crack
down on methamphetamine floated proposals modeled on earlier gettough-on-crime
strategies. Their bills were quickly reshaped to be
less punitive and more public health oriented than the earlier legislation.
Even then, when the costs of the programs became apparent
and were weighed against their limited benefits, most such proposals
quietly died on the vine.
3. Property Regulations
The methamphetamine-producing methods described above carry,
in addition to immediate risks to producers, 151 longer-term problems
of contamination and waste. 152 Methamphetamine manufacture gen-
and date of conviction, with Tennessee’s sex offender registry, available at
http://www.ticic.state.tn.us/sorinternet/sosearch.aspx, which also permits searches by last
name, city, and zip code, and which provides a photograph, address, and registration status
information for listed persons. Minnesota’s methamphetamine registry permits searches by
last name or by county. See Minnesota Methamphetamine Registry, supra note 147. Registry
records include the convicted person’s full name, date of birth, and registry-triggering
offense, and provide a link to the person’s publicly accessible criminal history, if desired.
The registry does not provide a photo, address, or further physical or biographical description.
In contrast, the state’s sex offender registry permits searches by county, city, zip code,
or name, and provides a photograph, physical description, address, and specific offense details
for the registrant.
149. For examples of bills introduced with great fanfare that were never adopted, see Ga.
H. B. 793, (2006), available at http://www.legis.state.ga.us/legis/2007_08/fulltext/hb793.htm.;
Okla. H. B. 3121, (2008), available at http://webserver1.lsb.state.ok.us/2007-08bills/HB/
HB3121_hflr.rtf; W. Va. H. B. 4525, (2006), available at http://www.legis.state.wv.us/
bill_status/bills_text.cfm?billdoc=hb4525%20intr.htm&yr=2010&sesstype=RS&i=4525.
150. For national coverage of Georgia’s then-pending legislation, see Kari Huus, Click
Here for Drug Offenders: Internet Listings Have Popular Appeal, But do they Really Protect
the Public? , MSNBC, (Dec. 7, 2006), http://www.msnbc.msn.com/id/15971396/. Press
coverage throughout 2006 identified Oklahoma, Washington, and West Virginia, as other
states considering the adoption of a registry. See, e.g., id. As of August 2008, none of those
states had adopted a meth registry. See Jeff Lambert, Tennessee’s Meth Offender Registry
Copied and Reviled, TIMES-NEWS, Aug. 24, 2008, http://www.timesnews.net/
article.php?id=9007847 (reporting that only Tennessee, Illinois, Minnesota, Montana, and
Kansas had established methamphetamine registries).
151. For reports of methamphetamine laboratory explosions, see for example, Man Injured
in Arnold Meth Lab Explosion, ST. LOUIS POST-DISPATCH, July 4, 2008; Deputies
Blame Explosion on Meth Lab, ORLANDO SENTINEL, Sept. 19, 2006, at G2.
152. See, e.g., McKinley & Fink, supra note 118, at 1223 (describing the environmental
concerns arising from methamphetamine manufacture). News coverage of methampheta-

874 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
erates hazardous byproducts, including chemicals that do not easily
degrade. Those chemicals can contaminate the property where the
methamphetamine was produced, groundwater and soil in surrounding
areas, and any other property or water supply where byproducts
are dumped. Future property occupants face contamination hazards
and possible health complications from exposure to toxins. These
problems are neither new nor newly identified. 153
These concerns about the environmental consequences of methamphetamine
have spurred diverse policy responses and proposals.
The Combat Methamphetamine Epidemic Act requires the United
States Transportation Department and the Environmental Protection
Agency to begin tracking and reporting on some chemicals that
are byproducts of methamphetamine production. 154 Some states have
adopted legislation putting notice and cleanup burdens on people
seeking to transfer property, to ensure that unwary purchasers are
not exposed to toxins. 155 Some state and federal programs offer to pay
some or all of the costs of cleaning up the toxic byproducts of methamphetamine
when they are found on the property of innocent individuals.
156 Advertising campaigns against methamphetamine have
prominently incorporated warnings about the environmental hazards
posed to innocent bystanders when local residents manufacture methamphetamine.
157 Some commentators have advocated the aggres-
mine production has routinely made reference to the environmental hazards posed by
home methamphetamine laboratories. See, e.g., Hal Marcovitz, Congressmen Call for Limits
on Sales of Cold Medication; Bill Aimed at Stopping Crystal Meth Operators, Two Tell
Bucks County, THE MORNING CALL (Allentown, Pa.) , Oct. 7, 2005, at B1 (describing how
methamphetamine lab operators dump hazardous waste into woods and streams). For recent
academic discussion of environmental issues raised by methamphetamine production,
see O’Connor et al., supra note 123, at 1172-73, 1187. See generally Smith, Cooking Up Solutions,
supra note 10; Cheri-Lynn Wortham, Comment, Methamphetamine and Cocaine
Manufacturing Effects on the Environment and Agriculture, 17 SAN JOAQUIN AGRIC. L.
REV. 343 (2008).
153. Several student notes on the environmental problems associated with
methamphetamine labs appeared prior to the recent flurry of news articles about
methamphetamine. See, e.g., Tamara B. Maher, Note, Legal Liabilities Faced by Owners of
Property Contaminated by Clandestine Methamphetamine Laboratories: The Oregon
Approach, 27 WILLAMETTE L. REV. 325 (1991); Anna S. Vogt, Comment, The Mess Left
Behind: Regulating the Cleanup of Former Methamphetamine Laboratories, 38 IDAHO L.
REV. 251 (2001). States had also previously enacted statutes for the purpose of addressing
environmental hazards associated specifically with methamphetamine production. See,
e.g., OR. REV. STAT. § 453.855 (2007); WASH. REV. CODE § 64.44.005 (2009). These statutes
include provisions that require property owners to warn potential purchasers about
contamination. See, e.g.., OR. REV. STAT. § 105.464(I)(8)(F)&(H)(2007); WASH REV. CODE §
64.06.020 (2009).
154. See Jeff Wyble, Methamphetamine—The New Epidemic, 11 MICH.ST.U.J.MED.&
L. 115, 140 (2007) (collecting and describing scattered provisions of the Act that impose
new environmental reporting requirements).
155. See O’Connor et al., supra note 123, at 1187 (describing adoption of such reforms
in Colorado and South Dakota).
156. See Wortham, supra note 152, at 349-53 (describing some such programs).
157. See, e.g., Suo, supra note 109, at C7.

2010] METHADEMIC 875
sive use of nuisance and zoning laws to regulate, eliminate, and sanction
methamphetamine laboratories. 158
4. Child-Protective Measures
Legislative responses to methamphetamine have often focused—
both rhetorically and substantively—on the dangers that the manufacture
and use of the drug pose to children. 159 Many such efforts
have been educative or ameliorative. For example, the Combat Methamphetamine
Epidemic Act included a twenty million dollar grant
program to assist states in establishing programs to assist children
exposed to methamphetamine. 160 Sponsors of a similar House provision
emphasized the children’s innocence; as Representative Zach
Wamp stated, “Through no fault of their own these children have
been placed in an unconscionable position because their parents or
guardians surrendered their wills to an incredibly addictive drug,”
describing affected children as “orphans of the despicable meth
trade.” 161 Public education campaigns have, likewise, focused on dangers
to children. 162
As might be expected when children are involved, initiatives in
this area have also, at times, been punitive. While it is possible that
a variety of methamphetamine offenses might expose a parent or
guardian to traditional child neglect or abuse charges, many states
have enacted specific “child abuse by methamphetamine” statues
that make it an offense to expose a child or other helpless dependant
to the production of methamphetamine or have passed sentence enhancement
provisions that increase the punishment of those convicted
of methamphetamine manufacturing if children are present
during the manufacturing of the drug. 163 These statutes seek to limit
the extent to which “innocents” in custodial care are exposed to toxic
chemicals and possible explosions and fires through punishing parents
and caregivers who facilitate that exposure.
158. See, e.g., Smith, America’s Methamphetamine Crisis, supra note 10, at 624-34 (advocating
aggressive use of nuisance laws).
159. Expressions of particular concern for children “victimized” by methamphetamine
are a familiar trope in the academic literature, see, e.g., Smith, America’s Methamphetamine
Crisis, supra note 10, at 609 (describing children as one of “two classes of individuals”
who “most consistently suffer from the harms of methamphetamine production”); in media
coverage, see, e.g., Joh, supra note 10, at 183 (reviewing media coverage of the so-called
meth “epidemic” and concluding that “the methamphetamine addict was construed as an
immoral or amoral monster, whose addiction wreaked havoc upon children”); and in government
reports, see, e.g., KAREN SWETLOW, U.S. DEP’T OF JUSTICE, CHILDREN AT
CLANDESTINE METHAMPHETAMINE LABS:HELPING METH’S YOUNGEST VICTIMS (2003).
160. Combat Methamphetamine Epidemic Act of 2005, Pub. L. No. 109-177, § 755; see
also Wyble, supra note 153, at 141 (explaining the intended uses of this grant money).
161. Press Release, Rep. Jim Cooper, Meth-Endangered Children to Benefit from New
Grant Program, U.S. FED.NEWS, Dec. 14, 2005, available at 2005 WLNR 20389395.
162. See, e.g., Suo, supra note 109, at C7 (describing one such commercial).
163. For a discussion of these developments, see infra Part III.B.

876 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
5. Methamphetamine Prisons
During the round of concern about crack-cocaine offenses, many
people were sent to prison; the prisons were general prisons with a
variety of offender types that may or may not have had specific substance
abuse treatment or other rehabilitative programs available.
In contrast, in response to methamphetamine, Montana and Illinois
have created prisons specifically designed to house persons who
have been convicted of offenses and are addicted to methamphetamine,
164 while several other states have set up special units within
other prisons dedicated to meth-addicted prisoners. 165 While obviously
incarcerative, these prisons reflect a more nuanced—and more
ambivalent—response to the problems raised by substance abuse.
Certainly, prisons specially dedicated to the rehabilitative needs of a
specific class of substance abusers were not part of prior legislative
and executive responses to perceived drug epidemics.
6. Drug Treatment Courts
In confronting the problems posed by methamphetamine, states
have increasingly utilized specialized drug courts to deal with a significant
segment of those charged with violating criminal drug statutes.
Many states have made drug courts a centerpiece of their antimethamphetamine
efforts. 166 For example, Montana—a state that
considers itself one of the hardest-hit regions of the country in terms
of its methamphetamine problem—has established family drug court
programs in several jurisdictions, serving both adults and juveniles.
167 The federal government has also endorsed the strategy, making
over $70 million available annually to states to implement and
maintain such courts. 168
164. See Catharine Skipp & Arian Campo-Flores, Addiction: A “Meth Prison” Movement,
NEWSWEEK, Apr. 24, 2006 (describing the new prisons in those states).
165. See id. (describing experiences in other states, notably Indiana); see also NORTH
DAKOTA LEGISLATIVE COUNCIL, METH PRISONS IN OTHER STATES (2006) (document prepared
for North Dakota Assembly Budget Committee on Government Services), available
at http://www.legis.nd.gov/assembly/59-2005/docs/pdf/79288.pdf (evaluating success of
“meth prisons” in Illinois, Indiana, and Montana in response to proposal for similar prison
in North Dakota).
166. See, e.g., C. WEST HUDDLESTON, III, U.S. DEP’T OF JUSTICE, DRUG COURTS: AN
EFFECTIVE STRATEGY FOR COMMUNITIES FACING METHAMPHETAMINE (2005), available at
http://www.ojp.usdoj.gov/BJA/pdf/MethDrugCourts.pdf (discussing successful drug court
programs in California, Utah, and Washington State); Melody Finnemore, Juggling Act:
Rapidly Changing Judiciary Requires Judges to Take on More Complex Roles, 66 OR. ST.B
BUL., Dec. 2005, at 17, 17 (discussing use of drug courts to combat methamphetamine in
Oregon and crucial role of judges in such courts); Ed Kemmick, Drug Treatment Court: A
Glimmer of Hope in the Fight Against Meth, BILLINGS GAZETTE, Aug. 24, 2005 (discussing
Montana’s commitment to utilizing drug courts to combat its meth problem).
167. See Kemmick, supra note 166 (describing program).
168. Combat Methamphetamine Epidemic Act of 2005, Pub. L. No. 109-177, §§ 751-54
(2006). The federal commitment to drug courts was not unconditional; in order to obtain

2010] METHADEMIC 877
Drug courts generally provide alternatives to incarceration for participating
defendants. 169 Defendants whose offenses are considered
linked to drug addiction—whether or not the offense charged is a drug
offense—may be identified by judges, service personnel, prosecutors, or
defense attorneys as persons who would benefit from substance abuse
treatment, and who should avoid incarceration and/or conviction if
they successfully complete treatment. These programs usually follow
one of two formats: either the defendant enters the alternative program
after arrest, but prior to conviction, 170 or, alternatively, the defendant
may plead guilty and have an incarcerative sentence suspended
pending completion of the drug court program. 171 Completion of
the program might lead to no conviction, the dismissal of a conviction,
or a conviction that does not lead to a jail or prison sentence. 172
Drug courts usually require the participant to complete drug
abuse treatment, maintain employment or student status, be closely
supervised by program personnel, and receive other services, such as
family or mental health services, that the court might consider necessary.
173 While drug courts are superficially similar to probation in
that defendants are supervised and a failure to comply with the program’s
terms may lead to consequences for the defendant, the level of
supervision provided to defendants is generally more intensive (defendants
often appear in front of judges for status reports, and may
attend several meetings with treatment providers and other rehabi-
these funds states were required to design their drug courts to include mandatory drug
testing and to impose graduated sanctions for failures to pass such test. See id. at §753; cf.
HUDDLESTON, supra note 166 (mentioning a federal report encouraging states to adopt
drug courts).
169. On drug courts generally, see Eric J. Miller, Drugs, Courts, and the New Penology,
20 STAN. L.&POL’Y REV.417, 417-25 (2009) (summarizing history, theory, and functions of
modern drug courts).
170. See, e.g., California Courts, Drug Court, http://www.courtinfo.ca.gov/programs/
collab/drug.htm (last visited Aug. 27, 2010) (“A preplea diversion program allows criminal
proceedings to be suspended while the defendant participates in a program involving counseling,
drug testing, education, or other requirements. If the defendant successfully completes
the program, the criminal charges are dismissed.”). In some such systems, defendants
may be required to sign confessions before entering the drug court program, so that,
should they not successfully complete the program, the prosecutor’s burden of proof at trial
will be easy to meet.
171. See, e.g., Felony Drug Court: Statement from Judge Thomas A. Teodosio, http://
www.summitcpcourt.net/fdc.html (last visited Aug. 27, 2010) (noting that the drug courts
in Summit County, Ohio “will be based upon a post-adjudication model”).
172. For comparison of the different consequences of completing and failing to complete
different kinds of drug court programs, see, for example, JAMES L. NOLAN, REINVENTING
JUSTICE: THE AMERICAN DRUG COURT MOVEMENT 41 (2001); Hon. Peggy Fulton Hora &
Theodore Stalcup, Drug Treatment Courts in the Twenty-First Century: The Evolution of
the Revolution in Problem-Solving Courts, 42 GA.L.REV. 717, 725-26, 750 (2008).
173. See generally, e.g., Hora & Stalcup, supra note 172, at 725-27 (describing normal
operation of drug courts).

878 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
litative personnel each week), and intermittent noncompliance, such
as an isolated positive drug test, generally is tolerated. 174
To some extent, the willingness of states to experiment with drug
courts as a mechanism for dealing with methamphetamine users
(and the federal government’s encouragement of this experimentation)
may reflect a judgment that methamphetamine use presents a
different set of problems—or attracts a different set of users—than
other illegal drugs. 175 However, drug treatment courts have existed
for two decades now and have generally become more popular over
the last few years. 176 To the extent that methamphetamine users
charged with criminal offenses are being diverted into specialized
drug treatment courts, it is unclear whether they are benefiting from
a special solicitude for meth users or from a general national trend. 177
7. Educational Programs
Both state and federal drug education programs, as well as campaigns
funded by nonprofit organizations, have created specific antimethamphetamine
resources, including television and print advertisements
as well as school-based workshops. 178 The educational
campaigns have varied in tone and focus; some show innocent children
exposed to methamphetamine production by parents or neighbors;
some show ravaged producers frantically cooking methamphetamine;
most focus on the potentially debilitating physical and
oral health consequences of repeated methamphetamine use. 179 One
174. See id.
175. The question of whether our ambivalent policy response to methamphetamine reflects
factors unique to methamphetamine or signals a more general softening of American
drug policy is treated extensively infra Part V.
176. See Miller, supra note 169, at 420 (noting creation of first modern drug court in
1989); id. at 417 (“Perhaps the most important judicial response to the War on Drugs has
been the creation of specialty ‘drug courts’ designed to ameliorate the impact of drug sentencing
policy on individual drug users.”). One incomplete list of drug court programs lists
programs in 43 states. See National Center for State Courts, Specialty Courts: Drug
Courts: Drug Courts, Drug Indicators, and Drug Court Programs: State Links, http://
www.ncsconline.org/wc/CourTopics/StateLinks.asp?id=24&topic=DrugCt (last visited Aug.
27, 2010).
177. Moreover, there are reasons to question whether diversion into a specialized drug
court program is an unmitigated benefit for a criminal defendant. I explore these issues in
a work in progress entitled “Thinking Outside the Cell: Criminal Justice Policy in a Post-
Mass Incarceration World.” See also Miller, supra note 169 (criticizing aspects of contemporary
drug courts as well).
178. One of the most aggressive state-level programs has been the Montana Meth
Project. For coverage of the Project and its advertising campaign, see, for example, Thomas
W. Seibel & Steven A. Mange, The Montana Meth Project: “Unselling” a Dangerous Drug,
20 STAN. L.&POL’Y REV. 405 (2009); Kate Zernike, With Scenes of Blood and Pain, Ads
Battle Methamphetamine in Montana, N.Y. TIMES, Feb. 26, 2006. The Project’s website,
which includes many of the pictures and other material it uses to attempt to influence
teens not to try meth, is available at http://www.montanameth.org/.
179. See, e.g., Joh, supra note 10, at 182; Suo, supra note 109, at C7; Zernike, supra
note 178. For one media expert’s compilation of the forty most effective anti-meth ads (in-

2010] METHADEMIC 879
common tactic of such campaigns is to offer “before” and “after” photographs
of meth users. 180
Other advertisements specifically target people already using methamphetamine.
Here, the language and the imagery are less catastrophic;
the pathos is laced with hope. In September of 2008, for example,
the Office of National Drug Control Policy submitted an advertisement
entitled “Rebuild After Meth.” Under a photograph of a
smiling woman and child, the advertisement trumpets rising treatment
and falling usage numbers and focuses on a story to be associated
with the photograph:
Consider Teresa. She is a mother, Girl Scout volunteer, and website
developer. Her life took a sharp turn when she started using meth to
lose weight. Her story went from bad to worse as she abandoned her
family, including her 4-year-old daughter, for nearly a year in the
search for her next high. She eventually entered a treatment program
and made a commitment to conquer her addiction. Today, she
is drug-free and a leader in anti-meth efforts in her community.
There are thousands of people like Teresa out there, showing individuals
and communities what they need to know. 181
IV. MAKE NEW DRUG LAWS, BUT KEEP THE OLD
Missing among these various legislative responses to methamphetamine
is a dramatic increase in penalties for possession, manufacture,
trafficking, and sale. Some legislatures have indeed increased
penalties for various methamphetamine offenses in the same
way that we saw penalties increase for crack cocaine in the late
1980s, 182 but, as discussed above, most legislatures have focused
more on prevention, education, and treatment than on increased incarceration.
183 Nevertheless, there are some familiar themes in the
response to methamphetamine by legislatures, courts, and law enforcement
officials. In particular, courts have used methampheta-
cluding both still images and videos), see 40+ Most Powerful Anti-Meth Advertisements,
http://elitebydesign.com/anti-meth-ads/ (last visited Aug. 27, 2010).
180. The source for most such photographs is the “Faces of Meth” program administered
by the Multnomah (Portland), Oregon County Sheriff’s Department. The photographs,
which originally gained prominence as accompaniments to the hyperbolic methamphetamine
stories THE OREGONIAN ran in 2004 and 2005, are most easily accessed through
the Partnership for a Drug Free America’s website at http://www.drugfree.org/
Portal/DrugIssue/MethResources/faces/index.html (last visited Aug. 27, 2010); see also Lisa
Demer, Meth Ills Expand in Alaska, ANCHORAGE DAILY NEWS, Sept. 7, 2005 (noting that
the United States Attorney’s office in Alaska distributes before-and-after photos of methamphetamine
users from the same series).
181. OFFICE OF NAT’L DRUG CONTROL POL’Y,REBUILD AFTER METH (undated), available
at http://www.theantidrug.com/openletter/Meth-Rebuild.pdf.
182. See, e.g., Act of May 21, 2004, ch. 845, §§2-3, 2004 Tenn. Pub. Acts 1922, 1923 (codified
at TENN. CODE. ANN. §39-17-417 (Supp. 2005)) (lowering the triggering quantity of
methamphetamine for certain sentences from 100 and 1000 grams to 26 and 300 grams).
183. See supra Part III.B.

880 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
mine cases to carve out exceptions to Fourth Amendment protections,
and legislatures and prosecutors have sought to protect fetuses and
children from the effects of parental drug use, production, and sale.
A. Familiar Fourth Amendment Developments
A familiar narrative of drugs and the Fourth Amendment describes
the expansion of exceptions to Fourth Amendment limitations
on searches and seizures due to the perceived need to police the use,
manufacture, and sale of drugs. 184 Based on the nature of drugs
themselves—portable, fungible, and easy to conceal—courts have
gifted law enforcement officers with the ability to search more intrusively
and thoroughly than prior doctrine might have suggested. 185
Courts have used the ease of illicit drug disposal, as well as the violence
associated with drug sales, to support findings of exigent circumstances
that permit officers to dispense with obtaining warrants
and, when they do obtain warrants, knocking and announcing their
presence when serving warrants they do obtain. 186
The volatility of the chemicals used to produce methamphetamine
has similarly provided a foundation for permitting officers to search
without obtaining warrants. Officers generally establish probable
cause in suspected methamphetamine lab cases by identifying by
smell chemicals associated with methamphetamine production 187 or
184. See, e.g., Glasser & Siegel, supra note 67, at 243. Graham Boyd, Director of the
American Civil Liberties Union’s Drug Policy Litigation Project, argues that “the court cases
that have most destroyed the Bill of Rights, methodically abridging freedom of religion,
freedom of speech, freedom from unreasonable searches and seizures and property rights,
have all concerned drugs.” Graham Boyd, Collateral Damage in the War on Drugs, 47 VILL.
L. REV. 839, 840 (2002). In the context of the Fourth Amendment, Boyd argues that the expansion
of exceptions based on the War on Drugs is inevitable, as drug offenses lack complaining
witnesses, meaning that police need to rely on informants, wiretapping, undercover
operations, wiretapping, and other practices that implicate the Fourth Amendment. Id.
at 842.
185. A 2002 Villanova Law Review symposium provided some of the nation’s leading
critics of current Fourth Amendment doctrine with an opportunity to explore the connections
between drug policy and the decline of Fourth Amendment protections. For some of
the most powerful critiques, see Frank Rudy Cooper, The Un-Balanced Fourth Amendment:
A Cultural Study of the Drug War, Racial Profiling and Arvizu, 47 VILL. L.REV. 851
(2002); Kevin R. Johnson, U.S. Border Enforcement: Drugs, Migrants, and the Rule of Law,
47 VILL. L. REV. 897 (2002); Erik Luna, Drug Exceptionalism, 47 VILL. L.REV. 753 (2002);
David A. Moran, The New Fourth Amendment Vehicle Doctrine: Stop and Search Any Car
at Any Time, 47 VILL.L.REV. 815 (2002). See also Paul Finkelman, The Second Casualty of
War: Civil Liberties and the War on Drugs, 66 S. CAL. L.REV. 1389 (1993); David Rudovsky,
The Impact of the War on Drugs on Procedural Fairness and Racial Equality, 1994
U. CHI. LEGAL F. 237; Steven Wisotsky, Crackdown: The Emerging “Drug Exception” to the
Bill of Rights, 38 HASTINGS L.J. 889 (1987).
186. On the various justifications offered for loosening Fourth Amendment protections
in the drug context, see Luna, supra note 185, at 765-77.
187. A long line of recent Eighth Circuit cases find that both probable cause and exigent
circumstances justifying a warrantless entry are established based on the smell of
methamphetamine manufacture and little or nothing else. See, e.g., United States v.

2010] METHADEMIC 881
by observing equipment and materials associated with methamphetamine
manufacture. 188 Courts reason that, where an officer has
probable cause to believe that an operational methamphetamine laboratory
exists in a location, exigent circumstances permit the officer
warrantless entry in order to protect residents, neighbors, and the officers
themselves from the possibility that the methamphetamine lab
might at any moment explode. 189
Finally, as methamphetamine manufacturers have experimented
with work-around strategies to avoid restrictions on pseudoephedrine
purchases, courts have held that purchasing patterns can also provide
reasonable suspicion to detain suspected producers. 190 Shopping
companions who separately purchase pseudoephedrine may provide
reasonable suspicion to support a stop. 191 Purchasing the maximum
permitted amount of pseudoephedrine at several stores in succession
may also provide reasonable suspicion to effectuate a stop. 192 As discussed
above, a store clerk or operator who permits a person to make
such purchases, aside from breaking precursor sales restrictions
laws, may be providing investigating officers with reasonable suspi-
Clarke, 564 F.3d 949, 959 (8th Cir. 2009); United States v. Walsh, 299 F.3d 729, 734 (8th
Cir. 2002).
188. See, e.g., United States v. Rhiger, 315 F.3d 1283, 1288 (10th Cir. 2003).
189. See, e.g., United States v. Clarke, 564 F.3d at 959; Williams v. State, 995 So. 2d
915, 920-221 (Ala. Crim. App. 2008); State v. Simmons, 714 N.W.2d 264, 273 (Iowa 2006);
United States v. Walsh, 299 F.3d at 734; United States v. Wilson, 865 F.2d 215, 217 (9th
Cir. 1989). In Williams, the officers offered memorable testimony explaining their reasons
for proceeding without a warrant. 995 So. 2d at 917 (reporting that officers testified “we’ve
been almost blew up in meth labs before”). But see State v. Moore, 183 P.3d 158, 161-162
(N.M. Ct. App. 2008) (affirming district court’s finding that exigent circumstances did not
justify officer’s warrantless entry into home; while an operational methamphetamine laboratory
might provide an exigent circumstance supporting warrantless entry, the police
did not “have knowledge of specific, articulable facts that demonstrate that immediate action
is necessary”).
190. See generally Andrew C. Goetz, Note, One Stop, No Stop, Two Stop, Terry Stop:
Reasonable Suspicion and Pseudoephedrine Purchases by Suspected Methamphetamine
Manufacturers, 105 MICH.L.REV. 1573 (2007).
191. See, e.g., United States v. Ameling, 328 F.3d 443, 448 (8th Cir. 2003) (upholding a
finding of reasonable suspicion where two customers picked up pseudoephedrine products
together, purchased them from separate cashiers, consolidated the purchases in the parking
lot, and had also purchased a lithium battery that might be used in methamphetamine
manufacture); State v. Heuser, 661 N.W.2d 157 (Iowa 2003) (finding police had sufficient
suspicion to stop defendant’s vehicle when the defendant and a woman entered a Target
store together but then separated and bought several boxes of cold medication containing
pseudoephedrine at separate cash registers, before driving to a Walmart). But see State v.
Bulington, 802 N.E.2d 435 (Ind. 2004) (finding, on similar facts, that police lacked reasonable
suspicion to conduct a Terry stop).
192. See, e.g., United States v. Thurston, No. S1-4.02 CR 494 CDP DDN, 2003 U.S.
Dist. LEXIS 14954, at *8-10 (E.D. Mo. May 14, 2003) (finding that police had reasonable
suspicion to perform a Terry stop where customer purchased two boxes of pseudoephedrine
products at a Target, proceeded to a Walgreens, and purchased two additional boxes of
pseudoephedrine).

882 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
cion or probable cause to believe that they are conspiring with or are
an accessory to the manufacture of methamphetamine. 193
B. “But What About the Children?”
A second similarity in the criminal sanctions response to methamphetamine
has been the focus on the effects of exposure to drug
activity on children and the attempts of legislatures, courts, and
prosecutors to devise ways in which criminal sanctions might curtail
the effects of drug manufacture and use on minors. The exposure of
children to methamphetamine itself can support an exigent circumstances
exception to the warrant requirement. 194
While the legislative response to methamphetamine generally has
not included radically increased sanctions for offenses or wholesale
creation of new crimes, one of the exceptions to this observation is in
the area of child protection. Legislatures have appended methamphetamine
exposure to existing child abuse and neglect offenses or
created new “child abuse by methamphetamine exposure” statutes; 195
created special felonies criminalizing the manufacture of methamphetamine
in the presence of a child or dependant adult; 196 and increased
penalties for existing methamphetamine offenses when
children are present or involved. 197 In states with more general child
193. See, e.g., supra note 126 (discussing one such incident).
194. See, e.g., Richards v. State, 659 S.E.2d 651, 653 (Ga. App. 2008) (holding that the
smell of chemicals normally associated with methamphetamine manufacturing and a
glimpse of what looks like a meth lab were sufficient to create an exigent circumstance
when there was reason to believe that a child was present); State v. Crabb, 835 N.E.2d
1068, 1071 (Ind. App. 2005) (holding that the smell of ether and the rustling of curtains,
“combined with credible evidence that a small child was on the premises and, thus, being
exposed to both risks from explosions due to the flammability of the chemicals used in
producing methamphetamine and from the effects that ether can have on the respiratory
system,” provided officers with sufficient exigent circumstances to permit officers to make
warrantless entry).
195. See, e.g., WASH. REV. CODE § 9A.42.100 (Supp. 2007) (“A person is guilty of the
crime of endangerment with a controlled substance if the person knowingly or intentionally
permits a dependent child or dependent adult to be exposed to, ingest, inhale, or have contact
with methamphetamine or ephedrine, pseudoephedrine, or anhydrous ammonia, including
their salts, isomers, and salts of isomers, that are being used in the manufacture of
methamphetamine, including its salts, isomers, and salts of isomers. Endangerment with a
controlled substance is a class B felony.”). Michigan, Iowa, and South Dakota have also
enacted specific “child abuse by methamphetamine” statutes. See Feature: Methamphetamine
as Child Abuse Laws Gain Ground, but Do They Help or Hurt?, DRUG WAR CHRON.,
July 14, 2006, available at http://stopthedrugwar.org/chronicle/444/drug-child-abuse-laws.
196. See, e.g., N.D. CENT. CODE § 19-03.1-22.2 (2004); TENN. CODE ANN. § 37-1-
102(23)(D) (2006). Georgia, Idaho, and Ohio are among the other states that have specific
felonies criminalizing the manufacture of methamphetamine in the presence of a child. See
Feature: Methamphetamine as Child Abuse Laws Gain Ground, but Do They Help or Hurt?,
supra note 195.
197. For example, Washington provides a sentencing enhancement for methamphetamine
manufacture where methamphetamine was produced in the presence of a child. See
WASH.REV.CODE §9.94A.827(2) (Supp. 2009).

2010] METHADEMIC 883
abuse statutes, courts have likewise expanded criminal liability,
upholding convictions for child abuse for exposing children to methamphetamine
manufacturing, even in the absence of proof of harm
to the child. 198
As we saw with maternal use of crack cocaine, 199 prosecutors have
sought to use existing child abuse statutes to sanction women who
use methamphetamine during pregnancy. 200 As we also saw with respect
to crack cocaine, 201 courts generally have not permitted such
tactics. 202 In one high-profile case, local prosecutors in Hawaii
brought manslaughter charges against a woman whose two-day-old
baby died after she smoked methamphetamine in the days leading up
to its birth. 203 She entered a conditional guilty plea, reserving the
right to contest the charges, and was vindicated when the Hawaii
Supreme Court rejected the prosecutor’s interpretation of the statute
The extent to which laws of these various types have been or will be effective in limiting
the exposure of children to hazardous conditions has not been studied. The number
of children endangered by methamphetamine manufacture, or who enter state child protective
service programs because of methamphetamine exposure, is unclear; state departments
do not keep statistics, and informal estimates range from half of child abuse cases to
less than one percent. Statutes might protect children from toxic exposure by providing
parents with a manufacturing disincentive or by making unavailable via imprisonment
parents who produce methamphetamine; they might, on the other hand, drive parents who
produce methamphetamine into greater secrecy, or place children who live in environmentally
toxic environments in possibly unsafe foster care environments.
198. See, e.g., People v. Toney, 90 Cal. Rptr. 2d 578, 581 (Cal. Ct. App. 1999) (upholding
child abuse conviction when child was found in location where chemicals for the manufacturing
of methamphetamine were found without requiring proof that methamphetamine
was actually manufactured there).
199. See supra notes 64-68 and accompanying text. For a recent article decrying the
trend of prosecuting mothers for harms allegedly inflicted on their fetuses, see generally
Linda C. Fentiman, The New “Fetal Protection”: The Wrong Answer to the Crisis of Inadequate
Health Care for Women and Children, 84 DENV.U.L.REV. 537 (2006).
200. One difference between this wave of prosecutions and those relating to crack cocaine
is that this time the community of criminal defense attorneys, public health officials,
and advocates for pregnant women were ready with a concerted legal and scientific response.
See generally Meth and Myth: Top Doctors, Scientists and Specialists Warn Mass
Media on “Meth Baby” Stories, July 29, 2005, http://stopthedrugwar.org/
chronicle/397/methandmyth.shtml (gathering medical evidence problematizing link between
meth use and fetal health); KING, supra note 10, at 16 (criticizing media’s handling
of scientific and medical data relating to methamphetamine); see also PROVINE, supra note
10, at 165 (noting that media and politicians were much more skeptical about “meth baby”
claims than they had been about “crack baby” stories).
201. See discussion supra note 68. In this context, it is worth noting that the most highprofile
homicide conviction against a pregnant woman who used crack cocaine was set
aside on state post-conviction review in 2008, on the grounds that her lawyers were ineffective
in failing to present sufficient expert testimony and to fully “investigate medical evidence
contradicting the State’s experts’ testimony on the link between cocaine and stillbirth.”
McKnight v. State, 661 S.E.2d 354, 354 (S.C. 2008).
202. See, e.g., cases discussed infra notes 203-05 and accompanying text. See also Amos
Bridges, Charge Filed after Baby Born with Meth Traces, SPRINGFIELD NEWS-LEADER, Dec.
29, 2005, available at http://www.csdp.org/news/news/news_mometh_122905.htm (describing
filing of child abuse charges against 19-year-old Missouri woman whose child was born with
traces amounts of methamphetamine in its system).
203. See State v. Aiwohi, 123 P.3d 1210, 1210-11 (Haw. 2008) (narrating events).

884 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
and reversed her conviction. 204 In another heavily followed case, a
judge dismissed child endangerment charges brought against a
Wyoming woman after her newborn child tested positive for methamphetamine.
205 In one Oklahoma case, a woman spent two years
in prison awaiting a trial on homicide charges stemming from the
stillbirth of a child born after she ingested methamphetamine during
the late stages of pregnancy, pled guilty to second-degree murder and
received an ostensible fifteen-year sentence, but was released a year
later after completing drug rehabilitation as part of an informal deal
with the prosecutor and the trial judge. 206
V. WHY IS THIS PANIC DIFFERENT FROM ALL OTHER PANICS?
If we are in the midst of a methamphetamine panic, it is a panic
that has produced a comparatively temperate result. Why has public
and legislative concern about a drug described in terms of natural
disasters and communicable deadly disease generated cold medication
restrictions and educational programs rather than extensive new
criminal law?
1. Race
A. Some Preliminary Theories
The narrative provided by scholars of the crack cocaine legislative
response, as detailed above, 207 is largely one of racial panic. Crack cocaine
is and was associated with African-American users and sellers,
goes the analysis, and this association facilitated draconian criminal
sanctions and mass imprisonment. 208 The “War on Drugs” has largely
been a war on people of color, waged against people citizens and leg-
204. Id. at 1224-25.
205. See Judge Drops ‘Meth Baby’ Charge, CASPER STAR-TRIB., Sept. 29, 2005, available at
http://trib.com/news/state-and-regional/article_e76def07-3088-527f-8a9a-18f5f05ea9a6.html (detailing
case).
206. See Dana Stone, Is Meth Murder Charge Useful?, OKLAHOMAN, Dec. 19, 2007 (narrating
story of Theresa Hernandez who spent two years in jail awaiting trial on first-degree
murder charges before pleading guilty to second-degree murder and receiving a fifteen-year
sentence); Jay F. Marks, Woman Was Charged in Her Stillborn Son’s Death — Meth Mom
Wins Early Release, OKLAHOMAN, Nov. 20, 2008, at 1A (narrating later developments, including
her release).
Creative prosecution strategies have, of course, not been limited to cases involving
pregnant and parenting women. Prosecutors in North Carolina, for example, have charged
persons who operate methamphetamine labs under the state’s antiterrorism “weapons of
mass destruction” statute. O. Dean Sanderford, Terrorism Statutes Run Wild: Methamphetamine
and Weapons of Mass Destruction, 82 N.C. L. REV 2142, 2142 (2004). See also Jaime
Holguin, Terror Laws Used vs. Common Crimes: Critics Bothered by String of Increasing
Cases, CBS NEWS, Sept. 14, 2003, available at http://www.cbsnews.com/
stories/2003/09/14/national/main573155.shtml (noting that a North Carolina man charged
under this law faced twelve years to life in prison).
207. See supra Part III.B.
208. See supra notes 74-79 and accompanying text.

2010] METHADEMIC 885
islators already fear. 209 It is easier to embrace mass incarceration
when you do not identify with the persons incarcerated and to the extent
that you do think of them, it is with trepidation. Whether or not
legislators and citizens consciously wish to harm people based on
race, racial unease, antipathy, and panic facilitate the decisions to
prosecute and punish. 210
This narrative is appealing as applied to methamphetamine.
While crack cocaine in particular has been associated with African
Americans, and other illicit drugs have historically been linked to
disfavored subgroups, methamphetamine is, accurately, characterized
as a drug that is preferred by white populations. 211 As white
Americans do not comprise a disfavored racial group, and as there
are no characteristics associated with methamphetamine users (such
as radical politics or generalized social dissent) 212 that might otherwise
corral them into such a targeted subgroup, we would not expect
to see the sorts of dramatic legislative responses that we have seen in
the past. Unlike Chinese immigrants smoking opium, or Mexican
immigrants smoking marijuana, methamphetamine use does not
stoke racial anxieties.
Media articles and legislative history provide some support for
this argument. The portrayal of methamphetamine addicts in the
popular press often has often been one of pity and sympathy. 213 Leg-
209. Kennedy, supra note 20 at 1258.
210. See supra note 208.
211. Methamphetamine prosecutions have been credited with “whitening” to some extent
the federal prison population; in 1994, for example, about 73% of new federal inmates
convicted of methamphetamine offenses were white. See Schone, supra note 129, at 35. By
2005, the data was more ambiguous; while the plurality of those newly convicted of federal
meth offenses remained white, the number was not less than fifty percent. See Motivans,
supra note 116, at 2. While the characterization of methamphetamine as a “white drug”
has been fairly consistent, it has not proven universal. For example, some sources have
linked methamphetamine use with the Native American population. See, e.g., Andrew
Murr & Sarah Childress, A New Menace on the Rez, NEWSWEEK, Sept. 27, 2004, at 30 (offering
a story about methamphetamine use on Native American reservations and quoting a
Bureau of Indian Affairs official as arguing that “[m]eth is becoming the drug of choice in
Indian Country”).
212. Cf. supra Part II.A.3 (discussing mainstream culture’s unease about social groups
associated with drug use during the 1960s).
213. See, e.g., Joel Baird, Crazy about METH, DAILEY NEWS LEADER, Sept. 11, 2005 (on
file with author) (profiling methamphetamine user whose methamphetamine use had led
to the dissolution of his marriage and scars from picking his skin; the user described methamphetamine
users as “everyday people,” “good people, educated people, uneducated
people; white collar, blue collar; people who drive BMWs, people who drive grandma’s car
that barely runs; housewives who’ve got two kids at home and are tired of washing
clothes”); Melanie Bennett & Chuck Williams, Meth’s Human and Economic Costs are
Enormous, COLUMBUS LEDGER-ENQUIRER, Oct. 26, 2005, available at 2005 WLNR
17275992 (describing a man whose methamphetamine use, according to him, led to losing
his land, houses, wife, children, savings, business, vehicles, and ultimately, liberty). David
Sheff, My Son the Addict, OBSERVER, Oct. 23, 2005, available at 2005 WLNR 17193468
(describing the author’s son, an upper-middle-class University of California at Berkeley
addict who struggled with methamphetamine addiction before successfully completing a

886 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
islators tell stories about relatives and community members whose
lives have been savaged by methamphetamine use. 214 The public and
political discourse about methamphetamine shows a degree of empathy
for drug users that far exceeds anything seen in recent drug panics.
The narrative that the racial status of persons associated with
the use of methamphetamine—that of the white majority—has driven
policy responses is thus an appealing one.
This explanation does not, however, seem fully persuasive. In recent
years, it is not just methamphetamine legislation and executive
action that has been characterized by relative restraint, but other
rehabilitation program and obtaining a job writing for an online magazine); Zernike, supra
note 178 (describing Montana Meth Project’s anti-methamphetamine advertising campaign
featuring televised images of a fictional teenager’s blood swirling in her shower drain from
the cuts she has made while picking her skin during methamphetamine, and radio commercials
using actual recovering methamphetamine addicts detailing prostituting themselves
for methamphetamine and losing their homes and jobs).
Newsweek profiled a police chief arrested for conspiring to produce methamphetamine
and cited a scientist who studies methamphetamine as describing “high achievers”
such as college students and law enforcement officials as one of the fastest-growing groups
of methamphetamine users. See Sarah Childress, Crystal Handcuffs: Battling the Meth
Scourge, a Police Chief is Charged, NEWSWEEK, May 16, 2005, at 36.
Newsweek’s controversial methamphetamine cover story, America’s Most Dangerous
Drug, tells the story of one woman in particular:
The leafy Chicago suburb of Burr Ridge is the kind of place where people come to
live the American dream in million-dollar homes on one-acre lots. Eight years ago
Kimberly Fields and her husband, Todd, bought a ranch house here on a wooded
lot beside a small lake, and before long they were parents, with two sons, a black
Labrador and a Volvo in the drive. But somewhere along the way this blond
mother with a college degree and a $100,000-a-year job as a sales rep for Apria
Healthcare found something that mattered more: methamphetamine.
Jefferson et al., supra note 101, at 41. After turning to methamphetamine, Kimberly was
arrested three times for shoplifting, and:
[B]y the time cops came banging on her door with a search warrant . . . Kimberly,
now 37, had turned her slice of suburbia into a meth lab . . . . Dressed in a
pink T shirt printed with the words ALL STRESSED OUT, Kimberly looked
about 45 pounds thinner than when police first booked her for shoplifting two
years ago. Her leg bore a knee-to-ankle scar from a chemical burn, and police
found anhydrous ammonia, also used in cooking meth, buried in a converted
propane tank in her backyard. As officers led Kimberly away in handcuffs, her
6-year-old son Nicholas was “only concerned that his brother had his toys and
diapers,” recalls Detective Mike Barnes. Meanwhile, police evacuated 96 nearby
homes, fearing the alleged meth lab might explode.
Id.
Mom-and-pop local methamphetamine producers similarly are described in terms
that suggest something other than organized criminal enterprise. As a district attorney in
Georgia told a local newspaper, “I would not classify these as mom-and-pop operations. I
would classify them as idiot operations. These are people who couldn’t pass high school
chemistry.” Chuck Williams & Melanie Bennett, ‘Cocaine Times 10,’ COLUMBUS LEDGER-
ENQUIRER, Oct. 21, 2005, at A1 (quoting Lee County District Attorney Nick Abbott); see also
Schone, supra note 129, at 35 (describing mom-and-pop methamphetamine manufacturers
as “the plague of Beavis and Butt-Head”).
214. Cf. State Representative’s Son Faces Meth Charge, DULUTH NEWS-TRIB., Sept. 2, 2005.

2010] METHADEMIC 887
skirmishes in the “War on Drugs.” 215 Crack cocaine, in particular—
the drug which generated a rich literature detailing racialized drug
policy—has enjoyed considerable reconsideration both in statute and
in sentencing policy. 216 If the one-way ratchet can turn in reverse for
a drug so closely associated with African-American users, it seems
unlikely that race, while perhaps a partial explanation for focus on
precursor restrictions and treatment programs, provides a full explanation.
Ironically enough, the precursor restrictions may end up
themselves testing the disfavored social group hypothesis: as precursors
have arguably made it more difficult for mom-and-pop manufacturers
to produce methamphetamine in home laboratories, methamphetamine
has increasingly been imported from super labs located in
Mexico. 217 If methamphetamine becomes associated less with white
215. See supra note 15; infra Part IV.B.
216. See, e.g., Emery, supra note 15 (detailing progress towards repealing crack-cocaine
powder sentencing disparity and predicting that “this may be the year” that the disparity is
eliminated and crack sentences are reduced); Kimbrough v. United States, 552 U.S. 85 (2007)
(allowing judges discretion to sentence individuals convicted of crack cocaine crimes to lesser
terms based on judges’ personal disapproval of crack/powder disparity).
In an interesting and representative incident, when South Carolina recently decided to
address disparities across penalties for powder and crack cocaine possession (a two-year maximum
sentence for simple possession of powder cocaine, in contrast to a five-year maximum
sentence for simple possession of crack cocaine), it did so not by doing what might twenty
years ago have been predicted (simply raise the maximum penalty for possession of powder
cocaine to five years, as drug sentences can only increase), but by lowering the maximum penalty
for crack cocaine and raising the maximum penalty for powder cocaine so that both carried
a possible three years. See 2005-2006 Bill 16: Include Manufacturing Methamphetamine
as a Violent Crime, S.C. Gen. Assem. http://www.scstatehouse.gov/sess116_2005-2006/
bills/16.htm (last updated Dec. 4, 2009) (providing text of Bill and noting its passage).
217. See, e.g., Bennett & Williams, supra note 213, at A1 (reporting on drug sting involving
methamphetamine officers believed had been trafficked from Mexico); Sara Jean Green,
U.S. Meth Roundup Snares 24 in Western Washington; 427 arrested in all – Increased Smuggling
from Mexico, SEATTLE TIMES, Aug. 31, 2005 at B1 (quoting King County Sherriff Su
Rahr as saying “as we’ve shut down the labs, we’re seeing meth coming up and U.S. Attorney
for the Western District of Washington John McKay saying his office has observed “something
of a trend” with a “shift from home-cooked methamphetamine” to methamphetamine
“produced in super-labs”); Ryckaert, supra note 142, at A04 (quoting White House Office of
National Drug Control Policy director John P. Walters as saying that “Organized criminals
now produce large quantities of methamphetamine in Mexico and are moving it across our
borders”); Lloyd de Vries, CBS News, Mexican Meth Floods U.S., May 19, 2006,
http://www.cbsnews.com/stories/2006/05/19/eveningnews/main1636846.shtml (reporting that,
despite a decline in domestic methamphetamine production due to lab raids, “The epidemic of
meth use is still rampant because the drug is still plentiful on America’s streets . . . . This
deadly [methamphetamine] is now a growth industry for Mexico’s deadly drug cartels.
They’re replacing small U.S. kitchen labs with Mexican super labs”); Greenwood Officials Arrest
More Suspects in Meth Ring Investigation, WIS-TV, Dec. 19, 2005, available at
http://www.wistv.com/global/story.asp?s=4250657&ClientType=Printable (detailing workings
of major ring importing methamphetamine into South Carolina from Mexico); Lisa Demer,
Meth Ills Expand in Alaska, ANCHORAGE DAILY NEWS, Sept. 7, 2005, at B1 (noting a shift
from homegrown methamphetamine to methamphetamine imported from Mexico);
ABERDEEN AM. NEWS, Dec. 15, 2005, at B3, available at 2005 WLNR 20102925 (quoting director
of the Iowa governor’s Office of Drug Control Policy says that since methamphetamine
precursor restrictions were put into place, “organized criminals” are “now producing
large bulk quantities of methamphetamine in Mexico,” and arguing that “[w]e’re being

888 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
stateside producers and users and more with Mexican manufacturers
and importers, we will see if or how the legal response to methamphetamine
changes.
2. Media Coverage
A second plausible explanation is that the language used to describe
methamphetamine, methamphetamine addicts, and methamphetamine
sellers/manufacturers, as employed by the media, legislators,
and the public in general, differs in tone and content from the
language that has surrounded past drug panics. Perhaps there simply
isn’t a panic; writers, policymakers, and citizens are unperturbed
by methamphetamine. While there are scattered pieces of evidence to
support this claim, 218 it ultimately fails to persuade.
It would be difficult to argue that the language surrounding methamphetamine
in the media is substantially different in terms of its
emphatic and hyperbolic qualities than it has been during past perceived
epidemics of drug use. Articles about methamphetamine use
“epidemic” and “plague” to describe the drug’s use. 219 Natural-disaster
language also has characterized the media response to methamphetamine;
media sources have pressed the tidal wave disaster analogy into
repeat service, echoing perhaps the language of law enforcement officers
describing the perceived entrance of methamphetamine into or
outbreak of methamphetamine use within a state. 220 The tornado has
also enjoyed employment as a metaphor for methamphetamine, used
to describe the imminent approach of methamphetamine to areas
where methamphetamine has not yet taken root. 221
According to media sources, methamphetamine is—as were the
drugs that anchored past drug “epidemics”—the worst drug of all
killed with ‘Mexican ice,’” which he describes as substantially more pure than locallyproduced
methamphetamine).
218. See generally supra note 213 (collecting articles that offer comparatively sympathetic
portrayals of methamphetamine users and producers).
219. See, e.g., Crane, supra note 101, at A24; Johnson, supra note 101, at 41. Politicians
have also utilized this language. See, e.g., ABERDEEN AM. NEWS, supra note 217, at B3,
(quoting Indiana Governor Mitch Daniels as saying that “we can trace [methamphetamine’s]
path like a plague . . . . If we call this effort to eliminate this problem a war, for
once, we’re not overstating it”). So, too, have academics. See, e.g., O’Connor et al., supra
note 123 (article entitled Developing Lasting Legal Solutions to the Dual Epidemics of Methamphetamine
Production and Use).
220. See, e.g., Jill Young Miler & Craig Schneider, When Meth Hits Home: Meth’s Forsaken
Children—When Parents Disappear into a Chaotic World of Drug Abuse, Danger and
Heartbreak Follow for Their Sons and Daughters, ATLANTA J. CONST., Nov. 30 2003, at A1
(quoting Georgia Bureau of Investigation Director Vernon Keenan as describing methamphetamine
as having entered his state “like a tidal wave”).
221. Lamothe, supra note 119, at A1 (discussing the possibility of crystal methamphetamine
becoming prevalent in Massachusetts).

2010] METHADEMIC 889
time, more devastating and addictive than any other drug. 222 Media
sources often run “before and after” photos of users to illustrate the
drug’s effects on individuals. 223 Methamphetamine in fact has been
described explicitly as “the new crack,” 224 the latest drug to take the
crown of most addictive and devastating. “It really has become the
drug of choice. It’s taken over heroin and it’s taken over crack.” 225
Media articles also have held methamphetamine responsible for the
spread of sexually transmitted diseases. 226
As we saw in the late 1980s with respect to crack cocaine, media
sources have featured connections between methamphetamine use
and external social effects. As noted above, media reports have highlighted
the public health problems associated with methamphetamine
production and extent to which methamphetamine producers
endanger household members, children, and neighbors. 227 In addition
to describing these physical and environmental dangers, media
sources have detailed criminal offenses in which methamphetamine
addicts engage in order to provide funding for their habits. In particular,
articles have focused on information theft (often referred to
222. See, e.g., Jennifer Chambers, Police Offer Testing Kits as Meth Use Accelerates,
DETROIT NEWS, Dec. 15, 2005, at 3B (quoting Oakland County Commissioner Eric Coleman,
speaking on behalf of the National Association of Counties, as saying that methamphetamine
“is bigger and worse than heroin or cocaine can ever be”); Nancy Lofholm, Arrest
Ends Meth-Ring Manhunt: Mesa County for Weeks has been Rattled by Violence Linked
to the Drug’s Widespread Use, DENVER POST, Dec. 13, 2005, at A1 (describing a group of
suspected methamphetamine addicts who “had held Mesa County in a jittery grip of fear
and violence for weeks,” linked methamphetamine to local shootings, and quoting a local
law enforcement officers as saying that methamphetamine “is public safety’s and the community’s
worst nightmare” and that “[t]his drug is different . . . . What it does to people is
so much worse than anything else out there”); Marcovitz, supra note 152, at B1 (quoting a
local district attorney as saying that “meth is a killer. It destroys communities. It is not
like any other drug”); Puzzanghera, supra note 128, at A1 (“Law enforcement officials say
[methamphetamine] is the most devastating drug they have ever encountered, hooking
most users the first time they try it.”); A Commission at Work: Public Safety Advisers Have
Their Hands Full in Dealing with Crystal Meth, LONG BEACH PRESS-TELEGRAM, Dec. 16,
2005, at A16 (“[Methamphetamine] is far more addictive and far more dangerous stuff than
cocaine, heroine, or other street drugs.”).
223. See sources cited supra note 180.
224. See, e.g., Bruce Ramsey, The Scourge of the New Crack, SEATTLE TIMES, June 14,
2009, at H4 (reviewing REDING, supra note 10); Press Release, U.S. Senate, Schumer: New
Stats Show Crystal Meth Quickly Becoming the New Crack—Seizures in New York Up
31% Over Last Year, (Apr. 25, 2004), available at http://schumer.senate.gov/
new_website/record.cfm?id=265406 (“Crystal meth is becoming the new crack, and we need
tough new penalties that treat it like crack.”).
225. Chambers, supra note 222, at 3 (quoting Police Chief William Dwyer of Farmington
Hills, Michigan).
226. See Patricia Guthrie, Drugs, Risky Sex Get Blame for Jump in Syphilis Cases,
Nov. 9, 2005, ATLANTA J. CONST., at A9 (reporting that the Center for Disease Control has
seen a rise in syphilis cases among men who have sex with men, and suggests a link
between methamphetamine use and risky sexual behavior leading to disease
transmission); Jefferson et. al., supra note 105, at 38.
227. See, e.g., Kathleen Brady Shea, 8 Arrested in Methamphetamine Ring,
PHILADELPHIA INQUIRER, Sept. 8, 2005, at B5.

890 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
as identity theft), a crime which even when uncoupled from methamphetamine
generates a fair amount of panic, describing methamphetamine
addicts as stealing personal information in order to obtain
money to buy drugs. 228 In one newspaper article, a local sheriff estimated
that eighty five percent of information theft offenses he investigated
were in fact committed by methamphetamine addicts. 229 Articles
also have linked car thefts to methamphetamine, similarly portraying
addicts as stealing cars to raise money for drugs. 230 The list of
devastating methamphetamine effects as outlined in media sources is
lengthy, and the language used to describe its effects thus is emphatic.
While these stories may or may not be grounded in reality—
figures on crimes related to methamphetamine are not reliable 231 and
figures on the percentage of foster cases related to methamphetamine
have proven unverifiable 232 —it is fairly unpersuasive to argue that to
the extent media might drive police responses, that a change in tone
in media articles is responsible.
3. Alternative Panics
Another explanation for the legal response to methamphetamine
is that we are indeed panicking about crime—but primarily about
other kinds of offenses, particularly sex offenses against children.
During the last two decades, there has been a major expansion of legislation
increasing penalties for those who commit sexual offenses
228. See, e.g., Greg Risling, Meth Users Turn to ID Theft to Pay for Habit, CONTRA
COSTA TIMES, Dec. 18, 2005, at F4 (“[M]ore and more desperate users of [methamphetamine]
are turning to identity theft to pay for their habit, creating a criminal nexus costing
Americans millions of dollars.”).
229. See id.
230. See, e.g., Jesse McKinley, The Distinction Modesto Didn’t Need: National Car-
Theft Capital, N.Y. TIMES, June 3, 2006 (noting that Modesto, California leads the nation
in car thefts per capita and largely blaming methamphetamine for that distinction); Janelle,
supra note 217 (describing the investigation and arrest of thirty suspects in an alleged
methamphetamine distribution ring and noting that the investigation revealed a vehicular
“theft ring, a chop shop for stolen cars,” and a counterfeiting scheme).
231. Efforts to evaluate extravagant claims of meth’s effects on crime rates have usually
left the involved analysts skeptical. For one well-reported such effort, see Angela Valdez,
Meth Madness: How The Oregonian Manufactured an Epidemic, Politicians Bought It and
You’re Paying, WILLAMETTE WEEK, Mar. 22, 2006, available at http://www.wweek.com/
popup/print.php?index=7368 (analyzing fourteen stories in The Oregonian that, inter alia, described
the proportion of state property crimes “fuel[ed]” by methamphetamine as between 80
and 90 percent and failing to find supporting data to verify the accuracy of this figure).
232. In August of 2005, The Oregonian ran a front-page story with the subheadline: “Oregon’s
Meth Epidemic Creates Thousands of ‘Orphans.’ ” See Joseph Rose, The Children of Meth
OREGONIAN, Aug. 28, 2005 at A01. According to the story, a state Department of Human Services
study found that half of the state’s foster cases involved children taken “from parents using or
making the potent drug.” See id. There was no such study, and DHS does not track whether or
not methamphetamine causes children to be removed from homes; rather, a DHS coordinator
had compared a list of parents with a list of people who had received methamphetamine treatment
and found a 50% correlation. See Valdez, supra note 231.

2010] METHADEMIC 891
against children 233 and imposing onerous new collateral sanctions
upon such individuals. 234 A wide variety of academic commentators
have analyzed the legislative history and cultural politics of these
laws and concluded that they are both disproportionate and vindictive,
reflecting a predictable desire to take out our collective cultural
anxieties on individuals who we can comfortably dismiss as “monstrous.”
235 According to some scholars, we are in the midst—or perhaps
at the tail end—of a full-fledged “sex panic.” 236
While one panic does not rule out the possibility of another, it arguably
reduces the odds. After all, given the limits of human emotion
and energy, our capacity for moral indignation is not inexhaustible.
Moreover, the creation of cultural images of monstrous offenders who
impose dramatic physical and psychological trauma on vulnerable
children creates a very high standard for those whom might want to
demonize methamphetamine users. 237 Next to those who sexually
233. In the most extreme example, a handful of states adopted laws authorizing the
death penalty for certain child sexual offenses. In June 2008, a sharply divided Supreme
Court found that such laws violate the Eighth Amendment to the United States Constitution.
Kennedy v. Louisiana, 128 S. Ct. 2641, 2646 (2008).
234. Here, the most notable development is the growth of sexual offender registration
laws, often called “Megan’s Laws.” Since 1996, every State has had such a statute. See Corey
Rayburn Yung, One of These Laws Is Not Like the Others: Why the Federal Sex Offender
Registration and Notification Act Raises New Constitutional Questions, 46 HARV. J. ON
LEGIS. 369, 370 n.6 (2009). The Supreme Court upheld two such statutes against constitutional
challenges in 2003. See Smith v. Doe, 538 U.S. 84, 105-06 (2003); Conn. Dep’t Pub.
Safety v. Doe, 538 U.S. 1, 8 (2003). More recently, we have begun to see an expansion of
laws that limit the ability of convicted sex offenders to live in proximity to places where
children congregate, often to the point that there are few or even no places where they can
legally reside. For one academic analysis of this trend, see generally Wayne A. Logan, Constitutional
Collectivism and Ex-Offender Residence Exclusion Laws, 92 IOWA L. REV. 1
(2006).
235. See generally, e.g., Daniel M. Filler, Making the Case for Megan’s Law: A Study in
Legislative Rhetoric, 76 IND. L.J. 315 (2001); Joseph E. Kennedy, Monstrous Offenders and
the Search for Solidarity Through Modern Punishment, 51 HASTINGS L.J. 829 (2000); Jonathan
Simon, Managing the Monstrous: Sex Offenders and the New Penology, 4 PSYCHOL,
PUB., POL’Y & L. 452 (1998).
236. For descriptions of the recent decades as an era of “sex panic” or “sex crimes panic,”
see, for example, James E. Bristol III, Free Expression in Motion Pictures: Childhood
Sexuality and a Satisfied Society, 25 CARDOZO ARTS &ENT. L.J. 333, 352 (2007) (describing
“sex panic”); Rose Corrigan, Making Meaning of Megan’s Law, 31 LAW &SOC.INQUIRY 267,
274 (2006) (describing “sex crimes ‘panic’ ”); Lisa Duggan, Sex Panics, in SEX WARS:
SEXUAL DISSENT AND POLITICAL CULTURE 74 (Lisa Duggan & Nan D. Hunter eds., 1995)
(describing “sex panic”). The term “sex panic” is at times used to refer to our heightened
and exaggerated concerns over sex crimes but is more often used to refer to a more general
cultural anxiety about sexual behavior that manifests itself not only in sex crimes legislation
but also in laws relating to pornography, obscenity, and gender relations. Used in the
latter sense, the term is more often used with reference to the 1990s than to the most recent
years. Id.
237. If, as posited here, the relevant distinction is between those who threaten others—
particularly the vulnerable and most especially children—and those whose behavior mostly
damages themselves, then the shape of methamphetamine legislation described above
makes sense. As discussed in Part II supra, much of the state legislation in response to methamphetamine
has been designed to prevent young people from becoming addicted or to

892 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
traumatize children, scraggly, frantic meth users might well appear
more pathetic than dangerous. 238
Efforts to import restrictions developed in the sex-offender context
to the meth content have gained little traction. Though some were initially
excited by the idea of methamphetamine registries, 239 for example,
few states have adopted them 240 and those that have adopted
them provide less information about those convicted of methamphetamine
offenses than upon those convicted of even the most minor
sex offenses. 241 With regard to sexual offense registries, there has
been near constant political pressure for more—more states participating,
more offenses included, more information provided, more
access for the public, and more restrictions on where persons convicted
of sex offenses can reside, work, and socialize. In contrast,
meth registries, as they have developed in the few states that maintain
them, are limited tools; lacking photographs or extensive search
features, they serve as little more than free, limited background
checks for potential landlords, employers, and home buyers.
4. Personal Responsibility as Political Focus
The idea of being responsible for one’s own person, decisions, and
fate is hardly novel. 242 The mobilization of this concept politically,
protect third parties from explosions and other environmental harms resulting from drug
manufacturing. As discussed in Part III.B supra, situations in which children are harmed
or threatened is the one area in which legislators have been quick to add new criminal laws
and penalties related to methamphetamine.
238. For characterizations of methamphetamine users that emphasize their pathetic
plight, see supra note 213 and sources cited therein.
239. Representative Mike Coan, who introduced legislation to create a methamphetamine
offender registry in Georgia, argued that “[t]he registry is necessary because the production,
distribution and use of this powerful street drug is the source of so much crime,
ranging from robbery, theft, forgery, child abuse and neglect to a host of violent offenses.”
Mike Coan, My View: Registry for Meth Offenders Would Protect Residents—Metro Atlanta
Area a Major Hub for Trafficking, ATLANTA J. CONST., Feb. 12, 2006 at JJ4. He focused
specifically on the effects of methamphetamine offenses on children, writing that “[j]ust as
sex offenders do irreparable harm to children, meth abusers also harm innocent children.
The addiction to this street drug is so powerful that addicts neglect their families, spend all
their wages buying meth and behave extremely erratically, sometimes abusing children
and spouses.” Id. With a methamphetamine registry, “neighbors can watch for suspicious
activities,” arguing that “[i]nformation is power, and when residents have the ability to
find out who lives in their community—whether it is a sex offender or a meth offender—
they can make better decisions about how they live their lives.” Id. Comparing persons
convicted of sex crimes to persons convicted of methamphetamine offenses, “we must now
take the same steps to ‘out’ offenders who bring this dangerous drug into our communities.”
Id.
240. See supra notes 149-150 and accompanying text.
241. See supra notes 146-148 and accompanying text.
242. See generally Michael B. Brennan, Essay, The Lodestar of Personal Responsibility,
88 MARQ. L.REV. 365 (2004) (discussing historical roots of “personal responsibility” as philosophy
and observing how the principle is applied in law).

2010] METHADEMIC 893
however, has gained significant traction in recent years. 243 This sort
of libertarian impulse perhaps explains some of the legal developments
we have seen with respect to methamphetamine. The changes
that legislatures have made that increase criminal penalties for methamphetamine
offenses generally focus on protecting “innocent”
persons who have not made bad decisions and who are not in a position
to protect themselves. 244 This may explain why legislatures have
enacted lengthier sentences primarily where persons associated with
methamphetamine expose others to the dangers of their activities:
nonmethamphetamine producers do not make intrinsically bad decisions
by having next-door neighbors or purchasing homes, and children
are not making poor decisions when they are raised by methamphetamine
producers. The language of self-sufficiency and personal
responsibility in fact can be found directly in press releases supporting
these legislative changes. 245 This focus may explain why, even if
reducing domestic production were to do little to reduce addiction,
curtailing the number of mom-and-pop methamphetamine labs would
comprise success: shutting down local methamphetamine labs, even
if it does nothing to stem the influx of methamphetamine into communities
or the use of methamphetamine by addicts, will be help protect
innocents from explosions and toxic chemicals. 246
This explanation, like others, cannot be fully explanatory: legislatures
are not ignoring the plight of addicts, but rather are allocating
significant funding to educate potential users about the dangers of
methamphetamine and to rehabilitate users through drug courts,
methamphetamine prisons, and other treatment programs. 247 Still, to
the extent that the way in which we have been recognizing and dealing
with “serious” social problems has been by ratcheting up criminal
penalties, it is possible to view recent legislative responses to me-
243. For example, the controversial 1996 law that, depending on your perspective, either
reformed or eliminated welfare was entitled the “Personal Responsibility and Work
Opportunity Reconciliation Act of 1996.” See Pub. L. No.104-193, 110 Stat. 2105 (codified at
42 U.S.C. 1305).In 1999, then-Senator John D. Ashcroft similarly lauded Clarence Thomas
for the extent to which he promotes in his public life notions of personal responsibility.
John D. Ashcroft, Justice Clarence Thomas: Reviving Restraint and Personal Responsibility,
12 REGENT U. L. REV. 313, 315 (1999).
244. See generally Parts III.B and IV supra (exploring areas in which legislatures have
chosen to focus their energies in regulating methamphetamine, including prevention, environmental
remediation, and child protection).
245. In explaining his support of legislation to provide grant money to states to establish
programs to assist methamphetamine-exposed children, for example, Representative
Zach Wamp argued that the legislation would give the children “the helping hand they
need to begin climbing the ladder of life and have an opportunity at the American dream of
self-sufficiency.” Meth-Endangered Children to Benefit from New Grant Program, supra
note 161.
246. An assistant United States Attorney in the Eastern District of Missouri
commented, “Let the Mexicans have the meth trade. . . . We’ll have done a great thing if we
take pseudoephedrine out of the game.” Schone, supra note 129, at 36.
247. See supra Parts III.B(5)-(6).

894 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
thamphetamine as signaling that while the government will still be
heavily punitive if that is necessary to protect innocent citizens, noninnocents
who themselves ingest methamphetamine or are exposed
to the hazards of their own methamphetamine production can be left
to deal with the consequences of their own choices.
5. Privatizing/Outsourcing
Another possible explanation for current approaches to drug policy
is the vogue for privatization and outsourcing—taking traditional
government functions and committing them to private entities. 248
Pseudoephedrine purchase restrictions place the burden for reducing
methamphetamine production on private actors who have incentive
for compliance. Police officers have less need to spend precious taxdollars
to root out methamphetamine labs in far-flung rural houses.
Instead, drugstore personnel check identification, maintain registries
of purchasers, refuse profit-making purchases as required, and
shelve pseudoephedrine inaccessibly or in view of surveillance mechanisms,
all of which represent enforcement costs placed on business
rather than on taxpayers. 249 In general, governments have
shown a desire to privatize the cost of anti-methamphetamine programs,
in some cases shifting primary responsibility for such programs
to privately financed campaigns 250 and in at least one case
seeking to finance the cost of drug treatment programs through the
sale of special anti-methamphetamine license plates. 251
The “outsourcing” of drug restrictions to private industry has
precedent. The first rounds of drug legislation, as described above, 252
looked similar to methamphetamine precursor restrictions in that
they were civil requirements placed on doctors and pharmacists to
restrict distribution of possibly dangerous drugs. Even after the primary
approach to drug abuse became criminalization and imprisonment,
private enterprise was considered a possible means for reducing
drug use. During the late 1980s, for example, the Reagan administration
encouraged private employers to drug test employees in an
effort to fight the “War on Drugs.” 253 Placing such efforts at the center
248. On the trend toward privatization of government functions, see, e.g., Abraham
Bell, Private Takings, 76 U. CHI.L.REV. 517, 576 (2009) (“The much-noted current trend in
public administration is toward privatization of public functions.”); Jody Freeman, Extending
Public Law Norms Through Privatization, 116 HARV.L.REV. 1285, 1291-92 (2003) (noting
the trend towards privatization in recent decades).
249. See Part III.B(1) supra.
250. See, e.g., supra note 178 (discussing one such organization, the Montana Meth Project).
251. Minnesota Roundup, GRAND FORKS HERALD, Dec. 17, 2005, available at 2005
WLNR 20363759.
252. See Supra Part II.A(2).
253. See Larry Martz et al., Trying to Say ‘No,’ NEWSWEEK, Aug. 11, 1986, at 14 (noting
that then-president Ronald Reagan’s proposals for discouraging drug use included

2010] METHADEMIC 895
of new drug policy is, however, something we have not seen during
the last several rounds of drug panic. Perhaps what we are seeing is,
at least in part, an effort on the part of legislators to find ways to reduce
the harms of illicit drugs while placing the responsibility for enforcing
new laws primarily upon private parties.
B. An Age of Ambivalence
Though many of these theories provide compelling partial explanations
for the response to methamphetamine, even stitched together
they fail to provide a complete explanation. While methamphetamine
users may have benefited from the perception that theirs was a
“white drug,” the prevalence of news stories about Native-American
meth users and Mexican meth merchants have offered levers if the
culture was intent on racializing the drug; 254 moreover, poor rural
whites are not exactly the kind of powerful group that can be confident
in its immunity from social scapegoating. Similarly, while media
portrayals of methamphetamine users have certainly been more empathetic
than portraits of crack cocaine users, 255 they have not shied
away from blaming meth users for a myriad of social problems, often
portraying those problems in the most hyperbolic terms. 256 While legislatures
may have been distracted by our cultural panic against sexually
violent offenders, 257 history is full of eras in which drug and sex
panics coexisted or even mutually reinforced each other. 258 Finally,
while the increasing popularity of arguments focusing on individual
responsibility and the benefits of privatization may well have played
some role in convincing legislators and voters to approve some particular
pieces of anti-methamphetamine legislation, 259 there is no evidence
that the content of the legislation was shaped by these—or any
other—big ideas.
What the legislative responses (and nonresponses) to methamphetamine
cataloged in this Article reveal more than anything is an undercurrent
of ambivalence about current drug policy. In an undertheorized,
semi-rational way, legislators and citizens responding to
methamphetamine were simply less persuaded by the drumbeat of
panic than they were in other recent episodes. While they spoke loud-
requiring certain federal workers to be drug tested, offering federal contractors incentives
to drug test, and generally encouraging private businesses to drug test employees).
254. See sources cited supra notes 211 & 217.
255. See supra note 213 and sources cited therein.
256. See supra note 219-230 and accompanying text.
257. See supra Part V.A(3).
258. For example, the recent crack cocaine panic overlapped with the beginning of the
modern sex crimes panic. See also supra Part II.A(2) (explaining how cocaine panic of the
1930s was fueled, in part, by fears of African-American men raping white women).
259. See supra Part V.A(4).

896 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
ly and acted swiftly against methamphetamine, their response was
more muted and, on the whole, less punitive.
A string of developments since 2005 support this diagnosis of ambivalence.
In recent years, both state legislatures and the United States
Sentencing Commission have taken steps to lower crack cocaine sentences
in response to longstanding racial equity concerns, 260 the Supreme
Court has granted trial judges freedom to reject hefty crack cocaine
sentences on policy grounds, 261 and Congress has moved ever
closer to abolishing the crack/powder sentencing disparities altogether.
262 Meanwhile, in a move both symbolic and substantive, New York
has drastically reworked its infamously draconian Rockefeller Drug
Laws, 263 while other states have taken similar steps to scale back on
mandatory minimum sentences. 264 Voters in nine states in eleven
years have voted to approve initiatives and referenda decriminalizing
medical marijuana. 265 Through this all, drug courts and other forms of
alternative sanctions have quietly established a foothold in nearly
every jurisdiction. 266 Finally, in early 2009, the White House announced
that the federal government would no longer utilize the term
260. For the federal developments, see Cassidy, supra note 10, at 125 & n.176 (detailing
Commission amendments and Congressional inaction that allowed amendments to
pass into law). For one representative state development, see supra note 216 (detailing
change in South Carolina law).
261. See Kimbrough v. United States, 552 U.S. 85 (2007) (allowing judges discretion to
sentence individuals convicted of crack cocaine crimes to lesser terms based on judges’ personal
disapproval of crack/powder disparity).
262. For informed speculation that the disparities may finally be repealed this year,
see Emery, supra note 15. For a list of recent or pending bills proposing to reduce the disparity
or eliminate it entirely, see Cassidy, supra note 10, at 133 n.231. Interestingly, all
the legislation now being considered either lowers crack sentences to the levels that currently
apply to powder cocaine, lowers crack sentences part of the way towards current
powder cocaine sentences, or sets new sentences for both crack and powder cocaine that are
less severe than the current crack sentences. The direction of sentencing reform also reflects
changing times. Cf. Marc Mauer, Race, Drug Laws, & Criminal Justice, 10 TEMP.
POL. &CIV. RTS. L. REV. 321, 325 (2001) (noting that, at that time, efforts to equalize
powder cocaine and crack cocaine sentences were taking the form of legislation that “basically
says, ‘You want to equalize penalties, we can do that. We will increase the penalties
for powder cocaine and put even more people in prison’ ”).
263. For some of the first such changes, see Ehlers, supra note 132, at 58. For the
more recent and drastic changes, see Jeremy W. Peters, Albany Reaches Deal to Repeal ‘70s
Drug Laws, N.Y. TIMES., Mar. 26, 2009, at A1.
264. In New Jersey, for example, the State Assembly recently adopted a bill to eliminate
the State’s strict mandatory minimum sentences for drug crimes committed in school
zones (though the State Senate has thus far declined to act). See N.J. Assem. B. 2762,
213th Legislature, introduced May 19, 2008 (permitting judges to place a defendant on
probation or to waive the minimum term of parole eligibility after consideration of the defendant’s
prior record, the specific location of the drug offense, whether or not school was in
session at the time of the offense, and whether or not children were present in the area of
the offense).
265. See Brown, supra note 1, at 243-44 (reporting this fact, though noting that this
trend towards decriminalization of medical marijuana may be constrained by Gonzales v.
Raich, 545 U.S. 1 (2005)).
266. See generally Miller, supra note 169.

2010] METHADEMIC 897
“War on Drugs,” retiring a divisive and militaristic locution that has
been a flashpoint in the cultural struggle over drug policy. 267
If our instincts about drug regulation are now more ambivalent
and our policies more balanced, perhaps we have learned something
from prior panics. With regard to methamphetamine in particular,
study, scholarship, and activism surrounding the response to crack
cocaine may have paid dividends in calming the waters during the
early days of the meth panic. For example, when the predictable
“meth baby” headlines surfaced during 2005, warning of an epidemic
of new methamphetamine-addicted and damaged infants, 268 public
health advocates were ready with a signed statement by ninety-two
medical researchers and drug policy advocates arguing that “use of
stigmatizing terms, such as ‘ice babies’ and ‘meth babies,’ lack scientific
validity and should not be used” noting that “[e]xperience with
similar labels applied to children exposed parentally to cocaine” had
impaired efforts to develop policies and treatments appropriate for
cocaine-exposed children. 269 Similarly, when major news sources like
Newsweek and The Oregonian offered sensationalized account of an
emerging methademic, investigative journalists and media critics
were quick to question their unverifiable factual claims and intentionally
inflammatory language. 270 It is now increasingly common for
politicians to convene hearings or summits to evaluate, in a systematic
way, the efficacy of the heavily punitive antidrug measures on
which we have been relying. 271
To take a less sanguine view, perhaps it is money that is driving
our newfound ambivalence. In 1986, then-Democratic congressional
campaign chair Tony Coehlo said that Congressional representatives
“intend to bust the budget” on the War on Drugs, which he meant as
a positive sign of commitment to eradicating drug abuse. 272 In con-
267. See Fields, supra note 15.
268. See, e.g., Christine Lagorio, Generation of Meth Babies: Heartland Doctors and
Programs Help Meth-Addict Moms Cope, CBS NEWS, Apr. 28, 2005, http://
www.cbsnews.com/stories/2005/04/28/eveningnews/main691764.shtml; Bennett & Williams,
supra note 213 (quoting a doctor describing babies born to methamphetamine using
mothers as “worse than crack babies”).
269. Letter from Donald G. Miller to Whom It May Concern (July 27, 2005), General
Media Letter on “Meth Babies” and “Ice Babies,” available at http://www.jointogether.org/
resources/pdf/Meth_Letter.pdf.
270. See, e.g., Shafer, Meth-Mouth Myth, in SLATE, supra note 107; Shafer, in SLATE,
Meth Madness, supra note 110; Valdez, supra note 231.
271. See, e.g., David Lerman, Webb Urges Fresh Look at the War on Drugs, DAILY
PRESS , June 20, 2008, at A2 (describing hearing by Joint Economic Committee convened
by Senator Jim Webb to hear testimony from scholars and prosecutors who argue that incarceration
has been costly and ineffective as a remedy for drug addiction); Diana Heil,
Meth Use Claims 56 Lives, THE SANTA FE NEW MEXICAN, Oct. 28, 2005, at C-1 (describing
drug summit convened by State Drug Czar that recommended primarily treatment, prevention,
and environmental remediation efforts).
272. Martz et al., supra note 253, at 14. According to Congressional representatives at
the time, money would be no object in fighting the war on drugs. Id.

898 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841
trast, budgetary and space constraints make increased incarceration
less appealing in the 2000s. 273 For more than a decade, advocates and
scholars have been pointing to the budget-breaking cost of mass incarceration
policies. 274 The serious economic crisis that has engulfed
this nation in the last two years may have forced states to take notice.
Certainly, it is impossible to open a newspaper without reading
a story about the devastating state of particular state budgets. 275 In
almost every instance, coverage of state budge woes discusses either
the role that prison costs have played in driving up state expenditures
or proposed cuts to prison budgets or both. 276 In a time of belttightening
and tough choices, spending tens of thousands of dollars a
year to express your moral indignity towards a particular individual
might, to some, come to seem an emotional extravagance.
VI. CONCLUSION
What if they threw a drug panic and nobody came?
While the media, public, and legislatures clearly have identified
methamphetamine use and production as a serious issue worthy of attention
and concern, and while hyperbolic anecdotes and naturaldisaster
analogies have worked their way into discourse, they have not
leveraged a concomitantly hyperbolic criminal sanctions response.
While we have seen criminal sanctions expand and increase
somewhat in response to methamphetamine, and we have in particular
seen movement to protect children and to authorize police to
search with less preclearance and restriction, 277 the legislative response
has focused on prevention, via restrictions on precursor purchases
and education of potential users. 278 The focus of legislative
change has been primarily on making it difficult for people to produce
methamphetamine and protecting “innocents” from either trying the
drug or being exposed to substances that are volatile and toxic.
Certainly, the racial differences between methamphetamine users/producers
and public perceptions of, for example, crack cocaine
users/sellers can work to explain the differences between the choice
273. See, e.g., Schone, supra note 129, at 32-33 (noting that Missouri’s state budget is
strained, prison beds are filled, and the state lacks both funds and cells to incarcerate
methamphetamine users and producers).
274. See, e.g., id.
275. See, e.g., Solomon Moore, California State Assembly Approves Prison Legislation, N.Y.
TIMES, Sept. 1, 2009, at A19 (reporting on legislation dealing with California budget crisis).
276. See, e.g. id. (reporting that the California Assembly passed a bill that will cut the
state prison population by about 27,000 inmates, saving about one billion dollars per year).
Underscoring that this is an age of ambivalence about drug policy, not an age of retreat,
the article points out that the State Senate passed an even bolder bill but that, after extensive
lobbying, the Assembly balked at the broader cuts. See id.
277. See generally supra Part IV.
278. See generally supra Part III.

2010] METHADEMIC 899
to primarily control methamphetamine through limiting pseudoephedrine
purchases and the choice to control crack cocaine through
lengthy and mandatory prison terms. 279 As methamphetamine supply
shifts to importation rather than mom-and-pop production, and as
that importation is linked to Hispanic importers and illegal immigration,
we may see the extent to which race and ethnicity drive legislative
action; under the social group theory, 280 we will expect to see methamphetamine
sanctions rise dramatically, and time will tell
whether or not the prevention-education-personal regulation model is
transitory or trend.
In the meantime, the United States appears to have entered a period
in which the appetite for increased drug-related penalties has
waned. 281 In part, this may be because of increased panic about violent
crime, particularly sex offenses against children; it may stem
from norm shifts that encourage “personal responsibility” and privatization;
or it may reflect, related to all of these theories, tight government
budgets and a governmental desire to craft programs that
cost little and place the onus on private parties to resolve social problems.
In general, legislators and citizens seem more ambivalent
about the ability of incarceration to address the problems associated
with substance use and abuse, and willing to examine strategies that
place less emphasis on costly prison programs and more emphasis on
private industry and individual will.
Is this a positive shift? The efficacy of methamphetamine responses
remains to be seen. The general shift in focus from criminal
punishment to education, alternatives to incarceration, and precursor
control may be good news for foes of mass incarceration, and might
represent a rational, evidence-based approach to a substance that inarguably
has ill effects. Or perhaps it simply represents a damning of
expectations, some measure of fiscal austerity and economic reality
as applied to government policy. Either way, I argue that what the
response to methamphetamine has shown us is that we have entered
an age of ambivalence—one where we are less certain that harsh
criminal sanctions are the solution to social problems, and one where
we are open to alternatives.
279. See supra Part V.A(1).
280. See supra note 19-20 and accompanying text.
281. See supra Part V.B.

900 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:841

PEARSON, IQBAL, AND PROCEDURAL JUDICIAL
ACTIVISM
GOUTAM U. JOIS *
ABSTRACT
In its most recent term, the Supreme Court of the United States decided Pearson v. Callahan
and Ashcroft v. Iqbal, two cases that, even at this early date, can safely be called
“game changers.” What is fairly well known is that Iqbal and Pearson, on their own terms,
will hurt civil rights plaintiffs. A point that has not been explored is how the interaction between
Iqbal and Pearson will also hurt civil rights plaintiffs. First, the cases threaten to
catch plaintiffs on the horns of a dilemma. Iqbal says, in effect, that greater detail is required
to get allegations past the motion to dismiss stage. But a plaintiff who says too much
at the pleading stage risks getting kicked out by Pearson; if the allegations are very specific,
a court (deciding qualified immunity) will conclude that the constitutional right, if any, is
so specific as not to be clearly established. If the litigant pleads at a level of generality to
avoid the “clearly established” problem, he will get tripped up by Iqbal because the allegations
will be deemed “conclusory” or too general to be “plausible.”
Iqbal and Pearson also take divergent tacks with regard to the role of lower courts. In
Pearson, lower courts are entrusted to decide which step of qualified immunity to decide
first. Iqbal also expands courts’ authority by empowering them to determine “plausibility”
based on their “common sense.” But at the same time, Iqbal takes away the district court’s
ability to manage litigation (by using procedures explicitly provided in the Federal Rules
and previously approved by the U.S. Supreme Court) in order to shield public officials, relying
instead on the rather blunt instrument of dismissing the case entirely. The cases expand
and restrict lower courts’ discretion, but only do so in a way that makes it easier to dismiss
civil rights lawsuits. Pearson and Iqbal exemplify what I call “procedural judicial activism”:
the invention of procedural rules to significantly curtail the availability of remedies in
civil litigation, especially in the context of civil rights claims.
In short, although Pearson and Iqbal are thought of as affecting different, and distinct,
areas of law, they interact in ways that are detrimental to civil rights plaintiffs and, ultimately,
all of us. This interaction was not addressed by the Court in either case, nor has it
been recognized in the academic literature thus far.
I. INTRODUCTION .................................................................................................. 902
II. PEARSON AND IQBAL ......................................................................................... 907
A. Pearson v. Callahan ................................................................................... 907
B. Ashcroft v. Iqbal ......................................................................................... 915
III. HOW THE CASES HURT CIVIL RIGHTS PLAINTIFFS ............................................ 920
A. The Obvious ............................................................................................... 921
B. The Less Obvious ....................................................................................... 925
1. The Horns of a Dilemma ...................................................................... 925
2. Discretion that Only Cuts One Way ..................................................... 930
C. So What? The Case Against Procedural Activism ..................................... 937
IV. CONCLUSION ..................................................................................................... 942
* J.D., Harvard, 2007; A.B., 2003, M.P.P., 2004, Georgetown. gjois@post.harvard.edu. I
have received helpful comments and feedback at various stages of this project from Martha
Field, Paul Pineau, Alexander Reinert, and Erez Reuveni. I have benefitted from the work of
two excellent research assistants, Debbie Chung and James Partridge. As always, thanks to my
parents, Umesh and Indira; my sisters, Malasa and Mallika; and my wife, Elizabeth, for continued
love and support. Any perceived errors are mine.

902 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
I. Introduction
On the first day of Civil Procedure, Professor Arthur Miller tells
his students that they probably will not like the class at first because
it seems alien:
When you come to law school, your prior experience tells you
something about torts, for example. You know what a tort is. You
know what an accident is. . . . You know what contracts are; you’ve
signed contracts and sometimes, maybe you’ve even broken contracts.
But the truth is, nothing in your prior experience prepares you for
civil procedure. . . . [Y]ou don’t know what a motion to dismiss is. You
don’t know what res judicata is. You don’t know what judgment notwithstanding
the verdict means. So it’s strange. The concepts are
strange. They don't seem to have any value judgment to them, the
way torts and criminal law are all about value judgments. 1
That value-neutrality, of course, is an illusion; “as the year
progresses, you begin to discover that there are value judgments that
lie beneath the surface of each and every aspect of civil procedure.
But it simply takes you a long time to understand that.” 2
* * *
Procedural rules never exist in a vacuum. At every stage of litigation,
rules dictate who may bring suit, for what reasons, and under
what circumstances. They tell us when the suit must be brought in
which jurisdiction, and they tell us the reasons it can be dismissed.
Procedural rules govern whether your case will be heard by a judge
or a jury, whether it will go to trial or be decided on the papers, and
whether you have the right to an immediate appeal. Procedural rules
tell us who can be sued and who is immune from suit. They tell us
whether immunity is absolute or qualified, and in what circumstances
immunity may be overcome.
It is probably obvious that the Federal Rules of Civil Procedure contain
(no surprise here) the procedural rules that govern civil litigation.
What might not be obvious is that thousands of pages of judge-made
law dramatically affect who can bring a lawsuit, against whom, in
what substantive areas, when, in which jurisdiction, and for what reason.
These judge-made rules, though they have no basis in an authoritative
text, get cloaked with the mantle of “neutrality”—precisely because
the rules are “strange[; t]he concepts are strange[, and t]hey
don’t seem to have any value judgment to them.” 3 Yet these rules
(which, if we are being uncharitable, we might say are simply made up
by judges) are no less binding than those rooted in authoritative texts.
1. Arthur R. Miller, Civil Procedure: Sum and Substance Audio CD Series (1996).
2. Id.
3. Id.

2010] PROCEDURAL JUDICIAL ACTIVISM 903
In 2009, the U.S. Supreme Court decided two cases that elaborate
upon judge-made doctrines in the procedural areas of qualified immunity
and pleading standards. In January, the Court ruled unanimously
in Pearson v. Callahan 4 that the two-step sequential analysis
for qualified immunity, as outlined in Saucier v. Katz, 5 was no
longer mandatory. In Ashcroft v. Iqbal, 6 decided a few months later,
the Court held district courts could dismiss cases if the nonconclusory
allegations in the complaint did not make out an entitlement to relief
that was “plausible” (which the Court helpfully told us, is more than
“possible” but less than “probable”). 7 Lower courts are to make this
determination on the basis of “common sense.” 8 These cases seem obscure,
and they turn on rather dry questions of procedural law. But
just like procedural rules in general, these cases embody very important
value judgments. Unless revisited, they will work a disservice to
our nation’s promise of permitting victims of civil rights violations to
achieve redress through civil litigation.
Pearson and Iqbal are problematic for three reasons. First, there
is the obvious: Pearson makes it easier for lower courts to dismiss
lawsuits against government officials, which makes it commensurately
harder for a civil rights plaintiff to prevail. Similarly, Iqbal
makes it easier for courts to dismiss lawsuits at the outset, once
again making it harder for plaintiffs to get past a defendant’s motion
to dismiss.
However, there are at least two other, more subtle reasons why
Pearson and Iqbal are problematic. First, the interaction between the
two cases threatens to catch civil rights plaintiffs on the horns of a dilemma.
The problem runs something like this: under Pearson, lower
courts are permitted to skip to “step two” of the qualified immunity inquiry;
courts may conclude that the officer-defendant is entitled to
immunity, even if a constitutional right was violated, if such right was
not “clearly established” at the time of the alleged violation. This formulation
will deter plaintiffs from saying “too much” in their pleadings:
if the right is seen as very narrowly described (say, the right to be
free from a hostile racial educational environment caused by studenton-student
racial harassment in a public school), 9 courts will reason
that, even if such a right existed, it is so specific as not to be “clearly
established.” To avoid this problem, plaintiffs might try pleading at a
level of generality (say, the right to be free from racial discrimination).
4. 129 S. Ct. 808 (2009).
5. 533 U.S. 194 (2001).
6. 129 S. Ct. 1937 (2009).
7. Id. at 1949 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
8. Id. at 1950.
9. See, e.g., DiStiso v. Town of Wolcott, 539 F. Supp. 2d 562, 567-68 (D. Conn. 2008),
vacated, Disito v.Town of Wolcott, No. 08-1865-CV, 2009 WL 3652096 (2d Cir. Nov. 5, 2009).

904 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
But this runs the risk of having the complaint dismissed by Iqbal. Allegations
pled at a level of generality could be deemed “conclusory” or
not “plausible” and insufficiently specific to put the defendant on notice
of the claim against him. Thence arises the dilemma: say too
much, and you’ll lose based on Pearson; say too little, and you’ll lose
based on Iqbal. I illustrate this problem with reference to recent district
and appeals court cases, including a case study.
The second problem is that the Pearson-Iqbal interaction simultaneously
enlarges and restricts lower courts’ discretion—but does so in
a way that hurts civil rights plaintiffs in either case. Pearson holds
that a court may skip the constitutional violation question and hold
against the plaintiff if the right is not clearly established. In this
way, courts have greater discretion to find a basis for holding the officer
immune. Relatedly, Iqbal gives district courts wide latitude to
rely on their “common sense” and conclude that allegations in a complaint
are not “plausible.” This increases the chances that a plaintiff’s
complaint will be dismissed. But at the same time, Iqbal also cuts
back lower courts’ discretion: for decades, it has been assumed that
courts could use various mechanisms to control the process of litigation
to shield government officials from undue pretrial burdens. Iqbal
has effectively cut away this discretion, holding instead that in situations
where a discretionary shaping of discovery or requiring further
pleading from the plaintiff might have been appropriate, 10 the com-
10. See, e.g., Crawford-El v. Britton, 523 U.S. 574, 597-601 (1998) (noting that, in
qualified immunity cases, a court has at its disposal mechanisms provided by Federal
Rules of Civil Procedure 7, 11, 12, and 26, as well as its broad discretion to manage discovery,
to ensure that defendants are not unduly burdened). In this Article, I take it as a given
that the Court’s current framework—that qualified immunity must protect the defendant
from “unnecessary and burdensome discovery or trial proceedings,” id. at 598—must still
inform any development in the doctrine.
I leave aside the antecedent normative question of whether this is a worthwhile goal
at all. I note, however, that even sovereign immunity, perhaps the broadest immunity of
them all, is only an immunity against money damages and not a wholesale immunity from
the “burdens” of litigation. And the idea that the possibility of liability would be “peculiarly
disruptive of effective government,” Harlow v. Fitzgerald, 457 U.S. 800, 817 (1982), seems
to have been more armchair philosophizing than an empirical conclusion. The only citation
Harlow provided was to a concurring opinion by Judge Gerhard A. Gessell of the D.C. District
Court, from when he was sitting by designation on the D.C. Circuit. See id. at 817 n.29
(citing Halperin v. Kissinger, 606 F.2d 1192, 1214 (1979) (Gessell, J., concurring), aff’d in
pertinent part by an equally divided Court, 452 U.S. 713 (1981)). And Judge Gessell’s opinion
contains no citation whatsoever. At bottom, it is simply a call to raise the bar on civil
rights plaintiffs: “In short, I urge a more exacting standard be placed on the showing a
plaintiff must make before proceeding to trial in the face of a properly presented qualified
immunity claim.” Halperin v. Kissinger, 606 F.2d at 1215 (Gessell, J., concurring). If the
rationale behind the current qualified immunity doctrine is simply one district judge’s belief,
thirty years ago, that “a more exacting standard [should] be placed on” civil rights
plaintiffs, id., perhaps it is time to revisit the rationale.
Some might argue that it was an “activist” decision that revivified § 1983 claims in
the first place and that this activism required subsequent judicial action to properly define
the boundaries of such claims. This may be true in the context of Bivens claims against

2010] PROCEDURAL JUDICIAL ACTIVISM 905
plaint should instead be dismissed. In sum, whether by expanding or
restricting district courts’ discretion, the Supreme Court has narrowed
the universe of civil rights complaints that will proceed to the
merits and ultimately succeed.
Recent years have brought much talk of “judicial activism.” Political
commentators, generally on the right, have successfully framed
activism as the province of liberals—those who disregard the meaning
of the Constitution and tradition to limit capital punishment,
grant “special status” to homosexuals, prohibit display of the Ten
Commandments at school, and so on. 11 But one thing that Iqbal and
Pearson make clear is that “activism,” at least as that term is popularly
conceived, is not solely the province of liberals. Iqbal presented
a departure from over seventy years’ understanding of the meaning
of Federal Rule of Civil Procedure 8(a)(2) and arguably conflicts with
the plain language of the Federal Rules and long-standing case law.
Pearson deviates from two decades of precedent and is part of a line
of cases shielding government officials from liability, a notion that
appears nowhere in the Constitution and that has never been described
in congressional statutes. 12 Shrinking access to civil rights
federal officers. See Bivens v. Six Unknown Named Agents, 403 U.S. 388 (1971). But it is
clear that the plain language § 1983 contemplates personal liability:
Every person who, under color of any statute, ordinance, regulation, custom, or
usage, of any State or Territory or the District of Columbia, subjects, or causes
to be subjected, any citizen of the United States or other person within the jurisdiction
thereof to the deprivation of any rights, privileges, or immunities secured
by the Constitution and laws, shall be liable to the party injured in an action
at law, suit in equity, or other proper proceeding for redress, except that in
any action brought against a judicial officer for an act or omission taken in such
officer’s judicial capacity, injunctive relief shall not be granted unless a declaratory
decree was violated or declaratory relief was unavailable.
42 U.S.C. § 1983 (emphasis added).
Thus, it is clear that § 1983: (1) contemplates personal liability; (2) provides a certain
limitation on liability with regard to judicial officers; and (3) contains no other similar limitation
or immunity. Judicially created immunity doctrines might have some purchase in
the Bivens context, but they are less persuasive in the § 1983 context. Nonetheless, the two
have typically been treated identically. See Butz v. Economou, 438 U.S. 478, 500-01 (1978).
Butz is still good law. See Bunting v. Mellen, 541 U.S. 1019, 1022 (2004) (Scalia, J., dissenting)
(describing the same two-step qualified immunity analysis in connection with §
1983 claims and Bivens claims).
11. See, e.g., Judicial Activism: the Biggest 2002 Election Issue, 36 THE PHYLLIS
SCHLAFLY REPORT (Oct. 2002), http://www.eagleforum.org/psr/2002/oct02/psroct02.shtml.
12. The phrase “qualified immunity” appears twice in the United States Code. Of
these, only one even indirectly addresses the qualified immunity doctrine as explicated by
the Supreme Court. First, 6 U.S.C. § 1104(a) (2006) provides, in essence, that an individual
who voluntarily reports suspected terrorist activity will not be liable for making such report
unless he made the report knowing it to be false or with a reckless disregard from the
truth. The statute goes on to specify that government officials who respond to such reports
“shall have qualified immunity from civil liability for such action, consistent with applicable
law in the relevant jurisdiction.” Id. § 1104(b)(1). However, the legislative history
makes clear that the law was not intended “to amend, limit, or reduce existing qualified

906 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
remedies is no less “activist” merely because it happens under the
guise of ostensibly neutral procedural rules.
Iqbal is typically thought of as a case about pleading standards, 13
and Pearson is typically thought of as a case about qualified immunity.
14 Although these formulations are correct, my goal in this Article
is to highlight the intersection of, and interaction between, these two
cases. In so doing, I will demonstrate that Iqbal and Pearson are not
only harmful to civil rights plaintiffs separately but also when taken
together. 15 This Article is the first (in print or online) to explain this
dilemma, awareness of which is of the utmost importance to attorneys
litigating civil rights claims against government defendants.
These insights are important from an academic perspective as
well. The law of qualified immunity has been a muddle—and now, so
is the law regarding pleading standards. Courts are inconsistent,
both between circuits and among different panels of the same circuit,
immunity or other defenses pursuant to Federal, State, or local law that may otherwise be
available to authorized officials as defined by this section.” CONFERENCE REPORT ON H.R.
1, IMPLEMENTING RECOMMENDATIONS OF THE 9/11 COMMISSION ACT OF 2007, 153 Cong.
Rec. H8496-01, H8583 (Jul. 25, 2007). Thus, although § 1104 recognizes the defense of
qualified immunity, it does not define it in the statute, or even explicitly state that the doctrine
should be applied as explicated by the courts. If Congress wanted to adopt the federal
common law of qualified immunity, it could have done so explicitly. In several other contexts,
Congress specifically leaves rules up to common law decisionmaking. See, e.g., 12
U.S.C.A. § 2279aa-14(2) (“All civil actions to which the [Federal Agricultural Mortgage]
Corporation is a party shall be deemed to arise under the laws of the United States and, to
the extent applicable, shall be deemed to be governed by Federal common law.”); 42 U.S.C.
§ 1988(a) (providing that, in instances where the district courts do not have the power to
fully vindicate civil rights claims, “the common law [subject to certain limitations] shall be
extended to and govern the said courts in the trial and disposition of the cause . . . .”); FED.
R. EVID. 501 (“Except as otherwise required . . . , the privilege of a witness, person, government,
State, or political subdivision thereof shall be governed by the principles of the
common law as they may be interpreted by the courts of the United States in the light of
reason and experience.”).
The phrase also appears in 42 U.S.C. § 1320a-7c(a)(3)(B)(iii) (2006), which references
the limitation on personal liability of government officials in a particular context. However,
this statutory immunity, though described as “qualified immunity,” does not use the term
in the sense that it is employed by the Supreme Court.
13. See, e.g., Posting of Howard Wasserman to PrawfsBlawg, Iqbal and the Death of
Notice Pleading: Part I, at http://prawfsblawg.blogs.com/prawfsblawg/2009/05/iqbal-andthe-death-of-notice-pleading-part-i.html
(May 18, 2009).
14. See, e.g., Jack Ryan, United States Supreme Court Changes Qualified Immunity
Rules for Civil Rights Lawsuits Brought Against Law Enforcement Officers, PUBLIC
AGENCY TRAINING COUNCIL, January 21, 2009, http://www.patc.com/weeklyarticles/
qualified_immunity_pearson_v_callahan.shtml.
15. It is true that Iqbal applies to all civil actions, not just civil rights claims. But Iqbal
itself noted that the concerns that motivated moving to a higher, plausibility standard
in civil litigation were especially acute in the civil rights context. See 129 S. Ct. at 1953.
Indeed, Judge Posner believes that Iqbal may even be limited to that context. See infra,
note 19 and accompanying text. Thus, whatever the scope of Iqbal, it is clear that it has its
greatest force in the civil rights context.

2010] PROCEDURAL JUDICIAL ACTIVISM 907
as to the precise test for qualified immunity. 16 The lower courts cited
Iqbal more than 500 times in the two months after the decision was
handed down, 17 but there is disagreement as to the meaning of the
new case. Justice Ruth Bader Ginsburg believes the Iqbal “ ‘majority
messed up the federal rules’ governing civil litigation.” 18 Judge Richard
A. Posner of the Seventh Circuit, however, believes Iqbal is
“special in its own way” and perhaps limited to the context of civil
rights claims against high government officials or in complex cases. 19
The same divide—between those who think Iqbal is far-reaching and
those who believe it is limited in application—exists in the commentary
about the case. 20
Thus, in addition to explaining the problem posed by the Pearson-
Iqbal interaction, this Article will contribute to the still-evolving discourse
on the precise contours and meaning of these areas of law.
II. PEARSON AND IQBAL
In this Part, I provide a brief overview of the relevant aspects of
Pearson and Iqbal. In these sections, I will also discuss the development
of the law of qualified immunity and pleading standards, respectively.
This discussion is not intended to be exhaustive. Rather,
my goal is to provide sufficient background to illuminate the discussion
in this Part and the thesis I advance in Part III.
A. Pearson v. Callahan
In Saucier v. Katz, 21 the Supreme Court directed lower courts to
conduct a two-step, ordinal inquiry with regard to qualified immunity.
First, courts were to determine whether the facts pled, shown,
16. Compare Higazy v. Templeton, 505 F.3d 161, 169 n.8 (2d Cir. 2007) (“To rule on the
issue of qualified immunity, this Court generally proceeds in two steps.”) with Harhay v.
Town of Ellington Bd. of Educ., 323 F.3d 206, 211 (2d Cir. 2003) (“Our analysis of a qualified
immunity claim consists of a three step inquiry.”). This inconsistency—two steps versus three
steps—is or has been present in cases in at least the First, Second, Third, Sixth, Ninth, Tenth
and Eleventh Circuits. I address this problem in a forthcoming article, “An Additional Hurdle”:
How the Circuit Courts Messed Up Qualified Immunity (on file with author).
17. Adam Liptak, 9/11 Case Could Bring Broad Shift on Civil Suits, N.Y. TIMES, Jul.
21, 2009, available at http://www.nytimes.com/2009/07/21/us/21bar.html?_r=1.
18. Id.
19. See Smith v. Duffey, 576 F.3d 336, 340 (7th Cir. 2009).
20. Compare Kevin M. Clermont & Stephen C. Yeazell, Inventing Tests, Destabilizing Systems,
95 IOWA L. REV. 821, 823 (2010) (“The headline need no longer equivocate. . . . [Bell Atlantic
Corp. v. Twombly, 550 U.S. 544 (2007), and Iqbal] have destabilized the entire system of civil
litigation.”) with Maxwell S. Kennerly, Ashcroft v. Iqbal: Not Nearly As Important As You Think,
http://www.litigationandtrial.com/2009/06/articles/the-law/for-lawyers/ashcroft-v-iqbal-notnearly-as-important-as-you-think/
(last visited Aug. 27, 2010) (suggesting that Iqbal should be
limited to Bivens claims against high-ranking government officials).
21. 533 U.S. 194 (2001).

908 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
or found (depending on the stage of litigation) made out a constitutional
violation.
In the course of determining whether a constitutional right was violated
on the premises alleged, a court might find it necessary to
set forth principles which will become the basis for a holding that a
right is clearly established. This is the process for the law’s elaboration
from case to case, and it is one reason for our insisting upon
turning to the existence or nonexistence of a constitutional right as
the first inquiry. 22
If, and only if, a court answers this question in the affirmative, it is
to proceed to the second step of the analysis: “if a violation could be
made out on a favorable view of the parties’ submissions, the next,
sequential step is to ask whether the right was clearly established.” 23
Fully understanding how we got to Saucier, however, requires a bit of
background on the nature of qualified immunity in general.
When a state official’s conduct causes the deprivation of an individual’s
constitutional rights, 42 U.S.C. § 1983 enables the victim to
bring a damages claim against the official in the officer’s personal capacity,
i.e., in a suit against the official himself, not the state government
or agency. Although § 1983 had formally been on the books
since 1871, its potential was not fully exploited until after the Supreme
Court’s decision in Monroe v. Pape. 24 Ten years later, Bivens v.
Six Unknown Named Agents of the Federal Bureau of Narcotics, held
that individuals have an analogous cause of action against federal
government officials. 25 In circumstances where constitutional rights
have been violated, damages claims are one of the primary vehicles
for the individual’s enforcement of his or her civil rights as enumerated
in the Constitution. 26
Very shortly after Bivens, the Supreme Court began cutting back
the scope of this remedy. The Court became concerned about the risk
of unsubstantiated legal claims against government actors, which, it
has claimed, pose a threat to the operation of government by deterring
the zealousness and enthusiasm with which public officials
might execute their office and by deterring able citizens away from
public service out of an aversion to the expenses of litigation. 27 The
Supreme Court has recognized a policy interest in allowing govern-
22. Id. at 201 (2001).
23. Id.
24. 365 U.S. 167 (1961) (holding actions are taken “under color” of state law when the
“wrongdoer is clothed with the authority of the state” as opposed to actions taken by officials
pursuant to state law) (quoting United States v. Classic, 313 U.S. 325, 326 (1941)).
25. 403 U.S. 388 (1971).
26. See, e.g., Wilson v. Garcia, 471 U.S. 261, 276 (1985) superseded by statute on other
grounds, Judicial Improvements Act of 1990, Pub. L. No. 101-650, 104 Stat 5089, as recognized
in Jones v. R.R. Donnelley & Sons Co., 541 U.S. 369, 377-81 (2004).
27. See, e.g., Wood v. Strickland, 420 U.S. 308, 319-20 (1975).

2010] PROCEDURAL JUDICIAL ACTIVISM 909
ment officials facing frivolous or meritless lawsuits to enjoy immunity
from “the costs of trial or . . . the burdens of broad-reaching discovery,”
which would divert their energy away from the fulfillment of
their official responsibilities. 28
Qualified immunity, the Court tells us, is “the best attainable accommodation
of competing values.” 29 This affirmative defense is designed
to achieve the dual aims of permitting the prosecution of civil
rights torts while ensuring that “[i]nsubstantial lawsuits can be
quickly terminated by federal courts . . . .” 30 The Court has determined
that where “clearly established rights are not implicated, the
public interest may be better served by action taken ‘with independence
and without fear of consequences.’ ” 31 Therefore, the defendant
in a § 1983 action may, prior to discovery, move that the trial court
dismiss the claim, contingent on a showing that the conduct alleged
by the plaintiff does not appear to have violated the plaintiff’s clearly
established constitutional rights. In particular, qualified immunity is
granted when the facts alleged show that the officer was acting reasonably
“as measured by reference to clearly established law.” 32 Government
officials are granted immunity from suit “as long as their actions
could reasonably have been thought consistent with the rights
they are alleged to have violated”; 33 and this protects “all but the
plainly incompetent or those who knowingly violate the law.” 34
The important thing to note here is that the qualified immunity
doctrine is not just an immunity from having to pay money damages
(as is state sovereign immunity, for example) but an immunity from
having to endure any litigation at all in the first instance.
Though § 1983 does not enumerate any immunities from litigation,
the Court in Wood v. Strickland held Congress could not have
intended to abolish the traditional common law immunities for legislators,
judges, police and administrators. 35 Wood framed the test as a
subjective one: the officer would not be liable if he acted in “good
faith” and with the absence of malice. 36 Thus, the officer would be liable
if he should have known he was violating a right or was acting
maliciously. 37 Wood’s subjective test was soon replaced. But its core
28. Harlo w v. Fitzgerald, 457 U.S. 800, 817-18 (1982).
29. Id. at 814.
30. Butz v. Economou, 438 U.S. 478, 507 (1978).
31. Harlow, 457 U.S. at 819 (quoting Pierson v. Ray, 386 U.S. 547, 554 (1967)).
32. Id. at 818.
33. Anderson v. Creighton, 483 U.S. 635, 638 (1987).
34. Malley v. Briggs, 475 U.S. 335, 341 (1986).
35. 420 U.S. 308, 316-18 (1975) (“Common-law tradition, recognized in our prior decisions,
and strong public-policy reasons also lead to a construction of § 1983 extending a
qualified good-faith immunity . . . .”).
36. Id. at 322.
37. See id.

910 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
motivation—the policy that officials should be protected from suit,
even though no such immunity appears in § 1983—lives on.
Seven years later, Harlow v. Fitzgerald replaced the subjective
test (whether the officer knew he was violating rights) with an objective
one (whether a reasonable officer could have known that the actions
violated rights). 38 Again, the Court was concerned with the policy
goal of terminating civil rights litigation as quickly as possible:
some courts had held the officer’s state of mind (under the Wood
standard) was a matter of fact and could not be decided on summary
judgment, whereas the objective standard could be. 39
The basic formulation in Harlow persists: government officials
will be immune when “their conduct does not violate clearly established
statutory or constitutional rights of which a reasonable person
would have known . . . [o]n summary judgment, the judge appropriately
may determine, not only the currently applicable law, but
whether that law was clearly established at the time an action occurred.”
40 This is a test of the state of the relevant law, not the officer’s
state of mind. 41 The Court elaborated on the relevant standard in
Anderson v. Creighton, holding that to be clearly established, “[t]he
contours of the right must be sufficiently clear that a reasonable official
would understand that what he is doing violates that right.” 42
The exact conduct alleged need not previously have been held unlawful,
but in the light of pre-existing law its unlawfulness must be “apparent.”
43 Anderson emphasized the question was not merely whether
the right had been clearly established in some general sense, but
whether on these facts the right was established. 44
The Court began to distill the Harlow standard into a more workable
analytic framework a few years later. Frederick Siegert had filed
a Bivens claim against his former employer, a federal hospital administrator,
who had released an unfavorable employment evaluation to
his current employer, with allegedly “bad faith motivation,” which re-
38. Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982).
39. See, e.g., Halperin v. Kissinger, 606 F.2d 1192, 1209 (D.C. Cir. 1979) (“On the subjective
criterion [of the Wood test] which ‘turns on officials’ knowledge and good faith belief’
summary action may be more difficult. Questions of intent and subjective attitude frequently
cannot be resolved without direct testimony of those involved.”); see also Wood, 420
U.S. 308; FED.R.CIV. P. 56.
40. Harlow, 457 U.S. at 818 (citing Procunier v. Navarette, 434 U.S. 555, 556 (1978)
and Wood, 420 U.S. at 322).
41. Id.
42. 483 U.S. 635, 640 (1987).
43. Id.
44. See id. This period also included an important case regarding the procedure of
qualified immunity. In Mitchell v. Forsyth, 472 U.S. 511 (1985), the Court underscored the
fact that qualified immunity is an immunity from litigation itself, and held that interlocutory
appeals could be taken from a denial of qualified immunity.

2010] PROCEDURAL JUDICIAL ACTIVISM 911
sulted in his termination. 45 The District Court had held the officials
were not entitled to qualified immunity because the plaintiff had
made sufficient allegations of malice. However, the Supreme Court
disagreed. The first, threshold inquiry, the Court said, had to be
whether Siegert had, on the facts alleged, made out a constitutional
violation at all. Chief Justice Rehnquist explained that the task of
identifying the particular right which is alleged to have been violated
had to be undertaken at an “analytically earlier stage of the inquiry”
when handling a qualified immunity claim. 46 The Court said it was
incorrect to “examine the sufficiency of the allegations of malice”
without first resolving the “threshold immunity question” of whether
or not, in claiming malicious defamation by a federal employer, a
constitutional rights violation had even been alleged. 47 Chief Justice
Rehnquist again focused on the motivating policy concern behind this
line of cases, reasoning that the merits-first sequence would “permit[]
courts expeditiously to weed out suits which fail the test” when the
allegations did not make out a constitutional violation. 48 The Court
applied this two-step sequence, found that Siegert’s claim failed at
the first step, and ruled in favor of the defendants. 49
Siegert was the first case to explain qualified immunity in terms of
a sequential analysis. Chief Justice Rehnquist reasoned that a claim
that had not even made out a constitutional violation should get
kicked out, regardless of the officer’s malice (or lack thereof) in his
treatment of the plaintiff. 50 However, this sequencing was not explicitly
made mandatory. 51 Seven years later, in County of Sacramento
v. Lewis, 52 Justice Souter described sequencing as the “better approach.”
53 He explained that sequencing was necessary to guard
against constitutional stagnation:
What is more significant is that if the policy of avoidance were always
followed in favor of ruling on qualified immunity whenever
there was no clearly settled constitutional rule of primary conduct,
standards of official conduct would tend to remain uncertain, to
the detriment both of officials and individuals. An immunity de-
45. Siegert v. Gilley, 895 F. 2d 797, 803 (D.C. Cir. 1990).
46. Siegert v. Gilley, 500 U.S. 226, 227 (1991).
47. Id. at 232.
48. Id.
49. Id. at 233-34.
50. Id.
51. Paul Hughes points out that many circuits did make the two-step approach mandatory,
despite the fact that the Supreme Court had not required it at the time. See Paul
W. Hughes, Not a Failed Experiment: Wilson-Saucier Sequencing and the Articulation of
Constitutional Rights, 80 U. COLO. L.REV. 401, 410 (2009) (“Many courts adopted such an
analysis[,] holding sequencing as mandatory, including panels in the First, Second, Third,
Fifth, Sixth, Seventh, Eighth, Tenth, Eleventh, and D.C. Circuits.”) (citations omitted).
52. 523 U.S. 833 (1998).
53. Id. at 841 n.5.

912 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
termination, with nothing more, provides no clear standard, constitutional
or nonconstitutional. In practical terms, escape from
uncertainty would require the issue to arise in a suit to enjoin future
conduct, in an action against a municipality, or in litigating a
suppression motion in a criminal proceeding; in none of these instances
would qualified immunity be available to block a determination
of law. But these avenues would not necessarily be open,
and therefore the better approach is to determine the right before
determining whether it was previously established with clarity. 54
The judiciary, however, was not vigilant about observing the two-step
sequence. In Conn v. Gabbert, 55 the Court made the two-step sequence
mandatory: “a court must first determine whether the plaintiff
has alleged the deprivation of an actual constitutional right at
all,” only then can a court “proceed to determine whether that right
was clearly established at the time of the alleged violation.” 56 Just as
in Siegert, Chief Justice Rehnquist explained that an officer is denied
immunity if “the official [is] shown to have violated ‘clearly established
statutory or constitutional rights of which a reasonable person
would have known,’ ” and that the determination as to the actual
presence or not of an alleged constitutional rights violation is logically
prior to any considerations as to the degree to which such a right is
established in the law. 57 A similar problem arose in Wilson v. Layne. 58
There, the Fourth Circuit granted the defendant-officers immunity
but “declined to decide whether the actions of the police violated the
Fourth Amendment.” 59 The Supreme Court disagreed, reasoning that
determining the constitutional question first “promotes clarity in the
legal standards for official conduct, to the benefit of both the officers
and the general public.” 60
Two terms later, Saucier v. Katz 61 firmly established the two-step
sequence. The Court wrote:
A court required to rule upon the qualified immunity issue must
consider . . . this threshold question: Taken in the light most favorable
to the party asserting the injury, do the facts alleged show
the officer’s conduct violated a constitutional right? This must be
the initial inquiry. . . . If no constitutional right would have been
violated were the allegations established, there is no necessity for
further inquiries concerning qualified immunity. On the other
54. Id. (emphasis added, internal citations omitted).
55. 526 U.S. 286 (1999).
56. Id. at 290.
57. Gabbert, 526 U.S. at 290.
58. 526 U.S. 603 (1999).
59. Id. at 608.
60. Id. at 609. The Court held police officers bringing media representatives along
during the execution of an arrest warrant violated the Fourth Amendment but found qualified
immunity on the ground that the law was not clearly established. Id. at 605-06.
61. 533 U.S. 194 (2001).

2010] PROCEDURAL JUDICIAL ACTIVISM 913
hand, if a violation could be made out on a favorable view of the
parties’ submissions, the next, sequential step is to ask whether
the right was clearly established. 62
Like Chief Justice Rehnquist in Wilson and Justice Souter in Lewis,
Justice Kennedy in Saucier was concerned about the elaboration of
constitutional rights. Sequencing, he wrote, is important to ensure
“the law’s elaboration from case to case.” 63 The role of the courts was
to explain the scope and nature of constitutional rights; “[t]he law
might be deprived of this explanation were a court simply to skip
ahead to the question whether the law clearly established that the officer’s
conduct was unlawful in the circumstances of the case.” 64
To recap: the Court in the 1960s and 70s held § 1983 and Bivens
actions could be used to vindicate constitutional rights. But the scope
of liability was almost immediately curtailed: substantively by Wood
and Harlow (which established the defense of qualified immunity)
and procedurally by Mitchell (which permitted interlocutory appeals).
As to the substantive analysis, the Court was insistent that the constitutional
question be decided first: to weed out insubstantial claims,
to put defendant-officers on notice of the law, and to ensure that the
constitutional law did not stagnate. The failure of lower courts to follow
this process post-Siegert was what forced the Court to press, with
increasing insistence, the mandatory two-step sequence.
That all changed in January 2009 with Pearson v. Callahan. 65
That case concerned a warrantless search and application of the
Fourth Amendment’s “consent-once-removed” doctrine. 66 If you don’t
know what this doctrine is, don’t worry: the Court bypassed this issue
entirely. Sua sponte, it ordered briefing as to whether Saucier’s
mandatory two-step should be overruled. 67 A few months later, the
Court unanimously overruled Saucier. 68
It is important, however, to note what the Court did not do. Many
critiques of Saucier had argued that the mandatory merits-first sequence
was unconstitutional or otherwise legally infirm. 69 But the
Court did not overrule Saucier on constitutional grounds, or really
anything that might be described as “legal reasoning.” In fact, it left
the two steps of the Saucier analysis entirely undisturbed. Instead,
62. Id. at 201.
63. Id.
64. Id.
65. 129 S. Ct. 808 (2009).
66. Id.
67. Pearson v. Callahan, 128 S. Ct. 1702, 1702-03 (2008) (order granting certiorari).
68. Pearson, 129 S. Ct. 808.
69. See, e.g., Pierre N. Leval, Judging Under the Constitution: Dicta About Dicta, 81
N.Y.U. L. REV. 1249, 1275–81 (2006); Thomas Healy, The Rise of Unnecessary Constitutional
Rulings, 83 N.C. L. REV. 847, 920 (2005).

914 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
the Court found that the mandatory process was inefficient. 70 Saucier
was thus overruled on entirely prudential grounds:
On reconsidering the procedure required in Saucier, we conclude
that, while the sequence set forth there is often appropriate, it
should no longer be regarded as mandatory. The judges of the district
courts and the courts of appeals should be permitted to exercise
their sound discretion in deciding which of the two prongs of
the qualified immunity analysis should be addressed first in light
of the circumstances in the particular case at hand. 71
In the very next paragraph, the Court again reiterated that Saucier
sequencing is “often beneficial.” 72 But the mandatory two-step was
no more.
Of course, the Court was then left with the task of justifying its
departure from Saucier, Anderson, Siegert, Gabbert and Harlow. Justice
Alito wrote there was no stare decisis problem because those considerations
applied primarily to contract or property cases, not those
involving judge-made rules. 73 And the Court focused on the practical
effects: lower courts found the mandatory sequencing problematic,
and that weighed in favor of abandoning the standard. 74
What about constitutional elaboration? With a little hand waving,
that problem was made to go away, too:
Most of the constitutional issues that are presented in § 1983 damages
actions and Bivens cases also arise in cases in which that defense is
not available, such as criminal cases and § 1983 cases against a municipality,
as well as § 1983 cases against individuals where injunctive
relief is sought instead of or in addition to damages. 75
Moreover, the Court asserted that decisions on constitutional questions
may in some cases “have scant value,” for example, when the issue
is pending in a higher court, or hinges on the interpretation of an
ambiguous state statute. 76 The Court recognized the protocol often
contributes to the goal of efficiently weeding out unsubstantial claims
when a complaint can be targeted as not making out a constitutional
violation but held the lower courts are better able to determine those
cases in which this benefit is available. 77
The obvious reply, of course, is that courts had come up with ready
solutions to these “problems.” For example, a federal court faced with a
question of state law could certify the state law issue to the state’s
70. Pearson, 129 S. Ct. at 818-19.
71. Id. at 818.
72. Id.
73. Id. at 816.
74. Id. at 818.
75. Id. at 822.
76. Id. at 819.
77. Id. at 821.

2010] PROCEDURAL JUDICIAL ACTIVISM 915
highest court, retain jurisdiction, and decide the immunity issue accordingly.
78 Indeed, Pearson’s citation for the proposition that constitutional
rights may be elaborated through other avenues was Lewis. But
Lewis itself had reasoned that “these avenues would not necessarily be
open, and therefore the better approach is to determine the right before
determining whether it was previously established with clarity.” 79 It is
curious that the argument in favor of the “better approach” is used, a
decade letter, to justify abandoning that same approach.
And so this is the legacy of Pearson: throughout the 1990s, even after
Siegert, courts were not adhering to the strongly suggested twostep
analysis. The Ninth Circuit had even developed its own two-step
procedure that bypassed Siegert’s first step entirely. 80 From 1999 to
2001, from Wilson to Saucier, the Court tightened the screws and
made the two-step mandatory. And then, about a decade later, just as
the lower courts finally came into line, the Court abandoned its efforts.
B. Ashcroft v. Iqbal
Before discussing Iqbal, some background is in order. In 2007, the
United States Supreme Court decided Bell Atlantic Corp. v. Twombly,
81 a telecommunications antitrust case. The plaintiffs alleged, inter
alia, that the defendants had engaged in an illegal, anticompetitive
conspiracy; the defendants countered by arguing that their actions,
while parallel, were independent. Although the complaint contained
detailed allegations regarding the actions taken by each company,
the allegations regarding the existence of a conspiracy were
much thinner. 82
Justice Souter, writing for the Court, found the complaint lacking.
Pleading the existence of the conspiracy merely upon information
and belief, or in conclusory terms, was held insufficient. For example,
he noted, parallel conduct was also consistent with the companies
acting in their own profit-maximizing self interest in the marketplace.
Although the competitors’ conduct was “consistent” with a conspiracy,
it was not “plausible” that a conspiracy had taken place; 83
the plaintiffs “mentioned no specific time, place, or person involved in
78. The Sixth Circuit followed a similar procedure in Waeschle v. Dragovic, 576 F.3d
539 (6th Cir. 2009). The court concluded that any right was not clearly established and (because
it was post-Pearson) held that the defendants were entitled to immunity. Id. at 550.
However, in order to determine the claims against the municipal defendant, it certified the
question of whether a property interest existed to the Michigan Supreme Court. Id. at 551.
79. County of Sacramento v. Lewis, 523 U.S. 833, 841 n.5 (1998) (emphasis added).
80. See Saucier v. Katz, 533 U.S. 194, 199-201 (2001).
81. 550 U.S. 544 (2007).
82. See generally id. at 550-52.
83. See id. at 564-65.

916 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
the alleged conspiracies.” 84 Therefore, they “ha[d] not nudged their
claims across the line from conceivable to plausible.” 85
Twombly sent shock waves through the civil procedure field. Although
it was an antitrust case, it was not clear its holding was so
limited: the Supreme Court was interpreting Federal Rule of Civil
Procedure 8(a)(2), 86 and the Rules apply equally to all civil actions. 87
The destabilizing effect of Twombly was due in part to the fact that
the current pleading regime had been in place for at least fifty years
(since 1957, when the Supreme Court decided Conley v. Gibson 88 ) and
probably more like seventy (since 1938, when the Rules were
adopted). In Conley, the Court instructed that a complaint was not to
be dismissed unless there was “no set of facts” that would entitle the
plaintiff to relief. 89 And since 1938, Rule 8(a)(2) required only “a short
and plain statement of the claim” showing an entitlement to relief, 90
Twombly, for the first time, invited a federal judge to decide how likely
it was that the allegations in the complaint were true. Only if they
were “plausible” was the case to go forward.
Justice Stevens dissented in Twombly. In so doing, he noted,
“[w]hether the Court’s actions will benefit only defendants in antitrust
treble-damages cases, or whether its test for the sufficiency of a
complaint will inure to the benefit of all civil defendants, is a question
that the future will answer.” 91
Iqbal provided that answer. Javaid Iqbal was a Pakistani Muslim
who was detained by the federal government after the September 11,
2001, terrorist attacks. Iqbal claimed he was subjected to harsh interrogation
and abuse because of his race. Iqbal therefore sued the
“street-level” officials who were responsible for his alleged abuse. But
he did not stop there. Iqbal also claimed that John D. Ashcroft, the
United States Attorney General on September 11, 2001, and Robert
Mueller, the Director of the Federal Bureau of Investigation at the
time, directed and implemented a conspiracy to deprive him of his
rights because of his race. 92 Serious allegations, maybe even true al-
84. Id. at 565 n.10.
85. Id. at 570.
86. See Twombly, 550 U.S. at 554-55.
87. FED.R.CIV. P. 1. The Supreme Court has consistently rejected the notion of heightened
pleading standards in particular contexts. See, e.g., Swierkiewicz v. Sorema, 534 U.S.
506, 512-513 (2002); Leatherman v. Tarrant County Narcotics Intelligence and Coordination
Unit, 507 U.S. 163, 168 (1993).
88. 355 U.S. 41 (1957).
89. 355 U.S. at 45-46.
90. FED.R.CIV. P. 8(a)(2).
91. Twombly, 550 U.S. at 596 (Stevens, J., dissenting).
92. Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).

2010] PROCEDURAL JUDICIAL ACTIVISM 917
legations, but—in the view of the Supreme Court’s 5-4 majority—not
plausible allegations. 93
The Supreme Court followed a two-step process in dismissing Iqbal’s
claims against Ashcroft and Mueller. First, it disregarded the
allegations that were deemed “conclusory.” 94 Then, it determined that
the remaining (nonconclusory) allegations, standing alone, were insufficient
to form an entitlement to relief:
On the facts respondent alleges the arrests Mueller oversaw were
likely lawful and justified by his nondiscriminatory intent to detain
aliens who were illegally present in the United States and
who had potential connections to those who committed terrorist
acts. As between that “obvious alternative explanation” for the arrests,
and the purposeful, invidious discrimination respondent
asks us to infer, discrimination is not a plausible conclusion. 95
Thus, Iqbal’s claim—and all others—were to be judged by the new
standard, which the Court explained as follows:
[A] court considering a motion to dismiss can choose to begin by [1]
identifying pleadings that, because they are no more than conclusions,
are not entitled to the assumption of truth. While legal conclusions
can provide the framework of a complaint, they must be supported by
factual allegations. [2] When there are well-pleaded factual allegations,
a court should assume their veracity and then determine
whether they plausibly give rise to an entitlement to relief. 96
This is the two-step framework by which courts are to judge complaints
at the motion to dismiss; first, disregard all conclusory allegations;
second, determine whether the remaining allegations make out
a “plausible” entitlement to relief.
That, at least, is how most people have taken Iqbal. 97 It is also the
conception I work with in this Article. But before going forward, I want
to pause to highlight two aspects of the Supreme Court’s formulation
that render it problematic even on its own terms (i.e., apart from the
problems I highlight in this Article as regarding civil rights plaintiffs).
First, Iqbal does not say that lower courts must use this formulation.
Rather, it says that a court “can choose to” apply the two-step approach.
98 Although courts seem to have taken Iqbal to be mandatory, ra-
93. Id. at 1952.
94. Id. at 1951.
95. Id. at 1951-52 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 567 (2007)
(emphasis added and citation omitted).
96. Id. at 1950.
97. See, e.g., Adam N. Steinman, The Pleading Problem, 62 STAN. L REV. 1293,
1316 (2010).
98. Iqbal, 129 S. Ct. at 1950 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
567 (2007) (emphasis added)).

918 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
ther than discretionary, 99 this somewhat curious phrase is worth noting.
Iqbal, unlike Pearson, does not explicitly give courts the choice between
different frameworks for analyzing the legal question.
Second, Iqbal says that conclusory allegations are not entitled to
the presumption of truth. But in so doing, the Court conflates two
types of “conclusions.” The relevant passage in Iqbal reads,
[t]hreadbare recitals of the elements of a cause of action, supported
by mere conclusory statements, do not suffice. (Although for the
purposes of a motion to dismiss we must take all of the factual allegations
in the complaint as true, we “are not bound to accept as
true a legal conclusion couched as a factual allegation . . . .”). 100
But this paragraph is sloppy. It equates “conclusory statements” with
“legal conclusion[s],” even though these terms are used to mean two
different things.
Take this example: “X was negligent” is an allegation not entitled
to the presumption of truth because the allegation is pleading nothing
more than a legal conclusion (negligence). However, the allegation,
“X was walking down Fifth Avenue” is an allegation that is entitled
to the presumption of truth—even though it is “conclusory.” 101
The allegation provides no facts that would establish that X actually
was walking down the street. It “mention[s] no specific time, place, or
person involved in the alleged” walking down the street. 102 Yet this
statement is entitled to the presumption of truth. The distinction is
not that one is “conclusory” while the other is not. The distinction is
that one is a legal conclusion while the other is a factual conclusion.
Iqbal conflates the two, and in so doing, opens a can of worms. Justice
Souter suggested in his Iqbal dissent that the only factual conclusions
disentitled to the presumption of truth are those “that are
sufficiently fantastic to defy reality as we know it: claims about little
green men, or the plaintiff’s recent trip to Pluto, or experiences in
time travel.” 103 But the majority did not limit the plausibility standard
in this way. Instead, a court is to rely on its “judicial experience
99. See, e.g., Torn Ranch, Inc. v. Sunrise Commodities, Inc., No. C 09-02674, 2009 WL
2834787, at *2 (N.D. Cal. Sept. 3, 2009) (“A court must ‘begin by identifying pleadings that,
because they are no more than conclusions, are not entitled to the assumption of truth.’ ”)
(quoting Iqbal) (emphasis added); Mohammad v. N.Y. State Higher Educ. Servs. Corp., No.
08-CV-4943, 2009 WL 1514635, at *4 (E.D.N.Y. June 1, 2009) (“I must begin by ‘identifying
pleadings that, because they are no more than conclusions, are not entitled to the assumption
of truth.’ ”) (quoting Iqbal) (emphasis added).
100. Iqbal, 129 S. Ct. at 1949-50 (emphasis added and citation omitted).
101. Black’s Law Dictionary defines “conclusory” as “[e]xpressing a factual inference
without stating the underlying facts on which the inference is based.” BLACK’S LAW
DICTIONARY 308 (8th ed. 2004).
102. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 565 n.10 (2007).
103. Iqbal, 129 S. Ct. at 1959 (Souter, J., dissenting).

2010] PROCEDURAL JUDICIAL ACTIVISM 919
and common sense” in determining whether a claim is plausible, after
disregarding “conclusory” allegations. 104
To be sure, Iqbal attempts to frame the discussion as one of legal,
not factual, conclusions. 105 But the Court went on to disregard various
allegations because they were factually conclusory, writing, “[i]t
is the conclusory nature of respondent’s allegations, rather than their
extravagantly fanciful nature, that disentitles them to the presumption
of truth.” 106 Of course, a legal conclusion, standing alone, is neither
fanciful nor plausible; it simply is. What would make a claim
fanciful are the facts supporting that legal conclusion. “The doctor
negligently harmed me by operating on me while drunk” is not fanciful;
“the doctor negligently harmed me by operating on me after his
brain had been removed from his skull by aliens who were using him
in an inter-galactic biological study” is fanciful. The difference has
nothing to do with the legal conclusion (negligence in both cases) and
turns entirely on the facts. By directing courts to disregard “conclusory”
factual allegations (as opposed to legal statements), the Court
does grave violence to the long-standing proposition that a plaintiff’s
factual allegations are entitled to be taken as true.
The passage also conflates what are ostensibly the two prongs of
the Iqbal analysis. Recall that a court is first to disregard conclusory
allegations, and second, determine whether the remaining allegations
entitle the pleader to relief. Yet the decision as to whether an
allegation is conclusory cannot be made in a vacuum. It is necessarily
affected by the cause of action pled, the type of relief sought, and the
court’s ability (or lack thereof) to award such relief, among other
things. An allegation along the lines of “X singled me out because of
my race” apparently does not pass muster under Iqbal. 107 This seems
to be because the allegation embodies a “legal conclusion,” “because
of my race.” But Iqbal also disregarded allegations that Ashcroft was
the “principal architect” of an illegal policy. 108 This statement embodies
no legal conclusion and is simply a fact that either is or is not
true. Once again, the Court blurs the line between legal allegations
and factual allegations, improperly disregarding the latter.
Finally, the discussion indicates how the Court is elevating form
over substance. Though “X singled me out because of my race” does
not pass muster, “X singled me out; I am an Arab Muslim; non-Arab,
non-Muslims were not singled out” probably would. This is so, ostensibly,
because the allegations do not contain a legal conclusion (“because
of my race”), even though the new allegations could be based on
104. Id. at 1950 (Opinion of the Court).
105. See id.
106. Id. at 1951 (emphasis added).
107. Cf. id. at 1950-51.
108. Id. at 1951.

920 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
identical facts and, as a substantive matter, add nothing. A court can
only conclude that the first formulation is “conclusory” by (1) making
reference to something beyond the allegations themselves, suggesting
that the factual allegation/legal conclusion dichotomy further breaks
down, or (2) elevating form over substance. Both are bad options.
In just a few short months, Iqbal has spawned a substantial corpus
of commentary. Commentators have argued the Court made important
policy judgments in Twombly and Iqbal that it should not
have made 109 or that Iqbal is part of the desirable evolution of federal
pleading standards. 110 Though the standard view appears to be that
Iqbal raised the bar on plaintiffs, 111 others have argued that Iqbal
can be fully reconciled with pre-Towmbly precedent. 112 There are also
questions as to whether the sample forms contained in the Federal
Rules are valid anymore, since the statements in those forms might
be deemed “conclusory.” 113 My intention is not to explain or even fully
engage these critiques, which I note merely for the sake of completeness.
Instead, I provide a doctrinally and conceptually distinct criticism
of Iqbal: that the interaction between Iqbal and Pearson works
to the detriment of civil rights plaintiffs. This is the project of the
next part.
III. HOW THE CASES HURT CIVIL RIGHTS PLAINTIFFS
Having described the two cases that are the focus of this Article, I
now describe the ways in which they harm civil rights plaintiffs. 114 First,
there is the obvious way: Pearson makes it easier to grant government
109. Clermont & Yeazell, supra note 20, at 831-32.
110. Douglas G. Smith, The Evolution of a New Pleading Standard: Ashcroft v. Iqbal, at
http://ssrn.com/papers=1463844, at 4-5 (Iqbal “presents a welcome evolution of pleading
standards that is likely to have beneficial effects in terms of the efficiency of civil litigation”).
111. See, e.g., Courie v. Alcoa Wheel & Forged Prods., 577 F.3d 625, 629 (6th Cir. 2009)
(noting Iqbal “raised the bar for pleading requirements”); Smith, supra note 110, at 2 (“Iqbal
thus represents a further raising of the bar plaintiffs must meet before they are allowed
to proceed with discovery”); Robert L. Rothman, Twombly and Iqbal: A License to
Dismiss, 35 No. 3 LITIG. 1, 2 (2009) (“Iqbal drastically changed the landscape for Rule
12(b)(6) motions”).
112. See Steinman, supra note 97, at 1299-1300 (arguing that defining conclusory in
“transactional terms” could reconcile Iqbal with pre-Twombly precedent).
113. Federal Civil Form 11, for example, which ostensibly would be sufficient in a negligence
action, reads simply, “On [date], at [place], the defendant negligently drove a motor
vehicle against the plaintiff. As a result, the plaintiff was physically injured, lost wages or
income, suffered physical and mental pain, and incurred medical expenses of $[amount].”
Allen Ides has suggested that Form 11 may not pass muster under the new standard. See
Allan Ides, Bell Atlantic and the Principle of Substantive Sufficiency Under Federal Rule of
Civil Procedure 8(a)(2): Toward a Structured Approach to Federal Pleading Practice, 243
F.R.D. 604, 633 (2008).
114. Iqbal, of course, is not limited to civil rights cases. However, it arose in that context
and will probably have its greatest effect in that field. Even those who argue that Iqbal
is of limited effect, see Clermont & Yeazell, supra note 20, acknowledge that it must, at
a minimum, apply to these cases.

2010] PROCEDURAL JUDICIAL ACTIVISM 921
officials immunity and, by permitting courts to skip “step one,” inhibits
development of constitutional law. Iqbal, by raising the bar for pleading,
makes it harder for plaintiffs to survive a motion to dismiss.
But my focus in this Article is not only the shortcomings of the
cases on their own terms but also on the deleterious effects of the interaction
of the two cases. The cases interact in three ways that are
harmful to civil rights plaintiffs.
First, there is this dilemma: a plaintiff who describes the constitutional
right in question in great detail runs the risk of losing on
Saucier step two, when a court holds that his right is not clearly established.
If the plaintiff tries to avoid this possibility by pleading at
a level of generality, he or she risks losing on Iqbal—either because
the allegations are deemed “conclusory” or because they are taken to
be “implausible.”
Second, the Court gives short shrift to the fact that the first step
of qualified immunity—whether there are allegations or facts that
could make out a constitutional violation—is the same as the test for
whether a plaintiff has stated a cognizable claim. In other words, Iqbal
not only raises the bar for pleading but also raises the bar for
Saucier step one.
Third, the cases take divergent tracks with regard to lower courts’
discretion. They expand discretion in some regards (in determining
which step of qualified immunity to address first (Pearson) and in determining
which allegations are “conclusory” or “implausible” (Iqbal)).
However, discretion is also cut back: the Court in Iqbal explicitly
rejected the notion of using litigation management to shield government
officials, directing courts instead to dismiss cases outright.
The combined effect is that discretion is expanded in some regards,
limited in others, but always in a way that makes it easier to dismiss
civil rights lawsuits.
A. The Obvious
As others have noted, there are some fairly obvious ways in which
Pearson and Iqbal hurt civil rights plaintiffs. First, Pearson, as described
above, permits courts to skip to the second step of the qualified
immunity inquiry and award the officer immunity because the
constitutional right in question was not “clearly established.” But if
courts do this regularly, then there is a very real risk that constitutional
rights will never get clearly established. Second, Iqbal is problematic
because it makes it easier for courts to dismiss civil rights
lawsuits. I discuss each of these in turn. 115
115. There are critiques of Saucier, and arguments against sequencing, that sound in
constitutional law. See, e.g., Thomas Healy, The Rise of Unnecessary Constitutional Rul-

922 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
This problem has been identified for some time in the academic literature.
As far back as 1991, Fallon and Meltzer explained that after
the early qualified immunity cases, courts would “deny relief
without deciding whether a constitutional violation in fact occurred.”
116 They criticized this process, arguing that it “restrict[s] the
opportunity for judges to address novel claims . . . [and] thus tend[s]
to freeze the development of constitutional law.” 117 Just before Saucier,
Greabe wrote the defense of qualified immunity, when “it encourages
merits bypasses, is . . . a substantial impediment to the development
of new constitutional law in civil rights damages actions.” 118
Shortly after Saucier, Kamin wrote, “if the question of the entitlement
to qualified immunity is addressed before the substance of a
plaintiff's claim, [then] the contours of the law will never become
well-defined, and the entitlement of defendants to qualified immunity
will continue in perpetuity.” 119
These risks—mitigated during the Siegert era and reduced to near
zero in the Wilson-Saucier era—are back to the fore now. And these
problems are not merely theoretical. As a recent article demonstrates,
there is empirical support for the proposition that Wilson-
Saucier sequencing furthers the development of the constitutional
law. 120 Hughes argues compellingly that courts have been more will-
ings, 83 N.C. L. REV. 847, 930 (2005). I do not focus on these criticisms here for two reasons.
First, there are compelling responses to these criticisms. See, e.g., Sam Kamin, An Article
III Defense of Merits-First Decisionmaking in Civil Rights Litigation: The Continued
Viability of Saucier v. Katz, 16 GEO. MASON L. REV. 53 (2009) (disposing of the argument
that merits-first adjudication violates the Article III ban on advisory opinions). Second, so
long as the Supreme Court gave its approval to merits-first decisions, the constitutional
problems were, at least as a practical matter, moot. Cf. Brown v. Allen, 344 U.S. 443, 540
(1953) (Jackson, J., concurring in the result) (“We are not final because we are infallible,
but we are infallible only because we are final.”). In my view, so long as the constitutional
questions were bracketed (because the Supreme Court said so), the only relevant issue was
whether merits-first ordering was worthwhile. The Supreme Court’s stated justification for
this ordering, from Seigert to Wilson to Saucier, was the need for elaboration of the constitutional
law. Therefore, I proceed from the premise that (1) the Court saw constitutional
elaboration as a worthwhile goal, and (2) this is the value most likely to be lost when mandatory
ordering is abandoned.
116. Richard H. Fallon, Jr. & Daniel J. Meltzer, New Law, Non-Retroactivity, and Constitutional
Remedies, 104 HARV.L.REV. 1731, 1735 (1991).
117. Id. at 1735, 1797-98 (1991). Fallon and Meltzer were discussing Harlow as juxtaposed
against Teague v. Lane, 489 U.S. 288 (1989), a case involving post-conviction habeas
corpus review. They point out that, per Teague, a habeas petition that relied on new law—
i.e., law that was not “clearly established”—is to be dismissed without any discussion of the
constitutional merits. At least for some time, the civil rights and habeas contexts diverged,
as lower courts were instructed, from Siegert through Pearson, to address the constitutional
merits first, even in a claim that would fail under step two, on a claim that would get
summarily dismissed under Teague.
118. John M.M. Greabe, Mirabile Dictum!: The Case for “Unnecessary” Constitutional
Rulings in Civil Rights Damages Actions, 74 NOTRE DAME L. REV. 403, 411 (1999).
119. Sam Kamin, Harmless Error and the Rights/Remedies Split, 88 VA. L.REV. 1,
50 (2002).
120. Hughes, supra note 51, at 422-23.

2010] PROCEDURAL JUDICIAL ACTIVISM 923
ing to elaborate on the nature of constitutional rights in the post-
Siegert, and especially the post-Saucier, eras much more so than they
were doing in the post-Harlow, pre-Siegert era. 121 Before Siegert,
courts reached the constitutional merits in only about two-thirds of
all cases. 122 After Saucier, that figure was up to almost ninety-nine
percent. 123 It is true that the rate at which courts rejected claims of
constitutional violations almost doubled from the 1980s to the post-
Saucier era. 124 However, the rate at which courts did recognize such
violations also grew. 125 This is undoubtedly a net positive for civil
rights litigants. Moreover, as Hughes points out, 126 even negative articulation
can have value because it furthers predictability and may
even spur Congress to act. 127 But I would go one step further. Suppose
the right X has been clearly established and a litigant is now
pressing a claim based on X1, a related but novel theory. It would be
ideal for the plaintiff if the court finds a constitutional violation. But
even if the court finds no violation, the ruling is beneficial to civil
rights litigants. The next time a similar case comes up, lawyers are
on notice that a claim of X1 will fail. Therefore, they will shift their
energies to now arguing X2. Or, they will explain how this case differs
from the previous one. But in the absence of mandatory sequencing,
subsequent cases would keep relitigating X1, leading to a Groundhog
Day-esque repetition.
It is already clear is that courts are regularly dismissing cases on
the ground that the right in question is not clearly established and not
discussing the constitutional merits. 128 And it is clear the contours of
these rights would be defined with clarity in a pre-Pearson world. The
effects of this avoidance may be felt beyond the realm of civil rights litigation.
If the court decides to pass on a constitutional question regard-
121. Id.
122. Id.
123. Id. at 424. Another empirical study contends that the constitutional law has only
developed in a negative direction after Saucier, i.e., has almost always refused to recognize
new rights. See Nancy Leong, The Saucier Qualified Immunity Experiment: An Empirical
Analysis, 36 PEPP. L.REV. 667, 670 (2009). However, Hughes provides a compelling response
to this position in his article. Hughes, supra note 51, at 428-29 n.122.
124. Hughes, supra note 51, at 422-23.
125. Id.
126. Id. at 428 n.122.
127. See id.
128. See, e.g., Cole v. Buchanan County Sch. Bd., No. 08-1105, 2009 WL 1336720, at *2
(4th Cir. May 14, 2009) (skipping to step two and declining to decide whether a member of
the press has the right not to be excluded from school property that is otherwise open to
the public); Dean v. Blumenthal, 577 F.3d 60, 66 (2d Cir. 2009) (declining to decide whether
a candidate for office has a First Amendment right to receive campaign contributions);
Rodis v. City & County of San Francisco, 558 F.3d 964, 970 (9th Cir. 2009) (declining to decide
whether passing a counterfeit note, without more, provides probable cause for arrest);
Starling v. Bd. of County Comm’rs, No. 08-80008-CIV, 2009 WL 281051, at *8 (S.D. Fla.
Feb. 2, 2009) (declining to decide if there is a protected liberty interest in an adulterous
sexual relationship).

924 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
ing criminal law, criminal defendants and prosecutors are denied the
benefits of constitutional articulation. And if the court, in skipping the
merits inquiry, disposes of the case by way of an unpublished decision,
the case has no precedential effect whatsoever.
So this is the obvious way Pearson harms civil rights plaintiffs: by
permitting courts to skip step one, it makes it more likely that they
will elect not to address the merits of constitutional claims. This has
the potential to stagnate the constitutional law. And if the recent
empirical work is any indication, it will reverse the trend of constitutional
elaboration that has been under way for two decades. 129
There is also a straightforward way in which Iqbal hurts civil rights
plaintiffs. Simply put, Iqbal raises the bar on civil rights plaintiffs and,
indeed, all plaintiffs. Regardless of how the Court may have characterized
its decision, the fact remains that lower courts nationwide are
applying a stricter standard post-Iqbal than they were before it. 130
The academic commentary has recognized these and related problems
with Iqbal. Kilaru notes in his article 131 that Iqbal calls into
question the Supreme Court’s decisions in Crawford-El v. Britton 132
(a point I describe below) as well as Pullman-Standard v. Swint. 133
Klein argues that Iqbal may be unconstitutional as the “heightened”
pleading standard it imposes runs afoul of the Seventh Amendment’s
jury trial guarantee. 134 I do not focus on these problems here because
I am interested in the more subtle—but no less harsh—ways that the
interaction between the two cases is problematic for civil rights plaintiffs.
I turn to these issues next.
129. See, e.g., Hughes, supra note 51.
130. See, e.g., al-Kidd v. Ashcroft, 580 F.3d 949, 977 (9th Cir. 2009) (“Post-Twombly,
plaintiffs face a higher burden of pleading facts, and courts face greater uncertainty in evaluating
complaints.”); Coles v. Eagle, No. 09-00167 DAE-BMK, 2009 WL 2700210, at *4 (D.
Haw. Aug. 27, 2009) (“A careful review of [the complaint] reveals that, under the stricter
pleading standard recently set forth by the Supreme Court in Ashcroft v. Iqbal . . . Coles
fails to state a claim against the [defendants.]”) (emphasis added); Ibrahim v. Dep’t of Homeland
Sec., No. C 06-00545 WHA, 2009 WL 2246194, at *1 (N.D. Cal. July 27, 2009) (“As
to [plaintiff’s] damage claims for past violations, a different problem arises, namely the
stricter pleading standard in Ashcroft v. Iqbal . . . .”) (second emphasis added); In re Bishop,
No. 08-11156-MWV, 2009 WL 2231197, at *2 n.4 (Bankr. D.N.H. July 24, 2009) (noting
“the higher pleading requirements established in the Ashcroft decision”); In re Caremerica,
409 B.R.737, 754 (Bankr. E.D.N.C. 2009) (“[T]he court admits that claims for relief
are more difficult to plead sufficiently following Twombly and Iqbal.”).
131. See Rakesh N. Kilaru, The New Rule 12(b)(6): Twombly, Iqbal, and the Paradox of
Pleading, 62 STAN. L.REV. (forthcoming 2010) available at http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=1434254, at 104.
132. 523 U.S. 574 (1998).
133. 456 U.S. 273 (1982).
134. Kenneth S. Klein, Ashcroft v. Iqbal Crashes Rule 8 Pleading Standards on to Unconstitutional
Shores, 88 NEB.L.REV. 261 (2009).

2010] PROCEDURAL JUDICIAL ACTIVISM 925
B. The Less Obvious
There are at least two (and probably three) other, more indirect,
ways in which these cases harm civil rights plaintiffs.
1. The Horns of a Dilemma
First, the Pearson-Iqbal interaction threatens to catch a civil
rights plaintiff on the horns of a dilemma. Put crudely, the problem is
this: a plaintiff who says enough to satisfy Iqbal will find that he has
said too much and loses because his purported right is not clearly established,
per Pearson. If he says less to survive the qualified immunity
analysis, he will find that he has not said enough to survive dismissal
because of Iqbal.
Consider this hypothetical: an aggrieved civil rights plaintiff
(Pete) 135 will file a complaint that alleges the violation of some constitutional
right—say, the right to be free from excessive force. Suppose,
though, that the incident involved some relatively unusual circumstances:
a stop-and-frisk, in a car, parked in the garage of the individual’s
home. The plaintiff might argue that his constitutional rights
were violated, namely, his right to be free from excessive force during
a stop-and-frisk that occurs in or adjacent to one’s home.
Now, however, the Supreme Court has decided Pearson. The right
to be free from excessive force during a stop-and-frisk in one’s car adjacent
to one’s house is a rather narrow definition of the right in
question. Suppose that Pete lives in a circuit that has not decided
whether such a right exists. Pete is concerned, having read Pearson,
that the district court will simply conclude that the right is not clearly
established and he will be left high-and-dry.
But Pete is a bright fellow, as hypothetical individuals tend to be.
So Pete decides he will simply claim a violation of his right to be free
from excessive force at the hands of a police officer. This right is
clearly established, and he does not run into the Pearson problem.
Alas, it is not to be for our friend Pete. “Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements,
do not suffice[!]” 136 By reframing his cause of action in more
general terms, he has avoided the Scylla of Pearson only to get
caught on the Charybdis of Iqbal: his more general pleading will be
seen as conclusory. And if it is not, a court exercising its “common
sense” (as Iqbal instructs) could well conclude that the claim was not
“plausible”—if Pete really had a claim, why would he frame it so
135. The plaintiff’s name in a hypothetical always begins with “P.” For the uninitiated,
that’s how these things work.
136. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).

926 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
broadly instead of focusing on the specific facts and cause of action
that he is pressing?
And so this is the dilemma: say too much, and you lose because of
Pearson; say too little, and you lose because of Iqbal.
The problem can be more vividly illustrated by the facts of a case
recently decided by the federal district court in Connecticut. In DiStiso
v. Wolcott, Robin DiStiso sued various school officials on behalf of
Nicholas, her minor son. 137 Robin alleged, inter alia, that the other
students at school harassed, taunted, and assaulted Nicholas because
of his race. 138 She further alleged that she complained to Nicholas’s
first-grade teacher, Tammy Couture, and the principal, John Cook,
and they did nothing to respond to the complaints. 139 Robin and her
husband testified to this effect at their depositions. 140 For their part,
Couture and Cook stated in affidavits that they never observed such
conduct and never received such complaints from the parents. 141
It is clear that these allegations do not make out a claim of intentional
discrimination against Nicholas. It is not as if, for example,
Couture gave Nicholas a failing grade because of her racial animus
toward him. Instead, Robin proceeded on a theory of deliberate indifference.
The Second Circuit had at least partially explained how such
suits should proceed some years earlier, writing that “deliberate indifference
can be found when the defendant’s response to known discrimination
‘is clearly unreasonable in light of the known circumstances.’
” 142 Robin therefore had to demonstrate that there was evidence
from which a rational fact-finder could conclude that (1) the
students were harassing Nicholas on the basis of his race; (2) Couture
and Cook were aware of this harassment; and (3) their response,
or lack thereof, was “clearly unreasonable.” 143
What this leaves out is any consideration of the effect of the deliberate
indifference on Nicholas himself. The courts had, however,
spoken to the question in the context of deliberate indifference to
student-on-student sexual harassment. The Supreme Court held in
Davis v. Monroe County 144 that, in the context of Title IX, a school
could be liable if it is deliberately indifferent to student-on-student
sexual harassment. But Davis also held that, in order to prevail, the
137. 539 F. Supp. 2d 562, 563 (D. Conn. 2008), vacated and remanded, 352 F. App’x
478 (2d Cir. 2009). The Second Circuit remanded because the District Court’s treatment of
qualified immunity was “cursory,” although this does not really affect my analysis here.
138. Id. at 564.
139. Id. at 566.
140. Id. at 568.
141. See id. There were other claims in the complaint, but in my analysis here I only
focus on the deliberate indifference discrimination claim.
142. Gant v. Wallingford Bd. of Educ., 195 F.3d 134, 141 (2d Cir. 1999).
143. DiStiso, 539 F. Supp. 2d at 567.
144. 526 U.S. 629, 633 (1999).

2010] PROCEDURAL JUDICIAL ACTIVISM 927
harassment must have been “so severe, pervasive, and objectively offensive
that it can be said to deprive the victims of access to the educational
opportunities or benefits provided by the school.” 145 Gant, the
Second Circuit case regarding student-on-student racial harassment,
had declined to decide whether such a racially-hostile educational
environment was necessary in a deliberate indifference race discrimination
claim brought under the Equal Protection Clause. 146
If this case had come about after Pearson-Iqbal, Robin and Nicholas
would find themselves caught on precisely the dilemma I described
above. 147 If they pled a very specific constitutional right—the
right to be free from race discrimination, premised on a theory of deliberate
indifference—they might find their claim dismissed by Pearson;
a court could conclude that the right in question is not “clearly
established” because no relevant court had decided whether a hostile
educational environment was a required part of such a claim. If Robin
and Nicholas pled their claim at a level of generality—say, simply
the right to be free from racial discrimination—they would almost
certainly lose because of Iqbal. Any allegations regarding intentional,
active discrimination by Cook or Couture would be conclusory because
the real nub of the claim against them (on this count) was not
that they did discriminatory things to Nicholas; it was that they willfully
ignored others’ discriminatory treatment. In such a context, any
allegation Cook or Couture actively engaged in discriminatory conduct
would be seen as “conclusory,” as the allegations discarded by
the Supreme Court in Iqbal.
And so, in a Pearson-Iqbal world, Robin and Nicholas would be
stuck. They could plead the violation of a specific constitutional
right—indeed, the one that is most directly applicable to the fact pattern—and
risk getting tossed by Pearson. Or they could plead the violation
of a more general constitutional right and risk getting thrown
out by Iqbal.
There are several important implications here. The first, of course,
is the interaction between Pearson and Iqbal makes life very difficult
for civil rights litigants and their lawyers. The second is the interaction
between the two cases makes a stand-alone problem even worse.
Recall that Pearson, by its own terms, would be undesirable because
it risks stagnation of constitutional law. This dissuades litigants from
pressing novel constitutional theories. However, when operating in
tandem, the cases make it difficult even to plead existing constitutional
theories. The Second Circuit had already held school officials
145. Id. at 650.
146. See Gant, 195 F.3d at 140 n.5 (declining to answer the question and noting some of
the aspects of Davis may have turned on the fact it was a Title IX case).
147. The difference, of course, would be that the real-life plaintiffs’ names do not necessarily
start with “P.”

928 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
could be liable by virtue of their deliberate indifference. 148 Robin and
Nicholas would get tripped up by Pearson-Iqbal even if they pled a
theory of race discrimination that had been recognized since 1999.
Of course, there is no guarantee this case would get tripped up by
the interaction effect. But rather than mitigate the problem, this possibility
actually underscores it. Pearson gives courts the discretion to
decide which step of the qualified immunity analysis to address first,
and Iqbal tells courts to make “common sense” decisions. But this rather
wide-ranging discretion makes it nearly impossible to predict
how a court will respond to a particular fact pattern. 149
In its decision in Iqbal, the Second Circuit recognized a version of
the problem I describe. 150 The court noted Rule 8 establishes a rather
liberal pleading standard. However, this standard, “when applied
mechanically without countervailing discovery safeguards, threatens
to create a dilemma between adhering to the Federal Rules and abiding
by the principle that qualified immunity is an immunity from suit
as well as from liability.” 151 The Supreme Court avoided this dilemma
by raising the pleading bar in Iqbal and permitting courts to more
easily dismiss claims on the basis of immunity in Pearson. But the
pendulum has swung too far; in trying to shield government officials
from liability, the Court has thrust civil rights litigants into an untenable,
damned-if-you-do-damned-if-you-don’t position.
After making this rather sweeping point I will qualify it in two respects.
First, it must be acknowledged that Iqbal and Pearson do not
necessarily interact in every single case. Iqbal’s standards apply to
the allegations a plaintiff must make regarding the actions that the
defendant(s) took toward him. Pearson applies to the showing a
plaintiff must make regarding the constitutional right that was violated.
Although these will often overlap—as in the examples
above—they need not overlap in every case. For example, we could
modify the facts of Nicholas’s case slightly. Imagine that Nicholas’s
teachers regularly made him sit in the corner of the classroom,
picked on him, and otherwise singled him out for derogatory treatment
on account of his race. The right to be free from intentional racial
discrimination by the defendants (as opposed to deliberate indifference
discrimination) has long been clearly established. Therefore,
the claim would proceed to trial.
Suppose, though, that Nicholas wants to also press a claim that the
discrimination he suffered was not just because Couture hated him but
148. Gant, 195 F.3d at 150.
149. I discuss the problem with the cases’ approach to lower court discussion in more
detail in Subsection III.B.2 infra.
150. Iqbal v. Hasty, 490 F.3d 143 (2d Cir. 2007).
151. Id. at 159.

2010] PROCEDURAL JUDICIAL ACTIVISM 929
also because Cook had directed a conspiracy to deprive black students
of an education. Nicholas would have to allege facts sufficient to establish
that Couture discriminated against him (a straight discrimination
claim), but he would also have to allege facts regarding the conspiracy
involving Cook (a § 1985 civil rights conspiracy claim). In this scenario,
fairly simple allegations would get Nicholas past a motion to dismiss
as against Couture. The Iqbal problem would come up—just as it did
in Iqbal—in the context of attempting to plead sufficient allegations to
make out a conspiracy claim. But this problem would be one of pleading
alone and would not implicate the constitutional right at issue, and
therefore would not implicate Pearson.
The real question (and one that is unknowable at this early stage)
is how many cases will involve the dilemma I identify and how many
will be relatively straightforward. What we can say is this: Iqbal will
be problematic in any case where the very detail a plaintiff has to
plead (per Iqbal) to make her claim takes her out of the clearly established
realm. Pre-Pearson, she could at least plead enough “Iqbal detail,”
so to speak, and be assured that she would get a ruling on the
constitutional right at issue (Saucier step 1). Now, she is not even assured
that much and will likely get kicked out on a motion to dismiss.
Moreover, as Nicholas’s example demonstrates, this can be problematic
even in non-cutting-edge cases. For example, in Saucier, the
issue was one of excessive force. But the Court was clear it was not
testing whether the general right to be free from excessive force during
an arrest was clearly established; the right has to be defined at a
greater level of particularity. So the § 1983 plaintiff’s attorney has to
decide: “how specifically am I going to define this right?” Even in the
variation on Nicholas’s case I gave above, one could imagine that
Cook had promulgated a policy that might be read as being “aggressive”
toward certain students (or some such), a policy that might
plausibly suggest a “discrimination conspiracy.” But if the right must
be defined at a greater level of particularity (per Anderson, etc.), then
we are back to the interaction problem: more specificity risks the
possibility the pleadings are no longer “Iqbal compliant” (though they
may have been when operating at a level of generality).
There is another issue. At the motion to dismiss stage, a court
must determine, as a threshold matter, whether the facts alleged by
the plaintiff, viewed most favorably to him, make out a constitutional
violation. However, as a group of law professors explained in their
amicus brief in Iqbal:
[W]hat is now described as the first step is, in fact, only a reflection
of the plaintiff’s standard obligation to show her entitlement to relief
under Rule 8(a)(2). As a matter of trans-substantive procedural law,
a failure to make such a showing in any case would trigger a Rule
12(b)(6) motion to dismiss for failure to state a claim. No different

930 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
rule applies to constitutional claims, for nothing in this Court’s qualified
immunity jurisprudence suggests that the first element should
be accorded any specialized treatment or scrutiny. 152
In other words, if the facts viewed most favorably to the plaintiff
did not make out a constitutional violation, not only would the defendant
be entitled to qualified immunity, the complaint (at least as to
that claim) would also be dismissed.
This demonstrates another interaction effect between Pearson and
Iqbal. Because Iqbal effectively raises pleading standards, thus requiring
more for a plaintiff to defeat a Rule 12(b)(6) motion to dismiss,
it correspondingly has the effect of raising the bar for plaintiffs
at the first step of qualified immunity. Again, Iqbal makes no mention
of this fact.
In sum, there are two ways the interaction between Pearson and
Iqbal is bad for civil rights plaintiffs. First, a plaintiff faces a potentially
untenable situation with regard to how narrowly to define the
constitutional right at issue. Pleading the claim narrowly might
render the claim so novel as not to be “clearly established,” and the
plaintiff would lose straight away because of Pearson and not even
get a ruling on the constitutional merits. But pleading the claim
broadly might require allegations at a level of generality and therefore
get discarded because they are “conclusory” or otherwise not
“plausible.” Second, by raising the pleading standard, Iqbal has effectively
raised the bar for “Saucier step one.” 153 Neither the subsequent
case law nor the academic commentary—let alone Pearson and Iqbal
themselves—recognizes this problem.
2. Discretion That Only Cuts One Way
The second way in which Pearson and Iqbal are problematic relates
to their treatment of the discretion a lower court has. The cases
simultaneously expand and contract the permissible bounds of a district
court’s discretion—but only do so in a way that makes it easier
to dismiss civil rights lawsuits.
Pearson gives district courts the discretion to skip directly to step
two of the qualified immunity analysis. “The judges of the district
courts and the courts of appeals should be permitted to exercise their
sound discretion in deciding which of the two prongs of the qualified
immunity analysis should be addressed first in light of the circums-
152. Brief of Professors of Civil Procedure and Federal Practice as Amici Curiae in
Support of Respondents at 29-30, Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) (No. 07-1015).
153. This will be most problematic for plaintiffs who have already prevailed on a motion
to dismiss (pre-Iqbal) but who now face a motion to dismiss on the basis of qualified immunity
(post-Iqbal). Such a plaintiff would have made the requisite showing under the old standard
but will now lose if those allegations are deemed insufficient under the new standard.

2010] PROCEDURAL JUDICIAL ACTIVISM 931
tances in the particular case at hand.” 154 To be sure, this does not
mean that courts will never use Saucier sequencing. The Supreme
Court has noted the sequence is “often beneficial,” 155 and courts have
heeded this advice and continued to adhere to the sequence in certain
cases. For example, in Kelsey v. County of Schoharie, 156 the Second
Circuit noted the sequential analysis “is said to be appropriate in”
certain types of cases, and “[t]his is such a case.” 157 The court explained
that:
[D]evelopment of constitutional precedent is especially important
here, where (1) this Court has not spoken on the issue of the constitutionality
of [the procedure sub judice] although the issue has
been presented in district courts in this circuit . . . ; and (2) the
constitutionality of [the procedure] may never be developed if this
Court were to dispose of all challenges relating to the procedures
simply because the procedure is not “clearly established.” 158
In so holding, the Second Circuit recognized (and avoided) the
problem I identified above, namely, that courts’ regularly moving to
“step two” would restrict the development of constitutional law. 159
However, far more courts—dozens, in just a few months after Pearson—have
skipped directly to the second step of the analysis. 160
As Hughes’s empirical study makes clear, when sequencing is
mandatory—or at least strongly suggested—courts will engage in it
more often. My early survey of post-Pearson cases indicates courts
are indeed engaging in sequencing less frequently.
Although this point is related to the one made earlier (that Pearson
harms civil rights plaintiffs because it limits the development of
constitutional law), it is distinct. My point in this section is not just
that it is easier to dismiss civil rights claims against personal-
154. Pearson v. Callahan, 129 S. Ct. 808, 818 (2009).
155. Id.
156. 567 F.3d 54 (2d Cir. 2009).
157. Id. at 61.
158. Id. at 61-62 (citations omitted).
159. See supra Part 0.
160. See, e.g., Swanson v. Town of Mountain View, 577 F.3d 1196, 1199, (10th Cir.
2009) (“The officers contend that even assuming a constitutional violation . . . it was not
clearly established . . . . We agree.”); Waeschle v. Dragovic, 576 F.3d 539, 544 (6th Cir.
2009) (resolving the constitutional merits “is unnecessary because . . . [the] purported constitutional
right is not clearly established”); Dean v. Blumenthal, 577 F.3d 60, 66 (2d Cir.
2009) (“[W]e conclude that, regardless of whether a right to receive campaign contributions
exists, it was not clearly established . . . and Blumenthal is therefore entitled to qualified
immunity.”); Lewis v. City of West Palm Beach, Fla., 561 F.3d 1288, 1291 (11th Cir. 2009)
(“Even if the officers’ actions violated Lewis’s Fourth Amendment rights, the appellant did
not demonstrate that the officers’ conduct was an intrusion on a clearly established right.”);
Christensen v. Park City Mun. Corp., 554 F.3d 1271, 1278 (10th Cir. 2009)(“Police officers
are not constitutional lawyers, and they should not have to fear personal damages liability
when they enforce the plain terms of an ordinance that has not been challenged in court,
let alone overturned, unless its unconstitutionality is patent.”).

932 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
capacity defendants. It is that the Supreme Court has given lower
courts the discretion to do so, even though it has given them no corresponding
discretion to preserve such constitutional claims.
Consider, for example, this illustration: a prisoner, who holds certain
religious beliefs, sues prison officials for failing to provide him a
diet that comports with his religious beliefs (say, vegan). Suppose a
prisoner-plaintiff makes all of the necessary showings at the summary
judgment stage regarding the constitutional violation. However,
the district court concludes that, at the time of the alleged violation,
the right was not clearly established. Per Pearson, the court will
be free to grant the defendant(s) immunity.
Now suppose the prisoner has demonstrated at the summary
judgment stage that prison officials knew he was a vegan, denied him
vegan meals, and knew he adhered to a particular religion. Suppose
further that this alleged violation took place at such a time that the
right was clearly established within the relevant jurisdiction. However,
it was not clear whether there was evidence from which a jury
could conclude that the prisoner’s veganism derived from a sincerely
held religious belief, the threshold belief in any such case. 161 Under
the prevailing law, the court would be within its rights to dismiss the
claim because the plaintiff had not put forth evidence from which a
fact-finder could conclude his rights had been violated. But nothing
in Pearson—or any other case—explicitly directs courts to exercise
their discretion to require further elaboration of threshold questions.
And although district courts are routinely said to possess various inherent
powers, 162 a court that went out of its way to exercise discretion
on behalf of a civil rights plaintiff in this context would probably
be held to have exceeded its discretion. This is because, as the Supreme
Court has repeatedly instructed, qualified immunity is not
just an immunity from having to pay damages, but immunity from
having to participate in litigation at all. 163 A defendant who makes a
poor showing on Saucier step one can still appeal to the district
court’s discretion to decide step two first. But a plaintiff who makes a
poor showing on either step very likely cannot appeal to such discretion
because the court’s discretion is limited, if it exists at all. 164
161. See, e.g., DeHart v. Horn, 227 F.3d 47, 51 (3d Cir. 2000).
162. See, e.g., Swann v. Charlotte-Mecklenburg Bd. of Educ., 402 U.S. 1, 15 (1971)
(“Once a right and a violation have been shown, the scope of a district court’s equitable
powers to remedy past wrongs is broad, for breadth and flexibility are inherent in equitable
remedies.”); United States v. $40,955.00 in U.S. Currency, 554 F.3d 752, 758 (9th Cir.
2009) (noting a district court’s “inherent power to control litigation”).
163. See, e.g., Pearson v. Callahan, 129 S. Ct. 808, 815 (2009).
164. As described earlier, see supra Part 0, the Court’s jurisprudence over the last
three decades has been in the direction of limiting the scope of civil rights litigation, both
substantively (by establishing the qualified immunity doctrine, see Harlow v. Fitzgerald,

2010] PROCEDURAL JUDICIAL ACTIVISM 933
One of the justifications for this one-way discretion is that it will be
more efficient. Yet this justification does not hold water on closer inspection.
This is because an attorney—wanting to cover all bases—
would presumably argue (1) there was no constitutional violation, and
(2) even if there was, the purported right was not clearly established.
This is precisely what the defendant-appellants did in Green v.
Post, to take an example that came about shortly after Pearson. 165
The Tenth Circuit concluded the officer’s conduct did not violate a
constitutional right. 166 However, the court continued, “[a]lternatively,
even were we to conclude that the Greens can establish a constitutional
violation . . . we would conclude that Deputy Post is entitled to
qualified immunity because the law was not clearly established at
the time of the incident.” 167 This discussion is plainly unnecessary to
the result in the case: having concluded that no constitutional violation
had occurred, the court could end the qualified immunity inquiry
under any standard, including Saucier. 168 Pearson permits, and as a
practical matter, probably requires, litigants to argue in the alternative.
And as Green demonstrates, this presents the risk of courts
speaking to unnecessary legal questions—one of the very charges leveled
at Saucier.
Iqbal also expands and contracts district courts’ discretion in a
way that is problematic for civil rights litigants. The Second Circuit,
in its decision, was acutely aware of the tension between Rule 8’s liberal
pleading rules and the policy underlying qualified immunity,
viz., the need to protect government officials not only from liability
but also from litigation itself. Therefore, though the court concluded
that Iqbal’s complaint had stated a viable claim, it cautioned the district
court to keep a close eye on the litigation. The discussion focused
principally on the discretion that district courts possess. For example,
“mindful of the need to vindicate the purpose of the qualified
immunity defense by dismissing non-meritorious claims against public
officials at an early stage of litigation,” a district court could “consider
exercising its discretion to permit some limited and tightly con-
457 U.S. 800 (1982)) and procedurally (by authorizing interlocutory appeals, see Mitchell v.
Forsyth, 472 U.S. 511, 526-27 (1985)).
165. See Appellants’ Opening Brief, Green v. Post, 574 F.3d 1294 (10th Cir. 2009) (No.
08-1122). Post presumably raised the alternative arguments because Saucier still controlled
at the time. But the problem persists to this day. See, e.g., Appellee’s Opening Brief,
Olseth v. Larson, No. 10-4015, 2010 WL 2397296, at *23 (June 4, 2010) (“Even if this Court
[concludes that there was a constitutional violation], Larson is still entitled to qualified
immunity because Olseth cannot demonstrate that Larson’s decision to shoot her was contrary
to clearly established law at the time of the violation.”).
166. See Green, 574 F.3d at 1304.
167. Id.
168. See Saucier v. Katz, 533 U.S. 194, 201 (2001) (“If no constitutional right would
have been violated were the allegations established, there is no necessity for further inquiries
concerning qualified immunity.”).

934 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
trolled reciprocal discovery so that a defendant may probe for amplification
of a plaintiff's claims and a plaintiff may probe such matters
as a defendant’s knowledge of relevant facts and personal involvement
in challenged conduct.” 169
The court was particularly concerned about the prospect of “current
or former senior officials of the Government, against whom
broad-ranging allegations of knowledge and personal involvement are
easily made.” 170 Therefore, it suggested,
a district court [could] structure such limited discovery by examining
written responses to interrogatories and requests to admit before
authorizing depositions, and by deferring discovery directed to
high-level officials until discovery of front-line officials has been
completed and has demonstrated the need for discovery higher up
the ranks. If discovery directed to current or former senior officials
becomes warranted, a district court might also consider making all
such discovery subject to prior court approval. 171
The Second Circuit explained that the liberal standard of Rule 8,
“when applied mechanically without countervailing discovery safeguards,
threatens to create a dilemma between adhering to the Federal
Rules and abiding by the principle that qualified immunity is an
immunity from suit as well as from liability.” 172 Therefore, it explained
that in cases such as Iqbal, a lower court “not only may, but ‘must exercise
its discretion in a way that protects the substance of the qualified
immunity defense.’ ” 173 The district court was also required to provide
an opportunity for defendants to move for summary judgment as
soon as it was apparent “that certain of the Defendants were not sufficiently
involved in the alleged violations to support a finding of personal
liability, or that no constitutional violation took place.” 174
The Second Circuit’s focus on district courts’ discretion was not
isolated or unusual. For years, the Supreme Court had instructed
courts to exercise their discretion in precisely the way the Second
Circuit suggested, managing the course of litigation in such a way
that gave plaintiffs the opportunity to determine facts not within
their power to ascertain at the complaint stage while simultaneously
preserving the essence of the immunity defense for defendants.
More than a decade ago, in Crawford-El v. Britton, 175 the Supreme
Court explained this process. The court has the power to order a reply
169. Iqbal v. Hasty, 490 F.3d 143, 158 (2d Cir. 2007).
170. Id.
171. Id.
172. Id. at 159.
173. Id. (quoting Crawford-El v. Britton, 523 U.S. 574, 597-98 (1998) (emphasis in Iqbal)).
174. Id. at 159 (citing Harlow v. Fitzgerald, 457 U.S. 800, 821 (1982) (Brennan,
J. concurring)).
175. 523 U.S. 574 (1998).

2010] PROCEDURAL JUDICIAL ACTIVISM 935
to the defendant’s answer per Rule 7 or require a more definite statement
of the plaintiff’s claims per Rule 12. “Thus, the [district] court
may insist that the plaintiff put forward specific, nonconclusory factual
allegations that establish improper motive causing cognizable injury in
order to survive a prediscovery motion for dismissal or summary
judgment.” 176 This passage is important. In Iqbal, the Court instructed
that conclusory allegations must be disregarded altogether. Yet in
Crawford-El, the Court explained that judges had the discretion to order
fuller explication of claims pertaining to a defendant’s state of
mind. Iqbal makes no mention of Crawford-El (in either the majority
or dissent), and therefore litigants and commentators must assume it
is still good law. 177 Yet it is difficult, if not impossible, to square the
two. Crawford-El devotes an entire section to “the existing procedures
available to federal trial judges in handling claims that involve examination
of an official’s state of mind.” 178 Iqbal flatly states, without any
acknowledgement of Crawford-El, “We have held . . . that the question
presented by a motion to dismiss a complaint for insufficient pleadings
does not turn on the controls placed upon the discovery process.” 179 The
only citation for this proposition is Twombly, though Twombly did not
implicate “claims that involve examination of an official’s state of
mind,” 180 and thus it is unclear why Twombly has more relevance to
the case than Crawford-El.
Courts have regularly permitted narrow or otherwise carefully
managed discovery as a method to test the viability of a plaintiff’s
claims while shielding a defendant from the burdens of full-blown
discovery. For example, district courts routinely permit or deny limited
discovery to determine whether personal jurisdiction exists in
a given district, based on the facts of the particular cases. 181 Although
the precise standard regarding jurisdictional discovery varies by cir-
176. Id. at 598 (emphasis added and internal quotation marks omitted).
177. See, e.g., Agostini v. Felton, 521 U.S. 203, 238 (1997) (“ ‘[I]f a precedent of [the Supreme]
Court has direct application in a case, yet appears to rest on reasons rejected in some
other line of decisions, the Court of Appeals should follow the case which directly controls,
leaving to this Court the prerogative of overruling its own decisions.’ ”) (emphasis added)
(quoting Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 484 (1989)).
178. Crawford-El, 523 U.S. at 597.
179. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1953 (2009).
180. Crawford-El, 523 U.S. at 597.
181. See, e.g., Mother Doe I v. Al Maktoum, 632 F. Supp. 2d 1130, 1144 (S.D. Fla. 2007)
(“It is well-accepted that a qualified right to jurisdictional discovery exists.”); Pettengill v.
Curtis, 584 F. Supp. 2d 348, 361 (D. Mass. 2008) (denying plaintiff’s motion for jurisdictional
discovery because he failed to provide “specific allegations that might give rise to
personal jurisdiction,” but noting that if discovery “develops evidence demonstrating personal
jurisdiction” over the dismissed defendants, plaintiff “may move to have them added
as parties again”); 7240 Shawnee Mission Holding, LLC v. Memon, No. 08-2207-JWL, 2008
WL 4001159, *4 (D. Kan., Aug. 26, 2008) (“The court finds that based on these exhibits and
the showing of controverted facts related to jurisdiction, Plaintiffs should be allowed limited
discovery regarding personal jurisdiction.”).

936 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
cuit, 182 these and similar decisions are described as being within the
discretion of the district court. 183 The Supreme Court has even recently
held that a district court has the discretion to decide a defendant’s
motion to dismiss on the basis of forum non conveniens, even before
deciding whether it has subject matter jurisdiction. 184 The viability of
such procedures is in some doubt after Iqbal, since a borderline complaint
is now to be dismissed outright. 185
Consider, in this same vein, Rule 9(b)’s requirement that fraud
must be pled with particularity. The Supreme Court explained in Iqbal
that “particularity” is a relative term; it simply indicates that
more is required for a fraud claim, not that state of mind and the like
(which may be alleged “generally”) can pass muster with less than
the Rule 8 minimum. 186 Yet the circuits were in agreement, pre-
Iqbal, that Rule 9(b)’s requirements were relaxed when the facts material
to a fraud claim were in the defendant’s exclusive possession
and could be obtained only through discovery. 187 These cases, too, are
apparently still good law; at least one district court has recently applied
this standard, even after Iqbal. 188 But again, the case law is
hard to square. Iqbal did not permit a case to go forward when there
were general allegations against government officials. It is hard to
imagine that the common practice of permitting cases that were subject
to a heightened standard to go forward can be maintained after
182. GTE New Media Services, Inc. v. BellSouth Corp., 199 F.3d 1343, 1351 (D.C. Cir.
2000) (permitting jurisdictional discovery even when plaintiff’s complaint did not make out
a prima facie case); Jazini v. Nissan Motor Co., Ltd., 148 F.3d 181, 185-86 (2d Cir. 1998)
(holding that the district court acted within its discretion to deny jurisdictional discovery
when plaintiffs did not establish a prima facie showing of jurisdiction); Central States,
Southeast and Southwest Areas Pension Fund v. Reimer Express World Corp., 230 F.3d
934, 946-47 (7th Cir. 2000) (same).
183. See, e.g., Af-Cap, Inc. v. Chevron Overseas (Congo), Ltd., 475 F.3d 1080, 1096 (9th
Cir. 2007) (“The district court did not abuse this broad discretion when it limited discovery
related to whether there was personal jurisdiction . . . .”); Sunview Condo. Ass’n v. Flexel
Int’l, Ltd., 116 F.3d 962, 964 (1st Cir. 1997) (permitting jurisdictional discovery subject to
the discretion of the district court).
184. Sinochem Int’l Co., Ltd. v. Malaysia Int’l Shipping Corp., 549 U.S. 422, 425 (2007).
185. This may overstate the issue somewhat, but only somewhat. Even pre-Iqbal,
courts had long held that bare assertions of contact with the forum were insufficient to
trigger jurisdictional discovery. See, e.g., McLaughlin v. McPhail, 707 F.2d 800, 806-07 (4th
Cir. 1983). However, Iqbal still changes this landscape because a marginal complaint is
never to proceed to discovery, limited, carefully managed, or otherwise. Ashcroft v. Iqbal,
129 S. Ct. 1937, 1953 (2009).
186. Iqbal,129 S. Ct. at 1954.
187. See, e.g., Emery v. Am. Gen. Fin., Inc., 134 F.3d 1321, 1323 (7th Cir. 1998); In re
Burlington Coat Factory Securities Litigation, 114 F.3d 1410, 1418 (3d Cir. 1997); Kowal v.
MCI Comm. Corp., 16 F.3d 1271, 1279 n.3 (D.C. Cir. 1994) (noting that pleading on information
and belief is permitted when the evidence at issue is within the defendant’s control);
Devaney v. Chester, 813 F.2d 566, 569 (2d Cir. 1987) (noting “the degree of particularity
required [by Rule 9(b)] should be determined in light of such circumstances as
whether the plaintiff has had an opportunity to take discovery of those who may possess
knowledge of the pertinent facts.”).
188. Morrison v. YTB Int’l, Inc., 641 F. Supp. 2d 768, 774-75 (S.D. Ill. 2009).

2010] PROCEDURAL JUDICIAL ACTIVISM 937
Iqbal. But if that line of cases must be considered abrogated, then it
is clear Iqbal’s analysis, ostensibly in the context of Rule 8, has disrupted
the standards applicable to Rule 9(b) cases as well.
So Iqbal effectively ratchets back district courts’ discretion, instructing
them to dismiss a complaint outright when a complaint’s
well-pleaded factual allegations are deemed implausible. But it also
expands district courts’ discretion in another, important direction: it
instructs courts to make this decision based on their “judicial experience
and common sense.” 189 The problem, of course, is that this kind
of a determination is so open-ended as to be almost unreviewable. 190
And of course there is the question of how a case should proceed
when the appellate court’s “common sense” deviates from that of the
district court (or when there is a split within an appellate panel).
Common sense should be, well, common—shared by diverse individuals.
Courts will now have the task of formulating a workable standard
for “common sense” (The court’s? Which court? The litigants? A
reasonable third-party observer’s?), and then determining the proper
standard of review for such a determination. 191
C. So What? The Case Against Procedural Activism
On one level, this might seem like much ado about nothing. District
courts are vested with wide discretion in many areas of law, including
some of the most important decisions that are made in criminal
sentencing. 192 And different doctrinal areas of law intersect—and
interact—all the time. To cite one relevant example, Rule 9(b)’s requirement
of particularized allegations of fraud is at least arguably
in tension with the “broad and liberal” 193 interpretation that is to apply
to the discovery rules. What’s the big deal here?
The big deal, at least in my view, is the interactions between
Pearson and Iqbal all cut in the same direction. For example, in the
context of fraud claims, Rule 9’s particularity requirement cuts
189. Iqbal, 129 S. Ct. at 1950.
190. See Joan Steinman, Irregulars: The Appellate Rights of Persons Who Are Not Full-
Fledged Parties, 39 GA. L.REV. 411, 441 (2005) (noting appellate courts “rarely” conclude
that a district court’s course of action was in excess of its allowable discretion).
191. As of this writing, no Circuit Court of Appeals has formulated a standard of review
for a district court’s “common sense” determination. So as not to render a “common
sense” finding unreviewable, I suggest the analysis must have two elements: first, it must
not be framed in conclusory terms. Second, the nonconclusory facts that support the determination
must lead to a plausible (not merely possible) conclusion that the plaintiff’s
claims do not meet the “common sense” standard. This formulation, one might notice, has
much in common with the Twombly-Iqbal pleading regime. I offer it only slightly tonguein-cheek;
I do submit that such a standard would offer a reviewing court a better record to
review than a statement by the trial court that was, well . . . conclusory.
192. See United States v. Booker, 543 U.S. 220 (2005); Kimbrough v. United States,
552 U.S. 85 (2007).
193. Hickman v. Taylor, 329 U.S. 495, 507 (1947).

938 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
against plaintiffs (who must plead more to get past a motion to dismiss)
while the liberal discovery rules cut against defendants (who
must subject themselves to greater scrutiny from plaintiffs and their
attorneys). Motions to dismiss under Rule 12 or for summary judgment
under Rule 56 benefit defendants (who can terminate litigation
before trial), but the facts at each stage are, at least in theory, viewed
most favorably to the plaintiff (who may ultimately prove disputed
facts if the case does go to trial). Indeed, even the most important issue
of a civil trial—liability—reflects this balance: a finding of liability
cuts against the defendant (who must pay up), but getting to that
point is harder for the plaintiff (who bears the burden of proof).
This kind of one-hand, other-hand balancing is conspicuously absent
from Pearson-Iqbal. As I describe above, Pearson (in some cases)
requires a plaintiff to say less, while Iqbal requires a plaintiff to say
more. Neither of these cases so much as recognizes this dilemma, let
alone provides a way out. And a way out is not impossible to conceive:
for example, a plaintiff might be permitted to plead “Pearson generality”
at the motion to dismiss stage but be required to adduce some
evidence of “Iqbal detail” at the summary judgment stage. This
would not even be much of a departure from pre-Iqbal case law: a
plaintiff at the motion to dismiss stage was always entitled to rely on
his pleadings and allegations, while he was generally required to
show more at the summary judgment stage. Pearson-Iqbal, however,
forecloses this kind of sliding scale.
So too with the discretion that all cuts one way. Pearson’s rule that
sequencing is now voluntary increases a court’s discretion to dismiss
civil rights claims; Iqbal’s rule that discovery management is an inadequate
tool decreases a court’s ability to preserve civil rights claims;
Iqbal’s directive to rely on common sense increases a court’s ability to
dismiss such claims. Once again, it is possible to devise a rule that
balances the interests of civil rights plaintiffs and defendants. For example,
the Supreme Court could have (and I submit should have) announced
the following rule, consistent with Twombly and pre-Twombly
authority: (1) civil rights claims require no heightened pleading standard;
(2) if the allegations regarding a particular defendant’s actions
are “conclusory,” a court is to determine whether the claims against
him are consistent with liability and, if so, whether the facts necessary
to support such a claim are likely to be in the defendant’s possession. If
so, the court could order limited discovery or use other procedural
tools—as described in Crawford-El—to permit the plaintiff an opportunity
to determine if he can make out a claim against the defendant.
If he did, the case would proceed in the normal course; if not, the case
would be dismissed. Again, such a formulation preserves the defendant’s
interest in avoiding discovery intended only to harass, while
permitting the district court to operate with a scalpel rather than a

2010] PROCEDURAL JUDICIAL ACTIVISM 939
mallet (and a rather one-dimensional mallet at that, since a court’s only
option in such a context is dismissal). 194
That is my answer to the “so what?” question. The point is not
that there are new rules (the merits of which we can debate) or even
that various rules interact. It is that these rules interact in a way
that harms civil rights plaintiffs and that there has been inadequate
recognition of this fact. As a result, the Supreme Court has sharply
constricted the universe of potentially successful civil rights claims.
And this is my argument against “procedural judicial activism.”
As Professor Miller points out, value judgments underlie every aspect
of civil procedure. 195 By cloaking important value judgments in the
seemingly-neutral terms of procedure, the Supreme Court has dramatically
altered the landscape for civil rights plaintiffs but managed
to do so largely under the radar. Yet these decisions are no less “activist”
because they involve procedural rules rather than substantive
rights. So I use the term “procedural judicial activism” to refer to a
course of action taken by a court that significantly expands, abridges,
alters, or modifies substantive rights by way of the operation of procedural
rules. A court enlarging or restricting the statute of limitations,
for example, would be an example of procedural judicial activism.
Similarly, a court altering rules regarding standing, justiciability,
or similar topics qualifies as activist under this definition because
modifications to these rules have a trans-substantive effect. Although
a case could be made that the very creation of such rules was activist,
I use a narrower conception of the phrase, in which a decision is categorized
as activist if it significantly departs from prior precedent
(even if the prior precedent might be categorized as activist). Thus,
Harlow itself might be characterized as activist for creating the modern
qualified immunity doctrine. However, I bracket that question,
and label a decision activist if it departs from the post-Harlow understanding
of the law of qualified immunity.
There are others who have written about this kind of judicial activism,
or something like it, 196 and an exhaustive analysis of the case
194. It is a relevant, but not wholly satisfactory, response to say that dismissal might
be without prejudice. Cf. Iqbal v. Ashcroft, 574 F.3d 820 (2d Cir. 2009) (remanding to the
district court to determine, in the first instance, whether plaintiffs should be given leave to
amend their complaint). First, it is likely that only cases “on the bubble,” i.e., pending at
the time Iqbal was decided, will get this benefit; future cases will likely be dismissed outright
for failure to state a claim. Second, leave to replead, while softening the blow, does
not change the fact that the process is time-consuming and expensive, particularly in civil
rights cases that may be litigated pro bono with the hope of attorneys’ fees on the other
end. See 42 U.S.C. § 1988 (permitting attorneys’ fees for a prevailing plaintiff in a civil
rights action).
195. Miller, supra note 1.
196. Soree, for example, writes, “Procedural activism . . . may be suspected when a
court chooses to reach the merits of an issue despite justiciability rules that would (or
should) otherwise restrain the court from so doing, or when a court decides more than is

940 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
law and academic literature is beyond the scope of this Article. However,
I bring up the issue to highlight an important feature of both
Pearson and Iqbal: these decisions were not compelled, either by
precedent or by the questions presented in the cases themselves.
Consider, for example, that overruling Saucier was not even on
the radar when Pearson petitioned the Court for certiorari. It was the
Court, sua sponte, that raised the issue. In its order granting certiorari,
the Court wrote,
Petition for writ of certiorari to the United States Court of Appeals
for the Tenth Circuit granted. In addition to the questions presented
by the petition, the parties are directed to brief and argue
the following question: “Whether the Court's decision in Saucier v.
Katz, 533 U.S. 194, 121 S. Ct. 2151, 150 L.Ed.2d 272 (2001) should
be overruled?” 197
In so doing, the Court reached out to decide an issue that was neither
raised by the parties nor the court below. Such a course of action is
“activist” by virtually any definition. 198
A similar problem afflicts Iqbal. As the dissent points out, the parties
assumed that actual knowledge of unconstitutional conduct by
subordinate officers would subject petitioners Ashcroft and Mueller
to liability. The question was not whether they could be liable; it was
whether, assuming they could be liable, the allegations in the complaint
were sufficient. 199 Thus, the Court’s majority put Iqbal in a rather
unfortunate position: he did not brief or argue the issue of liability,
relying on petitioners’ concession, and this issue turned out to be
necessary to dispose of the case before it.” Nadia B. Soree, The Demise Of Fourth Amendment
Standing: From Standing Room To Center Orchestra, 8 NEV. L.J. 570, 572 (2008). Susan
Hauser uses the term “passive judicial activism,” to refer “to a court’s uncompelled use
of procedural doctrines to preclude future litigation or legislative action.” Susan E. Hauser,
Predatory Lending, Passive Judicial Activism, and the Duty to Decide, 86 N.C. L. REV.
1501, 1507 n.31 (2008); see also id. at 1551 (“The uncompelled use of procedural doctrines
to preclude future litigation . . . does not square with Bickel’s passive virtues or Sunstein’s
decisional minimalism; instead, it is a form of disguised judicial activism.”). This is similar
to the concept described recently in Laurin’s article, “remedial rationing.” Laurin explains
that criminal procedural rights can be vindicated either in a criminal case or in a civil case
(in a damages action under § 1983). But when civil and criminal law both offer means to
vindicate a particular right, the Court “is likely to channel enforcement into one regime or
the other,” not permit both to flourish. Jennifer E. Laurin, Melendez-Diaz v. Massachusetts,
Rodriguez v. City Of Houston, and Remedial Rationing, 109 COLUM. L.REV.SIDEBAR
82, 85 (2009). What Laurin calls remedial rationing would also qualify as procedural activism
in my framework because it involves imposing judge-made rules to curtail the remedies
available for the vindication of one’s constitutional rights.
197. Pearson v. Callahan, 128 S. Ct. 1702, 1702-03 (2008) (order granting certiorari).
198. See, e.g., Ernest A. Young, Judicial Activism and Conservative Politics, 73 U.
COLO. L.REV. 1139, 1152 (2002) (“When we call the Court ‘activist’ because it ‘reaches out’
to decide an issue not strictly before it . . . we are complaining about judicial maximalism.
This form of activism shares with the other types . . . a refusal to defer to other actors in
the system.”).
199. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1955-57 (2009) (Souter, J., dissenting).

2010] PROCEDURAL JUDICIAL ACTIVISM 941
dispositive. 200 The majority thus decided an issue of liability “that . . .
has no bearing on its resolution of the case.” 201
After deciding the (unnecessary) question of Bivens liability, the
court turned to the sufficiency of the pleadings. But as Justice Souter
pointed out in his dissent, it was not clear what separated the “conclusory”
allegations from the ones that were “nonconclusory.” 202 And
where there is no “principled basis” for treating different allegations
differently, 203 an observer is left to wonder if the majority’s conclusion
in Iqbal stemmed from results-driven reasoning simply based on a
policy belief that a government official’s right to be free from a vexatious
lawsuit trumps an aggrieved civil rights plaintiff’s entitlement
to relief.
In fact one does not have to look far to see if that was the case. In
response to the argument that discovery could be managed to shield
government officials from expense, the Court writes:
Our rejection of the careful-case-management approach is especially
important in suits where Government-official defendants are entitled
to assert the defense of qualified immunity. The basic thrust
of the qualified-immunity doctrine is to free officials from the concerns
of litigation, including “avoidance of disruptive discovery.”
There are serious and legitimate reasons for this. If a Government
official is to devote time to his or her duties, and to the formulation
of sound and responsible policies, it is counterproductive to require
the substantial diversion that is attendant to participating in litigation
and making informed decisions as to how it should proceed.
Litigation, though necessary to ensure that officials comply with
the law, exacts heavy costs in terms of efficiency and expenditure
of valuable time and resources that might otherwise be directed to
the proper execution of the work of the Government. The costs of
diversion are only magnified when Government officials are
charged with responding to, as Judge Cabranes aptly put it, “a national
and international security emergency unprecedented in the
history of the American Republic.” 204
The policy motivation is clear: civil rights litigation “exacts heavy
costs” and “it is counterproductive” to require government officials to
litigate claims that may turn out to be meritless. Of course, one
might draw just the opposite conclusion: that unconstitutional conduct
by government officials extracts heavy costs and it is counterproductive
to shield such individuals from civil rights claims that
may turn out to be meritorious. The issue is not one of law. It is a pol-
200. See id. at 1958.
201. Id.
202. Id. at 1961.
203. Id.
204. Id. at 1953 (citations omitted).

942 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
icy preference and nothing more. Yet, rather than defer to the judgment
of the elected branches, or follow the procedure for amendment
of the Federal Rules as described in the Rules Enabling Act, 205 the
Court took it upon itself to make these judgments on its own.
My point is not really that the Court got the policy judgment
wrong (although, if it was not clear, I do believe that it got it wrong).
My point, like the one made by Clermont and Yeazell, is that there
were policy judgments to be made, and that they should not have
been made by the Court. 206 In other words, if the Rules Enabling Act
process had resulted in a higher pleading standard, or a curtailment
of district courts’ ability to manage litigation, or any similar change,
such a modification would be presumptively legitimate in a way that
the Court’s recent action is not.
In the criminal context, where all of the procedural chips fall in
the same direction—presumption of innocence, automatic access to
material exculpatory evidence, exclusionary rule, Miranda rights,
rule of lenity, and so on—they do so because we as a society have
made an explicit choice that defendants are presumed innocent and
that they are entitled to all of the “breaks” in this regard. We have
made no such decision, implicitly or explicitly, regarding civil rights
plaintiffs. The only congressional authority on the subject is § 1983,
which speaks of liability in almost unqualified terms. Section 1983’s
criminal analogue, 18 U.S.C. § 242, is even broader, prescribing a
criminal punishment for those who violate another’s rights under the
color of any law (i.e., state or federal law, as opposed to § 1983, which
only covers those acting under color of state law). Section 1983 was
part of the Civil Rights Act of 1871 and, though the civil rights laws
have been amended in the century-plus since, it exists today unaltered
from the original. In short, to the extent that there is a political
consensus in any direction, it is in favor of avenues to vindicate civil
rights. The Pearson-Iqbal interaction reverses (or at least sharply
curtails) this consensus, but does it sub silentio. Such a course of action
should be problematic both for liberals who favor expanded
access to civil rights remedies and for conservatives who oppose
courts deciding cases more broadly than they should.
IV. CONCLUSION
Much has been written about Pearson and Iqbal in the past year.
Some of that commentary has even noted that the cases could be
harmful to civil rights plaintiffs.
205. 28 U.S.C. §§ 2071-77.
206. Clermont & Yeazell, supra note 20.

2010] PROCEDURAL JUDICIAL ACTIVISM 943
However, no article (online or in print) explores the interaction between
these two cases. When viewed in this light, it is clear that the
cases bode poorly for those pressing civil rights claims. First, a plaintiff
risks getting caught between a rock (Iqbal) and a hard place
(Pearson). If he pleads his claim in great detail, a court deciding qualified
immunity will simply conclude his right is not clearly established
and not even give him a ruling on the constitutional merits. If
he pleads generally to avoid this problem, he will get dismissed per
Iqbal, as his broad allegations could be seen as conclusory or otherwise
not plausible because of the lack of detail. 207 Moreover, the cases
do not recognize, at least explicitly, that at the motion to dismiss
stage the first step of the qualified immunity analysis is the same as
the analysis under Rule 12(b)(6). By changing the standard for motions
to dismiss, the Court has also implicitly changed the standard
for “Saucier step one.”
The cases also interact with regard to lower courts’ discretion, but
only in a way that hurts civil rights claimants. Pearson gives courts
the discretion to decide which step of the immunity analysis to take
up first, but this discretion only makes it easier to dismiss claims on
the basis of immunity. Iqbal expands courts’ discretion by instructing
them to rely on common sense—a standard that, unless Courts of
Appeals cabin it, could turn out to be effectively unreviewable. At the
same time, Iqbal restricts courts’ discretion to carefully manage litigation,
thus forcing them to dismiss claims outright when in the past
some targeted or limited discovery might have preserved the claims.
In other contexts, the interaction between rules either “cancels
out” (because, for example, Rule 9’s particularity requirement is offset
by liberal discovery rules) or the procedural rules favor one side
because of an explicit policy choice (as in the case of criminal defendant).
Neither is the case here. Instead, the Supreme Court has set
up a regime where these cases, individually and jointly, work to the
detriment of civil rights plaintiffs and, ultimately, all of us. It has
done so by endorsing certain policy preferences and rejecting others,
thus making political choices that should have been resolved through
other mechanisms. The mere fact that the rules are procedural is of
no moment; the decisions are just as far-reaching, and curtail civil
rights litigation just as much, as if they had come up in an area of
“substantive” law.
Though they may be hidden, “there are value judgments that lie
beneath the surface of each and every aspect of civil procedure. . . . [I]t
207. Cf. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1954 (2009) (“Rule 8 does not empower [a
plaintiff] to . . . plead the bare elements of his cause of action, affix the label “general allegation,”
and expect his complaint to survive a motion to dismiss.”).

944 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:901
simply takes you a long time to understand that.” 208 We can only hope
that countless meritorious civil rights claims do not fall by the wayside
before academics, litigants, and judges come to this realization.
208. Miller, supra note 1.

KEEPING SETTLEMENTS SECRET
ERIK S. KNUTSEN *
ABSTRACT
This Article explores the tensions between the perceived public and private aspects of the
litigation system by using the debate surrounding whether or not the public civil justice system
can and should tolerate secret settlements in standard, nonaggregate private law disputes.
By evaluating the arguments against secret settlements in this context, the Article argues
that the public and private aspects are not exclusory, oppositional perspectives but instead
lie on a nonlinear continuum in which both may inform the other. The proper place on
the continuum on which a certain procedural solution may lie often depends upon what type
of dispute is at the center of the debate. When reforming and designing the civil justice system,
either in whole or in part—like whether or not to allow secret settlements—one can expect
a fuller, more balanced normative dialogue by thinking of the private and public views
of civil litigation as operating on a nonexclusive and nonlinear continuum. This Article
delves behind the seemingly oppositional perspectives of the public and private conceptions
of civil litigation to reveal the utility of thinking about the two not as exclusive but cohesive.
A decidedly private view of secret settlements does not, in all instances, negate the concerns
of a view closer toward the public side of the continuum. In the end, the private view of litigation
often has far more “public” to the “private” than one might expect.
I. WHAT ARE SECRET SETTLEMENTS? .................................................................. 949
A. Secret Settlements in Standard, Nonaggregate Private Law Disputes ..... 949
B. Secret Settlements Revealed ....................................................................... 950
C. Why Use Secret Settlements? ...................................................................... 951
1. Defendants ........................................................................................... 951
2. Plaintiffs .............................................................................................. 952
II. THE PUBLIC AND PRIVATE VIEWS OF SECRET SETTLEMENTS (AND THE CIVIL
JUSTICE SYSTEM) .............................................................................................. 954
A. The Public View of Secret Settlements ....................................................... 954
B. The Private View of Secret Settlements ...................................................... 955
C. Why “Public” and “Private”? ...................................................................... 957
III. PUBLIC VIEW CRITICISMS OF SECRET SETTLEMENTS ........................................ 959
A. Secret Settlements Defy Systemic Transparency ....................................... 959
B. Secret Settlements Do Not Contribute to the Public Good ......................... 962
C. Secret Settlements Perpetuate Danger ....................................................... 965
D Secret Settlements Take Advantage of the Vulnerable.............................. 971
E. Government Entities Should Not Enter into Secret Settlements ............... 974
IV. CONCLUSION ..................................................................................................... 976
The civil justice system operates by maintaining multiple levels of
secrecy. Lawyer-client privilege, litigation privilege, settlement privilege,
judicial pretrial conferences, and confidential mediations are all
cornerstones of the adversarial civil litigation process. They are de-
* Assistant Professor, Queen’s University Faculty of Law, Kingston, Ontario, Canada
(LL.M., Harvard Law School). The author would like to thank William Araiza, Elizabeth
Burch, David Fagundes, Brian Galle, Andrew Hessick, Carissa Hessick, Paul Horwitz,
Robin Kar, Zak Kramer, Dan Markel, Lesley Wexler, and the participants of the
McGill–Queen’s Young Scholars’ Conference 2009 for helpful comments and conversations.
The author would also like to thank the organizers and participants of the Cornwall Public
Inquiry policy roundtable on confidential settlements for providing an important platform
for discussion.

946 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
signed, in one way or another, to protect a party’s right to prosecute
his or her case as he or she sees fit.
Yet the civil justice system is often touted as a “public” dispute
resolution system. The system uses public resources to fund judges,
courthouses, and the administrative machinery behind them. The
end product of litigation may be a written judicial decision with precedential
value to other future litigants. Judicial precedent also has
the potential to modify undesirable behavior of nonlitigants who can
arrange their affairs in the shadow of the law. The civil justice system
itself is supposed to be transparent and, if possible, apolitical.
How are the perceived values embedded in the civil justice system
reconciled when a dispute settles confidentially? The vast majority of
cases that settle require as a condition of settlement that the litigating
parties keep some aspect of the settlement a secret. 1 To complete
a settlement for a typical civil case, parties generally execute a written
settlement agreement. A standard term in such agreements is a
confidentiality clause that stipulates what the parties can and cannot
disclose about the settlement. These “secret settlements” often require
confidentiality regarding the identity of the parties, the settlement
amount, or other specific facts. 2 How is it that a dispute resolution
system that prides itself on being public can tolerate secrecy at
the settlement stage of a dispute occurring within the public justice
system? The tensions between “public” rights and “private” rights are
strongest when a dispute concludes in a “secret” settlement.
This Article reinvigorates the debate between these two perspectives
about public and private rights in civil litigation by arguing
that the two perspectives, by operating on a nonexclusive, nonlinear
continuum, are not as oppositional as one might believe. 3 The key is
1. Most cases in the civil litigation system settle. Most also settle in secrecy. Although
settlement rate estimates for civil cases vary, they generally point toward the 96%
range. See, e.g., Marc Galanter & Mia Cahill, “Most Cases Settle”: Judicial Promotion and
Regulation of Settlements, 46 STAN. L.REV. 1339, 1341 (1994) (concluding that most cases
settle “in the shadow of the law” without judicial intervention but use the rule of law as
predictor for outcomes). See also Laurie Kratky Doré, Secrecy By Consent: The Use and
Limits of Confidentiality in the Pursuit of Settlement, 74 NOTRE DAME L. REV. 283, 384
(1999) (discussing that many cases settle without any court involvement whatsoever).
2. Doré, supra note 1, at 385-86.
3. Indeed, Minna J. Kotkin has described the past academic debate over confidential
settlement agreements as having “the sides sharply drawn” between the public and private
views of these procedural tools. See Minna J. Kotkin, Invisible Settlements, Invisible Discrimination,
84 N.C. L. REV. 927, 946 (2006). However, Leandra Lederman has come closest to recognizing
the non-oppositional characteristics of public and private elements of settlement. In
examining the public need for legal precedents as a product of litigation and the private need
for settlement as resolution of expensive disputes, Lederman argues that these two needs
must somehow be balanced in the civil dispute resolution system. This article pushes her arguments
past the realm of precedent versus settlement and instead argues that these public
and private qualities exist on a continuum, as opposed to being bipolar, oppositional aspects.

2010] KEEPING SETTLEMENTS SECRET 947
to see the “public” in the “private view” and the “private” in the “public
view” and then evaluate the merits of one end of the continuum
over the other, depending on the procedural context one is trying to
analyze. In some instances, such as securities fraud class actions in
which decisionmaking in litigation operates very differently than it
does in private tort or contract lawsuits because of the more “public”
aspects of the dispute, it may be appropriate to design a civil dispute
resolution system with a more balanced public-private perspective.
However, for the typical two party private law dispute, a view of the
civil litigation system closer on the continuum toward the private
view actually addresses an array of concerns previously associated
exclusively with the public view of litigation.
The Article therefore offers a framework through which one can
view not only the civil justice system but scholarly perspectives on
that system as well. Past scholarship has often divided largely along
the public-private lines. This Article explores the tensions between
the perceived public and private aspects of the litigation system by
focusing on the current debate about whether or not the “public” civil
justice system can and should tolerate secret settlements. By evaluating
the arguments against secret settlements, the Article argues
that, in typical two party disputes over private rights, the public
rights inherent in the system must necessarily be secondary in priority
to the private rights of the individual litigants. To do otherwise
would upset the balance of the adversarial method that is the bedrock
of the civil justice system. The system has some public aspects,
but when such aspects attempt to trump private dispute settlement
concerns in all contexts and for all claims, the very public values
sought to be protected are actually jeopardized. Thus, the oper-
ation of the civil justice system, and simultaneously the perspec-
tives from which one evaluates that operation, lie on a continuum between
a public rights oriented perspective and private rights oriented
perspective. The appropriate blend of public and private interests
on that continuum often depends on what type of dispute is before
the court.
This Article uses one procedural concept—secret settlements in
typical private law disputes—to explore and evaluate the limits and
effectiveness of this seemingly oppositional continuum. Such an exploration
can inform debates about just how far toward “publicoriented”
or “private-oriented” any future civil justice reforms should
swing. The Article posits—likely to the surprise of most readers—that
along the public-private continuum for standard private law disputes,
the private, party-centric view of the system is actually the
See Leandra Lederman, Precedent Lost: Why Encourage Settlement, and Why Permit Nonparty
Involvement in Settlements?, 75 NOTRE DAME L. REV. 221 (1999).

948 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
more effective perspective from which to design an all-encompassing
civil justice system that preserves private rights and also protects
some valuable public interest rights. Therefore, it is essential to acknowledge
this inverse relationship along the continuum of the public
view and the private view when one is considering reforms to the
system, such as whether to foster or ban secret settlements.
Part I of this Article begins by mapping the scope of the discussion,
explaining the public-private continuum and this Article’s
choice of the typical private law dispute as the lens through which to
view the continuum. The Article then discusses what a secret settlement
is, how it operates, and how secret settlements are used by both
defendants and plaintiffs in civil litigation. Part II of this Article
canvasses the continuum of what appear to be two opposing views of
the purpose of the civil justice system: the public view and the private
view. These views, however, are not exactly oppositional and exclusive,
but instead operate on a continuum and may shift the blend
of public and private depending upon the type of dispute examined
and the type of procedural mechanism behind the dispute. The Article
explores how public law perspective proponents like David Luban,
4 Owen Fiss, 5 and Abram Chayes 6 have developed largely ideologically
weighted, results-based, public-centric views about secret settlements
that may lead to some untenable conclusions when applied
to standard, private law disputes. In this line of thinking, the litigants
themselves take second seat to the public interest and, more
curiously, the public interest and the litigants’ interests appear to be
presented as ideologically opposite.
Instead, the Article argues that approaches to the civil litigation
system closer to the rights-driven, more party-centric end of the continuum
such as those taken by Arthur Miller, 7 Carrie Menkel-
Meadow, 8 and Christopher Drahozal and Laura Hines 9 actually do a
better job of balancing both private and public interests in the system
itself when designing procedural mechanisms for standard private
law disputes. Part III reviews key public view criticisms about secret
settlements and demonstrates that the solution to these criticisms is
actually better informed by a perspective closer to the private view of
4. David Luban, Settlements and the Erosion of the Public Realm, 83 GEO. L.J.
2619 (1995).
5. Owen M. Fiss, Against Settlement, 93 YALE L.J. 1073 (1984).
6. Abram Chayes, The Role of the Judge in Public Law Litigation, 89 HARV. L.REV.
1281 (1976).
7. Arthur R. Miller, Confidentiality, Protective Orders, and Public Access to the
Courts, 105 HARV.L.REV. 427 (1991).
8. Carrie Menkel-Meadow, Whose Dispute Is It Anyway?: A Philosophical and Democratic
Defense of Settlement (In Some Cases), 83 GEO. L.J. 2663 (1995).
9. Christopher R. Drahozal & Laura J. Hines, Secret Settlement Restrictions and Unintended
Consequences, 54 KAN.L.REV. 1457 (2006).

2010] KEEPING SETTLEMENTS SECRET 949
litigation for most private law disputes. The public view postulates
that secret settlements defy transparency, do not contribute to the
public good, perpetuate danger, take advantage of vulnerable litigants,
and should not be used in litigation where the government is a
party. However, the private view of secret settlements turns the public
view criticisms upside-down and exposes the problematic, exclusively
public nature of the public view such that the norms of the
public view are not nearly as achievable in actual operation as one
might otherwise expect at first blush.
Part IV of this Article concludes by noting the importance of understanding
the nonexclusive relationship between two seemingly
oppositional viewpoints that exist not as absolutes but on a continuum.
Depending on the type of case (i.e., civil rights versus a slip
and fall case) and the amount of public procedural safeguards already
installed in the procedural matrix (i.e., certification for class
actions or judicial approval of settlements), it is more helpful to analyze
procedural reforms based on either a more public or private
view, or perhaps something somewhere in the middle of the continuum.
For example, when reforming and designing the civil justice
system for standard, nonaggregate private law litigation, one can expect
a fuller, more balanced normative dialogue by using a perspective
closer to the private view of the continuum. In the end, the private
view of litigation often has far more “public” to the “private”
than one might expect.
I. WHAT ARE SECRET SETTLEMENTS?
A. Secret Settlements in Standard, Nonaggregate Private Law Disputes
This Article discusses settlements in the civil justice system only.
To more coherently delve into the dynamics of the public and private
views of civil litigation, this Article restricts its analysis to common
civil settlements that operate in the standard, nonaggregate litigation
setting. This includes typical tort, contractual, and property disputes
between parties, such as an automobile accident, a commercial
deal gone sour between suppliers, a dispute about property between
neighbors, or a products liability lawsuit between consumer and
manufacturer. However, while not the focus of this Article, it is useful
to note that in aggregate litigation situations, such as mass torts
or class actions, the balance between public and private may tip towards
the public end of the spectrum.
Aggregate litigation involves a more complex process and departs
from the traditional procedural landscape of the simple private law

950 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
dispute. 10 Indeed, there is a great deal of “public” purposely injected
into the class action’s special procedures because of the need to safeguard
the rights of class members who must operate in a very different
decisionmaking capacity than those plaintiffs in a standard twoparty
lawsuit (i.e., class certification and judicial settlement approval).
11 Settlement in aggregate litigation, therefore, may be a
unique hybrid situation where decidedly stronger public interests are
necessarily implicated because the settlement involves a multidimensional
decision on behalf of a great many litigants who exercise
little control over the lawsuit. 12 Therefore, to more fully explore the
fundamental tensions between how the public and private views operate
on a continuum and perhaps inform each other, this Article
uses as its primary focus the typical tort, contractual, or property
claim between two parties: plaintiff and defendant. How and where
to place the more “public law” oriented cases on the continuum such
as civil rights or the aggregate litigation situation is left for another
day. The point of this Article is to delve into the seemingly oppositional
perspectives of public and private views to reveal the utility of
thinking about the two not as exclusive, but as cohesive and complementary.
A decidedly private view of secret settlements does not, in
all instances, negate the concerns of a view closer toward the public
side of the continuum.
B. Secret Settlements Revealed
A secret settlement is a settlement of a civil dispute about which
some aspect has been agreed upon by the parties to remain confidential.
The legal vehicle for this is typically a contractual agreement
with a clause where the parties promise to keep some or all of the
settlement details secret. Secrecy could refer to any aspect of the settlement.
Most often, parties agree to keep one or more of the following
a secret:
a) the identity of the parties;
b) the amount of the settlement;
c) the admission or denial of fault by one or more parties;
10. See, e.g., Judith Resnik, Aggregation, Settlement, and Dismay, 80 CORNELL L.
REV. 918 (1995) (discussing the movement in class actions away from a model of individual
adjudication toward a model of mass administrative processing of claims and settlements).
Resnik, however, questions whether the settlement dynamic is indeed all that different between
the class action and the individual case. Id. at 938. She concludes that more empirical
evidence is needed to determine whether this is true. Id.
11. See, e.g., Elizabeth Chamblee Burch, Securities Class Actions as Pragmatic Ex
Post Regulation, 43 GA. L.REV. 63, 106-11 (2008) (noting the importance of transparency
and public values in the securities class action context).
12. See, e.g., Elizabeth Chamblee Burch, CAFA’s Impact on Litigation as a Public
Good, 29 CARDOZO L. REV. 2517, 2548 (2008) (noting how aggregate litigation affects public
norms, especially at the settlement phase).

2010] KEEPING SETTLEMENTS SECRET 951
d) facts relating to the loss; or
e) sensitive financial or trade information. 13
The effective clause in the settlement agreement could be quite
simple, such as “the terms of this settlement shall remain confidential.”
The clause may include exceptions to the agreed-upon secrecy.
Such exceptions can exclude confidentiality obligations for a party’s
communications with immediate family members, lawyers, accountants,
the government, or for the purposes of obtaining therapy. The
clause could also include certain conditions in which secrecy is allowed
to be broken—for example, if a court must review the agreement
or if other legal obligations arise. Finally, the clause could detail
the sanctions for breaking secrecy, such as whether the breach of
secrecy constitutes a fundamental breach of the settlement, thereby
voiding the contract. Alternatively, there may be liquidated damages
clauses for breaches of secrecy that detail precisely how much is to be
paid upon breach. 14 None of these conditions appear to be common in
standard settlement agreements at present.
1. Defendants
C. Why Use Secret Settlements?
Defendants use secret settlements in civil lawsuits to create value
in the settlement. 15 There is a price for secrecy. A defendant is often
willing to pay more to a plaintiff if the plaintiff keeps some terms of
the settlement confidential. Secret settlements are frequently used
for products liability cases, medical negligence, employment cases,
and cases involving physical and emotional abuse. 16 Defendants use
confidentiality as a bargaining chip to avoid two potentially detrimental
outcomes: negative publicity and future lawsuits. 17 If a defendant
can suppress information about the settlement, such information
is unlikely to find its way into a public forum and the media.
This creates value for a defendant. The reasons could be varied, the
most obvious of which is to avoid dissemination of any information
regarding a defendant’s potential fault or wrongdoing. There is also a
strong incentive to suppress the fact that the defendant was sued, regardless
of fault or wrongdoing. The presence of a lawsuit alone can
often create aspersions of fault when no fault, in fact, exists. This can
damage the defendant’s reputation and client base.
13. Doré, supra note 1, at 385-86.
14. Id. at 386.
15. See generally id.; Drahozal & Hines, supra note 9; Menkel-Meadow, supra note 8.
16. See, e.g., Drahozal & Hines, supra note 9, at 1457-58.
17. See, e.g., Hon. Jack B. Weinstein, Secrecy in Civil Trials: Some Tentative Views, 9
J.L. &POL’Y 53, 56 (2000).

952 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
The defendant will also usually want to keep confidential the facts
about any payments to the plaintiff. There are many reasons, unrelated
to any admission of fault, why a defendant might settle a lawsuit with a
plaintiff. If, however, information about a payment or settlement is disseminated,
the public can infer, rightly or wrongly, that there must have
been some fault on the part of the defendant. In reality, the dispute may
have settled for reasons wholly unrelated to fault. The defendant, for
example, could have decided it was less costly to settle the dispute than
fight about the merits. Defendants may also use secret settlements to
protect proprietary information, such as trade or business secrets discovered
in the process of the litigation. Confidential settlement agreements
avoid these negative, costly, and often incorrect, public exposures
for defendants. To a defendant, the contractual opportunity to bargain
for secrecy about some element of the dispute often has value. It is an
important part of the dynamics of settlement.
2. Plaintiffs
Plaintiffs also use confidential settlement agreements to create
value in settlement negotiations. 18 Plaintiffs can capitalize on the
value of secrecy to defendants and increase available settlement options.
A secret settlement is often worth more to a defendant than a
settlement with no disclosure restrictions. A plaintiff will therefore
have one more aspect of the case, beyond allegations of fault, with
which to bargain.
Theoretically, it could be possible that a plaintiff’s only bargaining
chip in a dispute is secrecy itself. 19 Imagine a case in which the plaintiff
either has limited evidence of a defendant’s fault 20 or, as would be
more common, it is too risky and expensive for a plaintiff to gamble on
a trial to prove fault. The plaintiff at least has the option to bargain for
secrecy if a particular defendant values secrecy to any degree.
Plaintiffs also use confidential settlement agreements because, as
with defendants, privacy can be paramount in certain disputes.
Plaintiffs may want to keep their identities secret. There could be
sensitive reputational information at stake in a lawsuit, such as in a
wrongful dismissal case. Plaintiffs could also be concerned about intimate
privacy issues that were disclosed in the lawsuit, such as medical
or family information. Victimization concerns could also be pa-
18. See id.
19. For example, consider an instance where the plaintiff has a difficult task of proving
an essential element in the claim and is woefully out-lawyered and out-financed by a
defendant. If secrecy is of great value to a defendant, that defendant may not even wish to
risk any pretrial wranglings such as a motion for summary judgment, as such would put
the facts squarely in the public eye.
20. For example, complex evidence about causation in a tort trial which might not
equate to a balance of probabilities.

2010] KEEPING SETTLEMENTS SECRET 953
ramount where the dispute concerns alleged wrongdoings that are
emotionally damaging to the plaintiff. A plaintiff may want to keep
all details of such a dispute confidential.
Lastly, like defendants, plaintiffs may often want to keep the
monetary value of the settlement a secret. If the amount of the settlement
is large, plaintiffs may be concerned about the undue and
unwanted attention that a sudden financial influx may bring. 21 Secret
settlements avoid this problem. Conversely, if the amount of the
settlement is not large, a plaintiff may be concerned that the public
may view her settled dispute as frivolous or unsuccessful (even if, in
fact, it is not). The public has a skewed perception of settlement value
and is unable to evaluate the efficacies of civil settlements. There
could be multiple reasons why the monetary amount of a settlement
is not large, yet the plaintiff still considers the settlement a success.
The plaintiff may have bargained to implement organizational
changes with the defendant. Perhaps the plaintiff’s case was nearly
impossible or too expensive to prove in court, and some settlement
amount would be better than a court-sanctioned cost award after a
failed trial. The public is not exposed to the settlement dynamics that
went into the agreement between the parties. To avoid public scorn
in instances where the public’s expected outcome differs from the
plaintiff’s actual monetary outcome, the plaintiff may wish to keep
the settlement amount confidential.
Plaintiffs and defendants alike use confidential settlement agreements
to achieve goals that the otherwise simplistic monetization 22 of
the dispute cannot solve. As discussed later, secret settlements can
be used as effective value-creation tools that benefit both plaintiffs
and defendants in certain circumstances. 23 Removing such tools from
the settlement negotiation toolbox hampers parties in their efforts to
resolve disputes using non-monetary approaches. Secret settlements
thus have the potential to engineer social outcomes that provide additional
value to the settlement.
21. For example, a long-lost family member suddenly appears, looking for a cash handout.
22. See Luban, supra note 4, at 2646 (discussing how the “monetization” of civil litigation
disputes has flattened the “normative landscape” of the public view of litigation); cf.
Menkel-Meadow, supra note 8, at 2674 (arguing that litigation, not settlement, has led to
the monetization of disputes).
23. Scholars of negotiation and alternative dispute resolution have for the past few
decades trumpeted the importance of nonmonetary value creation in creatively solving civil
disputes. See, e.g., ROGER FISHER &WILLIAM URY, GETTING TO YES (Bruce Patton ed.
1991); DAVID A. LAX &JAMES K. SEBENIUS, THE MANAGER AS NEGOTIATOR: BARGAINING
FOR COOPERATION AND COMPETITIVE GAIN (1986).

954 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
II. THE PUBLIC AND PRIVATE VIEWS OF SECRET SETTLEMENTS (AND
THE CIVIL JUSTICE SYSTEM)
How anyone views the efficacy of secret settlements in the civil
justice system depends on how one views the role of the civil justice
system in general. 24 That view also necessarily drives whether or not
one argues to curb, ban, or foster secret settlements. In the past,
scholars have presented what often appear to be two competing views
as to how the civil justice system as a whole operates and should operate:
the public view and the private view. 25 Unpacking these two
views through the lens of secret settlements in standard private law
disputes helps explain the real debate behind how one sculpts a normative
perspective of the civil justice system as a whole. That debate
should focus not on oppositional ideals but on the fact that these
perspectives actually operate on a continuum. The private view of
civil litigation can (and as will be shown, often does) preserve some
values inherent in the public view. The key is to recognize that these
two views are not mutually exclusive when procedural matters are
put into actual operation in the real world of litigation.
A. The Public View of Secret Settlements
The public view of the civil litigation system typically sees the system
as a publicly funded, open system operating with transparency to
engineer greater social good. 26 Litigation and court decisions contribute
to the public commons and enrich social debate through dispute resolution.
Those who hold tight to the public view of civil litigation are either
against the notion of confidential settlement agreements altogether
or clamor for increasing regulation of secret settlements.
The public view of civil litigation owes its genesis to those scholars
who see the civil litigation system, and indeed dispute resolution, as
capable of transforming society into something better. 27 Courts medi-
24. See, e.g., Doré, supra note 1, at 289 (contending that the question of “who owns a
lawsuit” affects one’s stance on confidentiality in the litigation process).
25. For an excellent summary of the public and private views in relation to secrecy in
the discovery process, see Jack H. Friedenthal, Secrecy in Civil Litigation: Discovery and
Party Agreements, 9 J.L. &POL’Y 67, 69 (2000) (describing the two positions as being on
“two quite different levels, one involving philosophical concepts of the role of the courts in
society and the other concerning the practical effects of disclosure or nondisclosure on parties
to disputes and to the public at large”).
26. See Fiss, supra note 5 (arguing that American’s litigation system should operate in
the public sphere and that settlements remove valuable public discourse); Luban, supra note
4 (stating that settlement and litigation are primarily about promoting public values);
Chayes, supra note 6 (describing an emerging model of “public law litigation,” in which private
lawsuits concern the operation of public policy instead of merely private rights between
disputants); Lloyd Doggett & Michael J. Mucchetti, Public Access to Public Courts: Discouraging
Secrecy in the Public Interest, 69 TEX. L.REV. 643 (1991) (arguing in favor of TEX. R.
CIV. P. 76(a), which makes public access to court records the standard rule for courts).
27. See Luban, supra note 4; Fiss, supra note 5; Chayes, supra note 6.

2010] KEEPING SETTLEMENTS SECRET 955
ate a social and political dialog, performing an integral service to the
public at large. Court decisions perpetuate discussion about the
boundaries of the law and provide a positive externality to the public:
the deterrent effect of knowing what happened to who and what cost
was borne. This is a decidedly public law-inspired vision of the civil
litigation system. The detriments of secret settlements as catalogued
by public view scholars lead such scholars to emphasize a balance
toward public, not private, benefit, arguing that secret settlements
hinder the values of the public litigation process.
B. The Private View of Secret Settlements
The private view of the civil litigation system sees the system as a
party-driven mechanism for efficiently resolving private disputes between
parties. 28 Those who espouse the private view of civil litigation
are often supportive of a disputing party’s opportunity to bargain
with secrecy. Secret settlements are thus a positive dynamic in the
civil litigation system. 29
The private view of civil litigation rests on the idea of party autonomy
in the adversary system. 30 The parties within a dispute have
complete control as to how the dispute is handled. 31 Further, the disputing
parties themselves choose to bring a dispute into the public
justice system in the first place, deciding what issues will comprise
the dispute. The parties also have complete control over settlement. 32
The parties can also choose when to settle and how to structure the
settlement. Courts, by contrast, can take only the cases brought before
them. 33 Therefore, the public nature of any dispute in the civil
justice system is a mere by-product or, as Arthur Miller puts it, “col-
28. See Miller, supra note 7 (arguing against the public law reform movement to permit
complete public access to all court information); Menkel-Meadow, supra note 8 (arguing
that disputants own the dispute and should be able to control settlement processes
because the litigation process is designed to put the disputants’ interests first, not the public’s);
Drahozal & Hines, supra note 9 (arguing that regulation of secret settlements may be
ineffective and counter-productive).
29. Miller notes that by regulating confidentiality in the civil litigation process, one
upsets the balance of the adversarial nature of the framework for resolving civil disputes
because there is a direct symbiosis between procedural rules and the pursuit of substantive
rights. See Miller, supra note 7, at 466.
30. See, e.g., Doré, supra note 1, at 286 (explaining the underlying value of party autonomy
in the civil litigation system).
31. See Menkel-Meadow, supra note 8, at 2669 (arguing that the public view’s focus
on litigation’s structural and institutional goals has ignored the role of the actual disputants
who are involved in the litigation).
32. See id. at 2696 (stating that the litigation process is a “party-initiated and partycontrolled
legal system”).
33. See, e.g., Avedis H. Sefarian & James T. Wakley, Secrecy Clauses in Sexual Molestation
Settlements: Should Courts Agree to Seal Documents in Cases Involving the Catholic
Church?, 16 GEO.J.LEGAL ETHICS 801, 807 (2003).

956 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
lateral” 34 to the actual private dispute between the parties. Parties
often do not even require interaction with the public justice system to
solve their disputes. Instead, they bargain within the “shadow of the
law,” knowing that certain legal rules will apply if the case proceeds
to trial. 35 The shift of the civil justice system from one of trial as the
main event to pretrial procedures as the main event has led to a decreasing
role for final adjudication on the merits in civil litigation. 36
In fact, most cases settle. 37 The strong arm of the law is not necessarily
applied within the courtroom. With so little “public” in the public
dispute resolution system, the public view of civil litigation seems to
forget that much of what is driving the system are disputes about
private law issues.
In fact, the public view may well be an uncomfortable fit with the
down-and-dirty world of real-life litigation. The majority of disputes
in the civil litigation system are not broad-reaching societal watermarks
exploring important public rights but are instead disputes involving
injury or simple contract breach. 38 The public view of civil litigation
thus appears to be more suitable for a society in which every
second civil case is about school segregation or civil rights instead of
fender-benders and fence disputes between neighbors.
The private view’s difficulty with the public view conception of civil
settlements stems largely from the fact that civil disputes live,
breathe, and die by the parties themselves. 39 In the eyes of the parties,
private civil litigation is not conducted for the benefit of the pub-
34. See Miller, supra note 7, at 431 (“[P]ublic access to information produced in litigation
has always been a secondary benefit” or side effect to the real purpose of the litigation:
dispute resolution between private parties); see also Richard L. Marcus, The Discovery
Confidentiality Controversy, 1991 U. ILL.L.REV. 457 (1991) (arguing that the collateral informational
disclosure in civil litigation should not eclipse the main purpose of litigation–to
solve private disputes).
35. See Galanter & Cahill, supra note 1, at 1341 (concluding that most cases settle
without judicial intervention but “in the shadow of the law,” using the rule of law as predictor
for outcomes); see also Doré, supra note 1, at 384 (indicating that many cases settle
without any court involvement whatsoever).
36. The reduced importance of the trial in the civil litigation process is marked by the
reference to the civil trial as presently nothing more than a failed settlement in the justice
system. Samuel R. Gross & Kent D. Syverud, Getting to No: A Study of Settlement Negotiations
and the Selection of Cases for Trial, 90 MICH.L.REV. 319, 320 (1991).
37. Ninety-five percent of civil litigation cases end in settlement, though that rate may
vary slightly depending on the type of case. While there is some divergence of opinion as to
the precise settlement rate, it is certain that the majority of cases in the civil litigation system
settle before trial. See, e.g., Marc Galanter & Mia Cahill, “Most Cases Settle”: Judicial
Promotion and Regulation of Settlements, 46 STAN.L.REV. 1339, 1339-40 (1994); Frank E.A.
Sander, The Obsession with Settlement Rates, 11 NEGOTIATION J. 329, 331 (1995).
38. See Miller, supra note 7, at 467.
39. See id. at 431-32 (arguing that forcing full disclosure of all litigation information
goes against the civil justice system’s ideals of improved efficiency and settlement promotion
in the hopes of reducing cost and delay in dispute resolution).

2010] KEEPING SETTLEMENTS SECRET 957
lic. 40 Private litigants pay the costs and are saddled with the risks of
litigation. Therefore, private litigants should be free to bargain with
whatever tools are available, including their rights to disclose matters
about their own case. Ask any litigant in the middle of a lawsuit
why he or she sued in the first place. The answer will undoubtedly be
something along the lines of “I was hurt.” The public view of civil litigation
and secret settlements thus appears to be far removed from
the individual litigants who are the actors in the litigation system
and who control it by their own decisions. 41
C. Why “Public” and “Private”?
David Luban refers to these competing visions of the civil justice
system as the “problem-solving view” and the “public-life conception”
of litigation. 42 This Article chooses instead to refer to the two different
perspectives as the public and private views of the civil litigation
system, along similar lines to Leandra Lederman who, in examining
the value of precedent as an integral part of litigation outcomes, posits
that balancing settlement and precedent concerns necessarily requires
a balancing of both public and private aspects of litigation. 43
There are three reasons for using Lederman’s “public” and “private”
terminology when examining secret settlements. Each reason underlines
the fact that these two views may not be mutually exclusive (as
has traditionally been presented in most scholarly thinking to date)
but instead operate on a graduated continuum which may shift, depending
upon the type of case and the type of procedural solution
best suited to the problem.
First, there is already a traditional analytic division among scholars
between private law and public law norms and modalities of
thinking. Private law encompasses individual rights at stake
amongst individuals–property, tort, and contract. Even if an individual
litigant is a government entity, that entity exercises options and
control in the litigation process as would a cognoscente living party.
When to settle, how to settle, and if to settle at all become the decisions
of the party itself. The idea of party control and party autonomy
is thus synonymous with the idea of private actors exercising private
rights in a private law context (e.g., A harms B, B sues A under a
negligence theory to seek redress from A).
A public law standpoint, however, places greater emphasis on the
state-as-party concept, where the state is representative stakeholder
40. Although that certainly may not be true in the eyes of the public, which funds the
court system as a public dispute resolution system.
41. Menkel-Meadow dubs the public view’s tendency to minimize the role of individual
disputants a kind of “litigation romanticism.” See Menkel-Meadow, supra note 8, at 2669.
42. See Luban, supra note 4, at 2632-33.
43. See Lederman, supra note 3.

958 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
for the rights of a group of people. Collective interests subsume individual
rights. Public law involves a certain shared consciousness
about shaping the political conversation and the polity. The values
laden in public law topics are assumed to be collective values–
fundamental freedoms and rights, and state punishment for wrongdoing
in society. Therefore, constitutional law and criminal law often
must balance the rights of the individual with the rights of society as
a whole. Thus, using the terms “public view” and “private view” as
descriptors for how one views the civil litigation system are designed
to hearken to the traditional academic division between public and
private law norms and doctrine.
Second, the terms “public view” and “private view” are perhaps
more appropriate than Luban’s “problem-solving” and “public-life
conception” labels because many litigants in the civil justice system
are concerned with solving problems, even though the rights at issue
are decidedly “public-life” rights. In essence, all litigation is an attempt
to solve problems. Litigation about school desegregation had a
decidedly “public-life” element in operation and effect, but no one
would argue against the fact that its ultimate purpose was also to
solve a problem. Luban’s labels have thus stated normative goals
that are not mutually exclusive. Private cases can solve public problems
and contribute to the common public good, and public cases can
be remarkably private and singular in effect. Labels such as “public”
and “private” that use descriptors that are not normative results but
rather modalities of viewing the legal landscape might, therefore, be
more helpful when one is designing the conversation about if and in
what context the civil litigation system needs redirection.
Finally, using the terms “public” and “private” jettisons the valueladen
prescriptive baggage that may be inherent in Luban’s terms.
Labeling one way of thinking about the justice system as “problemsolving”
and another as the “public-life conception” requires one to
take a side with certain values and approach litigation system design
issues with those values at hand. The danger is an ideologically exclusive
approach that perhaps clouds judgment along the way. There
is no room for the private in the public view conception of civil litigation.
The most sensible solutions to problems may not always line up
exclusively with “public-life” benefits. Alternatively, the solutions
may not be completely internally consistent with the individualistic
nature of Luban’s “problem-solving” label. Using the terms public
and private instead as descriptors for charting the debate does not
require participants to initially value solutions based on perceived
outcomes. Instead, it allows for viewing these perspectives along a
graduated continuum. While one procedural solution may fit best
with a decidedly private view, another (such as a procedural solution

2010] KEEPING SETTLEMENTS SECRET 959
for mass harms in an aggregate litigation context) may require a
more blended public-private approach.
III. PUBLIC VIEW CRITICISMS OF SECRET SETTLEMENTS
There is an interesting dyadic relationship between secret settlement
criticisms or benefits and one’s view of litigation. Criticisms of
secret settlements emanate largely from those who adopt a public
view of civil litigation. Those who adopt a private view of civil litigation
tend to be more accepting of secret settlements. What is considered
a criticism from one viewpoint is often a benefit seen by the
other. That is why an examination of this particular aspect of the civil
justice system holds potential to reveal elements of the larger theoretical
dynamic behind charting the design of the system.
A. Secret Settlements Defy Systemic Transparency
The public view of civil litigation holds that secret settlements defy
systemic transparency. Curiously, however, the civil justice system
already operates within layers of transparency. Furthermore, transparency
as publicity comes at a cost to some key values engendered
by the public view. 44 The private view of civil litigation actually ensures
more than enough protection for reasonable levels of public
view-inspired disclosure.
One of the main tenets of the public view of civil litigation is that
it is a decidedly public process. The state funds the court system. The
public participates in a transparent conversation about legal rights.
To that end, citizens have some ownership, at least in spirit, of what
happens within that system. Secret settlements are therefore anathema
in a system that is, at heart, for the public good because the
bedrock of the system is transparency of information. 45 The whole
reason for a public dispute resolution system is that it operates for
the benefit of the public. Therefore, participants in the system must
submit to such publicity. Making secret the outcome of a settled dispute
that began in such a system removes the public’s ability to learn
from the dispute. The parties have, therefore, for their sole selfish
benefit, compromised the values that make a public system public.
44. This notion about questioning transparency as an absolute value in civil litigation
tracks Mark Fenster’s broader criticism of transparency theory’s “abstract normative
commitments and consequentialist assumptions . . . .” Mark Fenster, The Opacity of
Transparency, 91 IOWA L. REV. 885, 933 (2006).
45. See, e.g., Anne-Thérèse Béchamps, Sealed Out-of-Court Settlements: When Does
the Public Have a Right to Know?, 66 NOTRE DAME L. REV. 117, 156 (1990) (calling for an
open judicial system not trumped by private party interests).

960 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
However, the mere act of filing a claim with a public court generates
instant public access to an incredible array of information. 46
The claim itself lays out the dispute, particulars of material facts,
identities of parties, theories of liability, and some notion of remedies
and value of the claims. This is all available to the public. Even if a
case settles with a confidentiality requirement as part of the settlement,
the claim is still accessible in the public court file. If publicity
and transparency are so important to the public view of civil litigation,
why then is it that there are not more individuals peeking into
civil court files? 47
The civil litigation system already operates with a great deal of
secrecy in order to foster party-driven dispute resolution. 48 There is
very little in a civil litigation case that is completely open to the public.
In fact, secrecy is purposely built into the litigation system in a
variety of ways. Discovery is a private, confidential fact-finding
process. The concepts of lawyer-client privilege and litigation privilege
are designed to keep certain classes of information out of the
public realm so that parties can be at liberty to construct their disputing
strategies in an adversarial fashion. Settlement negotiations
are also deemed privileged, precisely for the purpose of fostering the
settlement of disputes. Alternative dispute resolution processes such
as mediation are nearly always, by consent, a confidential process.
Pretrial settlement conferences in front of a judge are confidential in
order to prompt settlement. Jury deliberations are also secret.
With the main facts of a dispute made public by the filing of a
claim, and with much of the disputing process shrouded in secrecy by
design, it is puzzling how the loss to the public of mere settlement information
can harm the public good. Often the only information not
disclosed to the public as a result of a secret settlement is the monetary
amount of the settlement. 49 Rarer still is the secrecy about the
fault of the parties or perhaps specific detailed facts about the dispute.
Transparency is not an absolute for resolution of disputes utilizing
the public justice system. Further, since the vast majority of
cases settle, secret settlements are likely not denying the public any-
46. See Miller,supra note 7, at 502; Menkel-Meadow, supra note 8, at 2695 (asserting that
parties seeking settlement approval by a court necessarily waive the secrecy of the settlement).
47. Indeed, Ben Depoorter surveys the present potential feedback effect of settlement
information as it is disseminated through various sources (i.e. the media and lawyers). See
Ben Depoorter, Law in the Shadow of Bargaining: The Feedback Effect of Civil Settlements,
95 CORNELL L. REV. 101 (2010).
48. See Miller, supra note 7, at 429.
49. For example, many in the media use language such as “the parties settled for an
undisclosed amount” when reporting on the details of a settlement. See, e.g., Lisa Sink,
Sexual Assault Lawsuit Settled for Undisclosed Amount, MILWAUKEE JOURNAL SENTINEL,
Mar. 5, 1997, at 2, available at http://news.google.com/newspapers?nid=1683&dat=
19970325&id=RHUaAAAAIBAJ&sjid=Fy4EAAAAIBAJ&pg=5604,1538704.

2010] KEEPING SETTLEMENTS SECRET 961
thing anyway. Public adjudication is the exception, not the norm.
There is currently no mechanism demanding public publishing of settlement
agreements. Settlement agreements are not usually entered
into court. 50 This begs the question: what is it that secret settlements
are hiding that would not already be hidden in a public trial?
In fact, by not allowing confidentiality in the final settlement
agreement, this forced transparency may actually increase public
harm because no party will discuss the details of the dispute other
than in the context of a trial. 51 A ban on secrecy may incentivize information
suppression during settlement negotiations. 52 Without the
shield of secrecy, research results, safety issues, and crucial liability
facts may not be revealed at all. Secrecy has the inverse property of
prompting disclosure between the litigants who can rely on the facts
not being made public. Secrecy is not always harmful. Thus, transparency
of the public system is not compromised with secret settlements.
53 It may even be indirectly enhanced because at least “someone”
(i.e., the parties) will have access to some information. It follows
that publicity of information reduces the value of confidentiality to
the parties, making it worthless in settlement negotiations. 54
Maintaining secret settlements (a decidedly private view notion)
thus inversely assists in achieving the public view value of at least
some transparency. The same cannot be said of strict adherence to
the public view’s notion of full transparency in settlements. Litigants
lose some bargaining power, and the public may be deprived of more
open litigation communication as the end result. The private view of
civil litigation, therefore, leads to a more blended solution in effect.
Perhaps, then, the private view of civil litigation is not a competing
normative view incapable of reconciliation with the public view but is
instead more flexible, interdependent, and dynamic in nature.
50. Although they can be, such as to enforce a future settlement in a court order.
51. See Emily Fiftal, Respecting Litigants’ Privacy and Public Needs: Striking Middle
Ground in an Approach to Secret Settlements, 54 CASE W. RES.L.REV. 503, 528 (2003).
52. Or, as Miller argues, removing confidentiality in the litigation process will burden,
rather than facilitate, litigants’ use of the system. See Miller, supra note 7, at 432; see
also Drahozal & Hines, supra note 9, at 1458 (claiming that restrictions on secret settlements
may restrict information about health and safety hazards that would otherwise be
made available to the public).
53. James M. Anderson surmises that civil justice concepts of transparency and publicity
are actually a transaction tax that creates a deadweight cost in derailing settlement
agreements that the plaintiff and defendant would otherwise accept if confidentiality were
allowed. See James M. Anderson, Understanding Mass Tort Defendant Incentives for Confidential
Settlements: Lessons from Bayer’s Cerivastatin Litigation Strategy, at 12 (RAND
Inst. for Civil Justice, Working Paper No. WR-617-ICJ, 2008).
54. Id. at 23.

962 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
B. Secret Settlements Do Not Contribute to the Public Good
According to the public view of secret settlements, settling a dispute
in a confidential fashion does not contribute to the public good. 55 The
public is not equipped with the tools necessary to evaluate the particular
dispute’s resultant place in the firmament of legal proceedings, or
so the thinking goes. Without information about a settlement in a public
proceeding, courts, lawyers and future litigants are deprived of the
facts and the predictive value of the settled case. 56 Thus, no one knows
how factually similar cases may be resolved at trial. Scholars who espouse
the public view of civil litigation often decry settlement itself for
removing valuable legal precedents from the public commons. 57 Making
settlement information unavailable to the public is doubly stinging
because the dispute will not progress to adjudication, while the public
is also denied the informational value contained in the facts of the settlement.
Yet, the private view’s determination to maintain secret settlements
does not completely eclipse public view concerns. In fact,
maintaining secret settlements preserves some important public view
cost concerns, which is completely aligned with the public view’s normative
goals about the public good.
According to the public view, secret settlements also deny future
litigants information about the dispute. 58 Supporters of the public
view of civil litigation point to the inefficiency of allowing disputants
to keep confidential information that might otherwise assist future
parties. If a plaintiff in a products liability lawsuit, for example, signs
a confidential settlement agreement with a particular defendant
manufacturer, the information gleaned in that lawsuit will not be
available for other plaintiffs who may want to pursue similar lawsuits
against that same manufacturer. This could result in inefficiencies
in administrative and information costs, as future litigants will
have to go to the expense and trouble of essentially relitigating disputes
that have already been resolved.
55. See, e.g., Luban, supra note 4, at 2653 (asserting that other litigants have an interest
in information created through the litigation process); Jules Coleman & Charles Silver,
Justice in Settlements, 4 SOC.PHIL.&POL’Y 102, 114-19 (1986) (judicial precedent as a
public good).
56. See Luban, supra note 4, at 2639 (noting that settlement information has some
precedential value for lawyers who are repeat players in the litigation system).
57. See, e.g., id. at 2622; Fiss, supra note 5, at 1085; Lederman, supra note 3, at 256,
268 (arguing that the public need for precedent must be balanced by the private need for
settlement); but see Menkel Meadow, supra note 8, at 2682 (arguing that overburdened
and prolific courts surely must be producing an optimal amount of precedent for suitable
public discourse).
58. See Luban, supra note 4, at 2653 (arguing that facts in a lawsuit are public goods
that are purchased by one litigant and should be made available to the public).

2010] KEEPING SETTLEMENTS SECRET 963
The private view’s answer to the public good criticism of secret settlements
is simple: it is not the public’s dispute. 59 If the normative goal
of the civil justice system is to contribute to the public good, achieving
that goal necessarily requires a kind of “tax” be borne by the litigants
themselves for the good of the public. Public disputes are resolved
within the confines of the adversarial system, and party autonomy is
key. 60 Parties themselves make all decisions about the subject matter
of the dispute and whether to settle. The parties in the dispute pay the
costs of litigation. The public purse provides the administrative
framework for the dispute resolution process: the judge, the rules of
civil procedure, and the courthouse forum. However, that is the extent
of the public’s contribution to the dispute. The parties also bear the
risk of losing and having to pay a portion of the successful litigant’s legal
costs as well. This risk is not borne by the public. It is a rosy picture
of the litigation world indeed if one believes that litigants expend
resources, time, and emotional energy in a lawsuit with the sole lofty
goal of somehow contributing to the public commons. 61 While such a
goal may certainly be collateral to one’s use of the public justice system,
it is dangerous if it supplants the private view’s goal of solving
individual disputes as the primary modality for the system.
Even viewing the system as a whole, it is difficult to understand
why settlement tools like the option to bargain for secrecy should be
removed so that the public can benefit from the settlement information.
Those who endorse this public view have perhaps not spent
enough time watching a litigant, 62 who, in pursuit of her case, spends
her life’s savings on legal fees, risks her house by facing adverse legal
fees awards, has her most private secrets relived in discovery, and
lives with the entire process for nearly a decade as it chugs through
the system. If not for her case, the system would not have her information
to disclose. Should she have to surrender the right to control
access to that information in exchange for access to the marginally
tangential public administrative aspects of the system? Is the appropriate
“tax” she must pay for using the public system really the removal
of what might be a valued settlement tool?
Forced public settlement disclosure may also actually encourage
litigation. Surely this cannot be in the common public good. If infor-
59. See, e.g., Miller, supra note 7, at 431; Menkel-Meadow, supra note 8, at 2692.
60. See Doré, supra note 1, at 297-98 (asserting that party autonomy exists even in
public cases in the civil justice system, as the parties themselves bear the risks and costs of
the litigation).
61. Although many litigants may have as a residual reason for starting a civil action—to
prevent others from experiencing the harm they had experienced—the focus of
this altruistic motivation is still on the individual harm the initial litigant faced. The individual
had to first suffer in order to gain the motivation, or reason, to sue. The lawsuit is
about the individual, and the individual is in control.
62. Or a lawyer acting on a contingent fee on her client’s behalf.

964 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
mation about a typical lawsuit is disclosed to the public, there is a
real possibility that lawsuits that would not have otherwise been
brought will suddenly appear. While the public view considers this
an efficiency in cost savings for future litigants, the private view
takes a more longitudinal approach to this information disclosure. As
more potential litigants are made aware of a pending lawsuit, the likelihood
that additional future cases will be brought is similarly increased.
The fact remains that settling cases, secret or not, clears up
the court’s docket so that it can take the necessary time when a more
“public” dispute enters the system. 63 Free informational discovery
removes the barrier to entry for litigants. It also institutionalizes an
obvious free-rider problem as the initial litigant must bear the costs
to sue, but each subsequent litigant benefits from the first’s outlays. 64
If one takes the civil litigation system’s fact-finding adversarial
process as designed to foster truth-seeking, forced public settlement
disclosure becomes a dangerous shortcut. When disclosed, what is
properly relevant information in one lawsuit may do no more than
encourage other litigants to take a shot at a similar lawsuit, whether
meritorious or not. The upfront investment required for fact-finding
in civil disputes can and does act as a clearinghouse for frivolous cases.
Removing that feature may, in effect, overburden the system.
Wrong-headed or opportunistic lawsuits surely do not contribute to
the public good, nor does an overwhelmed public litigation system. It
is far more efficient to leave the proprietary nature of the dispute in
the hands of the parties who started it, including the choice to keep
the settlement secret. 65
The public view’s notion of contribution to the caselaw commons
as a necessary product of litigating in the public system creates a
63. Menkel-Meadow notes that if courts are so overburdened, there may already be an
optimal amount of legal precedent available to achieve the level of public discourse that
Luban and others desire. See Menkel-Meadow, supra note 8, at 2682.
64. Jillian Smith argues that settlement disclosure increases lawsuit efficiency so
that similarly injured individuals can share in the informational spoils of the first litigant
to sue. See Jillian Smith, Secret Settlements: What You Don’t Know Can Kill You!, 2004
MICH.ST.L.REV. 237, 255 (2004).
65. Interestingly, Luban appears to sidestep the value-creation quality of secret settlements,
where he acknowledges that banning secret settlements may eliminate the ability
of “weak plaintiff[s]” to bargain toward settlement. Luban, supra note 3, at 2657. Luban
does not counter this fact but instead notes that if secret settlements were banned, defendants
would still have the same incentives to settle. See id. at 2657-58. This rationalization
falls short because removing secrecy from the bargaining process removes a compelling
reason to settle in the usual course of litigation. Defendants may, in fact, have less incentive
to settle, as they may be just as well-off in a public courtroom if the settlement information
is to be made public in any event. The problem with Luban’s logic is that the “weak
plaintiff” is just the type of litigant who cannot afford to run the risk of trial. Id. Menkel-
Meadow additionally counters Luban’s reasoning for ignoring the fact that plaintiffs, and
not just defendants, want to keep secrecy as a settlement option for privacy concerns. See
Menkel-Meadow, supra note 8, at 2684.

2010] KEEPING SETTLEMENTS SECRET 965
burdensome tax on users of the system. First, it assumes that cases
are better off in the system than out. Yet the civil justice system is
designed to foster settlement in many ways, such as pretrial motions
to remove unmeritorious cases, threats of adverse legal fees, and
judicial case conferences. It is, in effect, a system with a singular
purpose: to get users out of the system. For the public view’s notion
to operate properly, cases must stay in the system. That has serious
public resource consequences. In contrast, the private view of litigation
is completely compatible with the current system’s process of
funneling cases toward settlement. In addition, the removal of secret
settlements as an option for litigants may actually increase unwanted
litigation, which is the opposite effect the public view expects.
While the public view acknowledges that transparency will assist
other litigants in bringing their cases forward with lower transaction
costs, it does nothing to assess whether that is a desirable outcome.
And the public view offers nothing to assist in determining which
cases are meritorious enough to benefit from the wholesale litigation
clearinghouse that an absence of secrecy would bring. In litigation,
quantity certainly cannot ever supplant quality as a sensible option.
The private view of litigation is perhaps better equipped to balance
this particular dynamic than its public counterpart.
C. Secret Settlements Perpetuate Danger
Some public view scholars and commentators argue that secret
settlements can kill. 66 This is powerful rhetoric, but it makes little
sense when the arguments are deconstructed, particularly in light of
private view concerns about the importance of secrecy in the settlement
dynamic as it pertains to safety information. In fact, what
sounds like the most compelling reason to ban secret settlements–
public safety–may actually end up making the public less safe by incentivizing
selective reporting rather than the reporting of useful
66. See, e.g., Fiftal, supra note 51, at 508; Luban, supra note 4, at 2653 (arguing that
litigation information can save lives and inform public deliberation about matters of political
significance). See also David S. Sanson, The Pervasive Problem of Court-Sanctioned Secrecy
and the Exigency of National Reform, 53 DUKE L.J. 807, 827 (2003) (arguing for legislative
reform that would mandate court disclosure of information deemed a threat to public
safety); Amie Sloane, Secret Settlements and Protecting Public Health and Safety: How Can
We Disclose With Our Mouths Shut?, 3 APPALACHIAN J.L. 61, 68-70 (2004) (contending that
environmental legislation should prompt disclosure of health and safety information in settlements);
Smith, supra note 64, at 268 (arguing for uniform federal legislation requiring
disclosure of settlements that affect public health or safety); Richard A. Zitrin, The Case
Against Secret Settlements (Or, What You Don’t Know Can Hurt You), 2 J. INST. FOR STUDY
LEGAL ETHICS 115, 122-23 (1999) (proposing code of conduct changes to preclude lawyers
from entering into confidential agreements that keep secret matters of public health or
safety). It is quite a bold assertion to argue that confidentiality clauses in settlements “cost
lives.” There are simply too many dependent precursor variables and actions required for
the publication of settlement information to even have any noticeable impact on safety.

966 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
safety information. Finally, the public view’s distaste for secret settlements
may actually be driven by a deeper, hidden preference to
use civil settlements as state-like regulatory or quasi-criminal punishment
mechanisms–a strong public law notion.
According to the public view, secret settlements allow information
pertaining to safety to remain undisclosed. 67 Such information could
include things like product failures or the identity of potential criminals.
Without such information made public, the danger remains a secret
and people could again be hurt. By endorsing secret settlements,
the litigation system misses the opportunity to warn those at risk and
punish wrongdoers. Plaintiffs often place great value on the assistance
their cases will provide to others, be it future litigants or those whose
safety might be similarly affected. Secret settlements hinder this altruistic
motivation. Safety concerns hold within them a powerful rhetoric—who
would not want to see society more safe? Hidden dangers
lurking within manufactured products need to be brought to the consuming
public’s attention. Toxic torts bubbling near someone’s home
need to be revealed. The identities of sexual perpetrators need to be
exposed to keep a community safe, so the logic goes. 68
This argument against secret settlements has a number of assumptions
that do not hold together. First, settlement is not adjudication.
A defendant, be it a manufacturer, an alleged polluter, or an
alleged sexual perpetrator, may settle for a variety of reasons other
than admitted fault. Cost, risk, valuation of time, or a desire to end
the matter could be prime motivators for settlement. A settlement
does not mean the party has been found to be negligent under the
rule of law; it means the parties compromised. A settlement also does
not mean a plaintiff is free of issues affecting her case, such as contributory
negligence, lack of evidence, credibility issues, or blackmailstyle
motivations. Settlement does not mean that the manufacturer
is negligent, that the polluter is poisoning the environment, or that
the alleged perpetrator is guilty or dangerous. In the most extreme
example, settlement could be no more than an agreement to dismiss
the lawsuit without the risk of the defendant pursuing legal costs.
That surely does nothing to establish fault or lack thereof on anyone’s
part. Such information is simply not publicly available to assist
in making any fault or danger assessments.
67. Fiftal surmises that the very information most likely to be helpful to the public–
safety is the information that is also most likely to be held secret by the wealthiest corporations.
Fiftal, supra note 51, at 508-09. What Fiftal’s analysis misses is that there is no
empirical evidence that, even if available to the public, such settlement information would
or even could do anything to promote safety and deter public hazards, except perhaps in
the rarest of cases.
68. See id. at 554-56.

2010] KEEPING SETTLEMENTS SECRET 967
Therefore, it is wrong to assume that settlement equals a finding
of fault. 69 This dangerous logical leap may actually be a strong reason
to have secret settlements in a litigation system. The public cannot
reliably evaluate what settlement information means. The public can
only evaluate based on inaccurate assumptions, prime among them
that settlement equals fault.
Second, the public view of safety as paramount vastly overestimates
the value of safety-related information that could be gleaned from a
settlement document. Only the rarest of cases would truly have hidden
information that could not already be found from the claim alone,
which is already a public document. 70 What possible information could
be hidden from society in a settlement agreement? 71 The public view
proponents would argue that party identities would be important to
know, as well as the existence of unsafe products. But what would the
world do with such information? Put an alleged perpetrator on a list of
sex offenders merely because he settled a claim? As demonstrated
above, settlement is not adjudication—it is compromise.
There is also no evidence that a public settlement does anything to
increase safety in a generalized fashion. 72 This becomes evident when
one traces the steps necessary to make some hypothetically relevant
information public, in order that someone can act to augment safety.
Imagine a settlement where a manufacturer settles a claim for a defective
product. How does the public gain access to that information if the
settlement is not secret? First, someone must discover that the lawsuit
was even filed, which requires a search of the public records. Second,
once the claim is found, someone (presumably the media) must read it
69. See, e.g., Weinstein, supra note 17, at 61 (noting the possibility of the public misunderstanding
settlement information, such as settlement amounts).
70. Laleh Ispahani argues that lawyers should have an “affirmative ethical duty” to
refuse to enter into confidential settlement agreements if there is information which might
“prevent adverse health and safety consequences for the public.” Laleh Ispahani, Note, The
Soul of Discretion: The Use and Abuse of Confidential Settlements, 6 GEO. J.LEGAL ETHICS
111, 112 (1992). However, as noted above, it is difficult to determine what, if any, information
would lead to such prevention of harm. Usually, prevention is contingent on an array
of regulatory and reporting steps occurring outside the confines of the settlement. This
makes putting the ethical burden on the lawyer somewhat problematic and conflicting in
that, for this particular decision, the lawyer’s client shifts from the individual to the public
as a whole. Id. See also Zitrin, supra note 66, at 122-23 (proposing code of conduct changes
to preclude lawyers from entering into confidential agreements that keep secret matters of
public health or safety).
71. Arthur Miller notes that the “vast majority of litigation” has very little “public interest”
to it. Miller, supra note 7, at 467 (internal quotation marks omitted). Ben Depoorter also
notes the ambiguous effect that forced settlement would have on litigation, stating that information
about settlements is already widely available in a variety of fora, and usually simultaneously
with the settlement information. See Depoorter, supra note 47, at 127-128.
72. See Miller, supra note 7, at 482. Luban argues that when litigants settle, they
pass the costs of secrecy on to an innocent third party not present at the bargaining table.
Luban, supra note 4, at 2653. This, however, assumes that this information has value to
the third party.

968 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
and understand it. Third, the settlement agreement must somehow also
be in the court file. Currently, that is not a standard step in every
case, unless the parties attach a copy of the agreement to the requested
court order dismissing the action, or unless the parties request
that the judge make the settlement terms a part of the order dismissing
the action. Even assuming that there is somehow a settlement
agreement in the public file, what can one do with that information in
the name of safety? Report it, the argument goes, so that other members
of the public may benefit from the information.
There is a real risk that the reporting of such a selective amount
of information could do more harm than good. Imagine if a settlement
is reported between a pharmaceutical manufacturer and a patient.
The reporting of the settlement accomplishes nothing more than to
spur on other litigants to try their hand at a lawsuit if they have
been taking that drug. Certainly, some claims may be meritorious.
Others, perhaps not. Perhaps proponents hope that some government
watchdog agency will investigate the pharmaceutical company. It is
unclear, however, just how that might come about. In fact, such a
press release could be part of the terms of the negotiated settlement,
even though the identity, fault, and amount of the settlement remain
secret. Now imagine if a settlement is reported between a church minister
and an alleged abuse victim. The reporting of that information,
without the full facts available, can certainly do reputational harm
to both the minister and the victim. Is this the proper balance society
should seek to achieve, all in the name of safety—publication on settlement
information alone? It could be argued that such disclosure
tramples over privacy rights in the name of perceived public safety.
Not all settlements contain information that benefits the public. 73
Of the thousands of civil lawsuits filed each year, the large majority
will be for personal injury or contractual disputes. Therefore, it is often
difficult to understand how the removal of the secret settlement
tool in the name of safety will benefit society if the bulk of information
floating about the court system in settlements is, for all practical
purposes, useless when it comes to safety. Furthermore, it is difficult
and costly to separate those few cases that might actually have publicly
beneficial information from those displaying information that
amounts to no more than titillating, newsy gossip. 74 In fact, just
73. See Miller, supra note 7, at 467 (noting that the vast majority of civil litigation involves
complex and technical details with fact situations unhelpful to daily life); see also
Andrew D. Goldstein, Sealing and Revealing: Rethinking the Rules Governing Public
Access to Information Generated Through Litigation, 81 CHI.-KENT L. REV. 375, 405-06
(2006) (noting that the public’s interest in discovery materials is qualitatively different
than the use the public could make of information in settlement agreements).
74. See Miller, supra note 7, at 467 (arguing that courts would be overburdened if
they had to distinguish between curiosity and voyeurism interests as opposed to legitimate
public safety concerns).

2010] KEEPING SETTLEMENTS SECRET 969
about any case can be skewed to appear to have an aspect of health
and safety to it, from an automobile accident in which the driver
failed to wear a seatbelt to a wrongful dismissal case in which unsafe
working conditions are alleged. The danger of violating real privacy
interests, therefore, likely outweighs tangential, ephemeral, and difficult-to-define
safety concerns. 75
A contextual approach to limiting secrecy for certain cases in the
name of safety is also problematic. 76 It is nearly impossible to define
which cases should lose the right to bargain with secrecy. It is even
more difficult to attempt to define why those particular cases should
lose that right. Should all litigants involved in sexual assault cases
be forbidden to bargain with secrecy? What if that is the only leverage
available to the plaintiff? Do all products liability settlements
have beneficial information to the public, such that disclosure always
outweighs the opportunity cost that is lost when secret settlements
are banned?
Florida and Texas, for example, have enacted “sunshine” laws designed
to further public access to settlements, all in the name of safety.
In Florida, a settlement cannot conceal a “public hazard.” 77 In
Texas, all court documents must be made public if they contain information
that might have an “adverse effect on the public.” 78 Other
states, such as Arkansas 79 and Washington, 80 have enacted more narrowly
tailored responses to secret settlements. These legislative
measures have been met with much controversy and criticism. 81 Tell-
75. There would be, of course, a slightly different informational dynamic for a mass
torts case where there is a significant number of people injured as a result of someone
else’s action. In those instances, a more public-centered stance may be needed to balance
out the various competing concerns. This Article, however, leaves the aggregate and mass
litigation cases to be categorized on the continuum another day.
76. See, e.g., Fiftal, supra note 51, at 548, 554 (arguing that confidentiality should be
the norm for settlements, with the exception of cases about national security, government
entities, products liability, sexual violence, and substantial public health and safety
threats); see also Béchamps, supra note 45, at 144 (proposing a statutory regime for sealing
court decisions with exceptions militating against secrecy for a variety of lawsuits).
77. See FLA. STAT. § 69.081 (2009) (prohibiting a court order or settlement from concealing
a “public hazard”).
78. See TEX.R.CIV. P. 76a(1)(a)(2) (mandating that all court documents are public, including
settlement documents, if such contain information that might have an adverse effect
upon the general public health or safety); see also Doggett & Mucchetti, supra note 26
(arguing in favor of TEX. R.CIV. P. 76a, which makes public access to court records the
standard rule).
79. ARK. CODE ANN. § 16-55-122 (2009) (permitting a court to void settlement provisions
that restrict a person’s right to disclose an environmental hazard).
80. WASH. REV. CODE ANN. § 4.24.611(4)(b) (2009) (stating that confidential settlements
of products liability or hazardous substances are only allowed when a court finds
such confidentiality to be in the public interest).
81. See, e.g., Miller, supra note 7, at 436; Laurie Kratky Doré, Public Courts Versus
Private Justice: It’s Time to Let Some Sun Shine In On Alternative Dispute Resolution, 81
CHI.-KENT L. REV. 463 (2006) (discussing the possibilities for transparency for disputes resolved
through alternative dispute resolution other than litigation).

970 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
ingly, there appears to be no caselaw to date interpreting what these
provisions mean. What is a “public hazard?” Is it an environmental
spill, a sexual perpetrator, a drunk driver, or any tortfeasor? And
what information could have an “adverse effect on the public?” Could
such cases include fraudulent stock trading or a slip and fall at a national
grocery store chain? The statutory mechanisms offer no guidance
as to when and how these provisions are to be applied. Perhaps
this is real evidence that the “public good” aspect of informational exchange,
which is so important to the public view of secret settlements,
is actually not at all important in practical reality. The statutes
may be no more than toothless appeasements to those who hold
the public view of litigation and worry about any remote possibility of
concealment of safety information. 82 Even with a contextual, categorical
approach to secret settlement bans, parties can still negotiate
around such restrictions.
Public view scholars often point to potential safety benefits when
arguing in favor of such high levels of settlement disclosure. But, as
the above examples demonstrate, settlement should never be a substitute
for punitive criminal sanctions. 83 Relying on an inefficient and
vague substitute for the criminal law without a full factual record is
perhaps reckless in and of itself. The chances of inaccuracy and harm
may be higher than the harm one is attempting to curb through disclosure.
Private parties litigating typical private law bilateral disputes
are also not expected to be private attorneys general. 84 As the
system currently stands, the private civil lawsuit is not the vehicle
for public punitive goals. For the most part, safety information for
the public is a by-product of the private litigation system. That byproduct
should not be elevated to an inappropriate and perhaps unsafe
level that compromises settlement dynamics respecting privacy.
What public view proponents are likely concerned about is settlement
generally. Secrecy is a secondary concern. Settlement takes the
82. See, e.g., Fiftal, supra note 51, at 525-26 (indicating that courts rarely use
sunshine laws).
83. In advocating for uniform federal legislation requiring the disclosure of settlements
touching on matters of public health and safety, Jillian Smith reasons that such legislation
would help hold wrongdoers accountable. See Smith, supra note 64, at 254-55.
84. As opposed to more decidedly public-centric types of cases, such as class actions
and securities fraud, which by their very procedural design implicate plaintiffs in the role
of quasi-private attorneys general. Dan Markel discusses the idea of having private attorneys
general bring actions in the name of the public for cases involving punitive damages,
in which such actions have some state regulation and the private actors become entitled to
a “finder’s fee” in exchange for doing the investigative work of the state. See Dan Markel,
Retributive Damages: A Theory of Punitive Damages as Intermediate Sanction, 94 CORNELL
L. REV. 239, 280 (2009); see also Dan Markel, How Should Punitive Damages Work?, 157
U. PA. L.REV. 1383 (2009). Interestingly, his proposal is an insightful blend of the benefits
of some select aspects of the public view of civil litigation with a frank acknowledgment of
the value of the private view. Such a theoretical blending can prove equally insightful
when viewing secret settlements in the context of the litigation system.

2010] KEEPING SETTLEMENTS SECRET 971
dispute out of the adjudicatory process and keeps informational control
in the hands of the parties in the private sphere. Yet, as mentioned in
the previous section, the civil litigation system already operates with a
great deal of secrecy. No one is clamoring for the end of litigation privilege
in the name of safety. Menkel-Meadow notes that there is a distinct
romanticism of civil litigation among some scholars. 85 Perhaps
this has led to a romanticism of settlement among public view proponents.
Regardless, the public view’s advocacy of safety concerns as a
reason for rejecting the concept of secret settlements is turned upsidedown
when one assesses the safety results through the private view’s
lens in a litigation world without secret settlements.
D. Secret Settlements Take Advantage of the Vulnerable
The public view proponents also express perhaps misdirected concerns
that secret settlements take advantage of vulnerable litigants.
This assumption leads to the conclusion that the private view of litigation
cannot–or will not–properly balance the needs of various parties.
In other words, the ability to freely contract out of litigation
should be fettered by some state control in order to protect the vulnerable.
The problem with the public view’s solution (a ban on secret
settlements) is that it targets the freedom to contract, instead of the
actual problem: why are some litigants vulnerable? This is perhaps a
not-so-subtle normative slip that underlines why the public view of
civil litigation, in a vacuum, is often ideologically driven to somewhat
illogical ends because it assumes the result must be incompatible
with private view thinking. Instead, the private view of litigation fosters
a risk analysis approach that preserves freedom to contract
while attempting to protect vulnerable interests.
According to the public view, the power and informational imbalance
inherent in much litigation tips in favor of the defendant. A lone
plaintiff suing a corporation in a products liability lawsuit may be
pressured to accept a settlement with a confidentiality clause because
that plaintiff is out-resourced, out-lawyered, and outmaneuvered.
The plaintiff is not a repeat player in the litigation system,
whereas the defendant often is. This imbalance is all the more
important if the plaintiff has been harmed in a particularly damaging
fashion, such as in physical, psychological or sexual abuse cases.
Vulnerable people may not be in a position to evaluate their needs at
the time of settlement. Confidentiality, which seemed to be a bargaining
chip at the time, may take on greater importance after the
settlement is complete and the plaintiff regrets having lost the right
to speak about the settlement. There is another concern that confus-
85. See Menkel-Meadow, supra note 8, at 2669.

972 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
ing confidentiality clauses have the potential, after particularly trying
disputes, to disrupt therapy and the healing process for plaintiffs.
The concerns here are very real, but the target of the angst may
be misplaced. The target is the secret settlement. Perhaps the target
should instead be lawyers who do not effectively advise their particular
clients. Removing a value-creation bargaining tool from vulnerable
people may not be the most sensible way to protect those peoples’
long-term interests in the settlement process. 86 In fact, it may cause
more harm precisely because the plaintiff may not have that tool
with which to bargain. 87 Because vulnerable plaintiffs often face such
informational and resource power imbalances, a trial is often a less
palatable option. 88 The toll of litigation on any person cannot be overestimated.
The weight of such a process on one who is already in a
precarious position can be debilitating. Settlement may be the only
option. The plaintiff may not be able to finance or even survive a full
trial. The evidentiary record may not be full enough for a trial. Settlement,
not adjudication, becomes the goal.
If that is the landscape that most of these vulnerable plaintiffs
face, why remove a tool that may garner more compensation for the
plaintiff and end the dispute more quickly, with less cost and less
stress? The vulnerable plaintiff cannot usually use a trial as a credible
threat, while the defendant can. 89 The only real tool in the vulnerable
plaintiff’s arsenal may be the threat of public exposure. Removing
the option of secret settlements for such litigants is akin to
assuming that all plaintiffs cannot think for themselves and would
not choose to bargain away secrecy for a price. This assumes the
worst of the plaintiff–decisionary incapacity. It assumes that the
86. Two studies revealed interesting results about the presence and absence of secrecy
in a litigation context. Andrew F. Daughety and Jennifer F. Reinganum found that early
claimants have negotiating leverage that allows them to get a higher settlement payout
from a defendant in exchange for a secret settlement. However, later claimants fare worse
in settlement scenarios in which secrecy is a factor. See Andrew F. Daughety & Jennifer F.
Reinganum, Secrecy and Safety, 95 AM. ECON. REV. 1074 (2005); Andrew F. Daughety &
Jennifer F. Reinganum, Hush Money, 30 RAND J. ECON. 661 (1999). Alison Lothes extended
Daughety and Reinganum’s analysis to find that nonsecret settlements between defendants
and early claimants induced later claimants to bring more frivolous claims.
Secrecy in the civil litigation system therefore may lead to a reduction in vexatious litigation
by free-riding secondary litigants relying on public information from an initial lawsuit.
See Alison Lothes, Quality, Not Quantity: An Analysis of Confidential Settlements and Litigants’
Economic Incentives, 154 U. PA.L.REV. 433 (2005).
87. See, e.g., Fiftal, supra note 51, at 527 (arguing that secret settlements may be the
only way a vulnerable plaintiff can get any compensation at all).
88. See id.
89. Avedis H. Sefarian and James T. Wakley argue that settlement agreements in a
litigation context usually operate in a pareto-optimal trade-off. See Sefarian & Wakley, supra
note 33, at 803. No party is worse off, and at least one party is better off after settlement.
Id. Secrecy may prompt settlement negotiations to get closer to pareto efficiency in a
more expedient manner.

2010] KEEPING SETTLEMENTS SECRET 973
plaintiff will always be taken advantage of, when in fact it removes a
potential advantage for those very plaintiffs. 90
One other possibility is to make it the plaintiff’s prerogative
whether or not to settle with a confidentiality clause. 91 At first blush,
this appears to be empowering plaintiffs. If the plaintiff does not
wish to submit to a confidentiality clause, a plaintiff does not have to
do so. But this takes an overly simplistic view of how settlement negotiations
are conducted. The negotiation landscape already makes
settlement the plaintiff’s choice. Defendants in this sort of regime
would know that the plaintiffs have the power to institute confidentiality;
so too would plaintiffs. The dynamic remains the same. Merely
placing the ability to mention confidentiality as an option in the
hands of the plaintiff will do nothing to curb settlement practices involving
secrecy. Both parties would be foolish not to explore in negotiations
whether secrecy has any value-added component for the settlement.
In fact, the plaintiff has the power to reject a secret settlement
at any time if confidentiality provisions are at all an issue.
It falls then on the shoulders of lawyers to protect their vulnerable
clients’ needs. That is where the public view of civil litigation can be
quite helpful, but only if tempered with the private view’s notion of
the adversarial litigation process. The lawyer is the individual looking
out for the best interests of her client. If the client is likely to require
therapy in the future, the lawyer should advise the client to not
accept, or at the very least rework, a confidentiality clause to accommodate
such future needs. If the client is unable to predict her future
needs, the lawyer should be trained to provide that foresight for their
client. Simply banning the option to bargain with secrecy takes away
the ability of an informed but vulnerable plaintiff and her lawyer to
bargain creatively with additional leverage. 92
90. For example, in the Canadian case of Milne v. Pfizer, Inc., 2005 ABQB 236 (CanLII),
the court approved a minor’s settlement and ordered the terms of the settlement confidential.
The court determined it was in the minor’s best interests for the settlement to be approved,
even with a confidentiality agreement, rather than to receive no settlement at all.
91. As was recommended by the Law Commission of Canada for cases involving government
institutional abuse in RESTORING DIGNITY: RESPONDING TO CHILD ABUSE IN
CANADIAN INSTITUTIONS 410 (2000). The Report recommends that government defendants
should not impose confidentiality provisions on settlements with survivors of institutional
abuse; rather, the choice should remain with the plaintiff. Curiously, there was no discussion
about the loss of value-creation to these same vulnerable plaintiffs if secret settlements
were removed from the settlement dynamic.
92. Minna J. Kotkin, while arguing against secret settlements for employment discrimination
cases and simultaneously decrying many aspects of the private view of civil litigation,
notes that there can be a sort of selective secrecy that may balance both perspectives.
See Kotkin, supra note 3, at 977. Kotkin suggests that a court could make available
public data about the nature and extent of a settlement but keep the parties’ identities a
secret, purely to assist in aggregating information about settlement rates. Id. The value of
such information could assist in making the public aware of the prevalence of such claims
in the workplace. See also Ross E. Cheit, Tort Litigation, Transparency, and the Public In-

974 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
This particular public view desire to ban secret settlements becomes
less compelling when one considers that the enforcement of
confidentiality clauses is inconsistent at best. Would any court truly
prohibit an injured plaintiff from seeking psychological counseling after
an injury, merely because of a broadly-worded confidentiality
clause? If the plaintiff thinks she is barred from seeking therapy,
even though she may not be in reality, the real concern is with her
lawyer. Why did the lawyer fail to explain the practical ramifications
of the clause to the client, or that enforcement is questionable at
best? Here, awareness and education of lawyers can play a significant
role. Removing a settlement tool and upsetting the settlement
dynamic in the name of vague concerns for the vulnerable assumes
the worst. It may, in the end, remove the only real settlement tool a
vulnerable plaintiff may have.
E. Government Entities Should Not Enter into Secret Settlements
The public view of litigation holds that governments should never
enter into secret settlements because the state is a public entity beholden
to the public. 93 The public has a right to know what the government
is doing. The government-as-party justification for a ban on
secret settlements also hearkens back to the transparency arguments
against secret settlements. If the government is a litigant using public
tax dollars, the government should not be allowed to bargain away
confidentiality because the public has a right to know what the government
is doing with the public’s money. 94 The government is then
not a normal party but a super-party in litigation, representing more
than just an individual’s private interests. The private view of litiga-
terest, 13 ROGER WILLIAMS U. L. REV. 232, 272 (2008) (discussing a similar positive externality
toward a modified secret settlement regime in the form of improving public data collection).
Blanca Fromm argues that this type of partial settlement disclosure regime might
actually begin to operate as an informal system of precedent for lawyers. See Blanca
Fromm, Bringing Settlement Out of the Shadows: Information About Settlement in an Age
of Confidentiality, 48 UCLA L. REV. 663 (2001). Of course the benefits of any such model
still depend on the lawyer’s ability to accurately interpret what may be ambiguous information
in a settlement agreement (i.e., “fault,” factual information, and monetary
amounts). It is difficult to predict the utility of much settlement information without more
background regarding the dispute under which it arose.
93. See Sedona Conference Working Group, The Sedona Guidelines: Best Practices
Addressing Protective Orders, Confidentiality & Public Access in Civil Cases, 8 SEDONA
CONF. J. 141, 177 (2007) (recommending that, absent exceptional circumstances, settlements
with public entities should not be confidential, so as to adhere to the principle of
transparency in government).
94. This is likely the motivation behind the Law Commission of Canada’s recommendations
that government defendants should not impose confidentiality provisions on settlements
with survivors of institutional abuse. See Law Commission of Canada, supra note
91, at 410. The Report does not, however, call for a ban on secrecy but instead recommends
placing control of secrecy in the hands of the plaintiff only. Curiously, there was no discussion
about the loss of value-creation to these same vulnerable plaintiffs if secret settlements
were removed from the settlement dynamic.

2010] KEEPING SETTLEMENTS SECRET 975
tion, however, would uphold the principles of party autonomy and
party prosecution regardless of who the party is. Even the government
as litigant needs the discretion to keep some things secret.
Treating the government as a special party that would not have
access to the option of secrecy in settlement creates a host of problems.
First, most government entities already operate with some degree
of secrecy. It would be difficult and problematic to attempt to categorize
precisely which settlements are to be made public and which
should be kept secret. What about cases involving sensitive matters
of national security? What about cases of institutional abuse within
government organizations? Do the victims not have the right to keep
the settlement secret if they so choose? Must the settlement be disclosed
just because the defendant is a government entity? And if so,
does this further compromise settlement prospects? In many instances,
the government is the most formidable law firm with the
most resources a party will ever encounter.
The public view of government litigation helps highlight one important
fact–the settlement dynamic with the government as a party
may be unique. If discretion is granted to the government to enter
the lawsuit, to defend the lawsuit, or to settle the lawsuit, all in the
public interest, why should the option of a secret settlement be disallowed
if is in the public interest? In fact, precisely because the litigant
is the government, there may be a variety of publicly available
informational resources with which to gain far more access to settlement
information than with any other private entity. These informational
resources may provide such data in a different form than the
actual settlement agreement, but they would be no less revelatory.
What is special about the agreement itself that it must be disclosed
in its entirety? Using the public interest to restrict the government’s
capacity to bargain in the public interest is a very odd dichotomy.
The real target of the public view’s concern of government-as- litigant
is the issue of informational disclosure of data that may be useful
in the public domain. One must make a profound assumption to conclude
that every settlement entered into by the government-as-litigant
holds important data useful for the public domain. There are many
acts a government undertakes each day that are shrouded in secrecy.
Furthermore, a government performs many acts each day utilizing
public funds. None of these acts are automatically reviewable by the
public, automatically informative of anything the government has
done or plans to do, or even automatically interesting or additive to the
political conversation of the day. This is not secrecy for secrecy’s sake
but administrative efficiency and delegated discretion.
Essentially, then, the banning of secret settlements by government
entities is no more than a signal of government distrust and an

976 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
institutionalized mechanism for government review by the public.
Rather than enhancing the political conversation with its constituents,
forced settlement disclosure may actually bind the hands of the
delegated government body to get its job done efficiently, fairly, and
in the interests of the public. The public view assumes as an immutable
rule that it is never in the public interest to keep settlements secret.
Interestingly, this is more in keeping with what one might expect
the private view of litigation to conclude about government involvement
in lawsuits.
In contrast, the private view simply treats the government as any
other party, subject to the same rules and permitted to use the same
settlement tools. In the end, this might prove to be the most efficient
way to conceive of the government-as-litigator in the civil justice system.
Government informational disclosure requirements are, or
should be, more than adequate to deal with the public’s thirst for information,
for whatever reason, be it accountability concerns or media
gossip. Removing secret settlements as an option for the government
so as to enhance governmental informational disclosure may
actually cause the public more harm than good. Litigation may become
protracted, discretion fettered, the interests of the vulnerable
not heeded, and the public may not know what to do with the information
even if it had it. Further yet, the public may misinterpret the
information. In fact, all of the problems with the public view’s desire
to ban secret settlements–transparency, public contribution, safety,
and the vulnerable–are completely turned on their heads when the
public itself is the litigator. Secret settlements are a litigation settlement
tool, not an informational prospectus.
IV. CONCLUSION
The public view’s charge to ban secret settlements does not sit
comfortably with much of what public view scholars want to see in
the civil litigation system itself. Perhaps the most important final
flaw in thinking of the civil justice system from the public view
standpoint is revealed when extrapolating what would occur if secret
settlements were actually banned for any one of the reasons cited by
public view scholars. Banning secret settlements altogether may
have absolutely no effect on the use of secret settlements in litigation
because parties will just work around the ban. 95 This is a decidedly
95. Indeed, Scott Moss notes that while a ban on secret settlements would have an effect
on the incidence of settling a lawsuit after it has been filed, there would be a resultant
increase in settlements reached before the lawsuit is filed. While Moss notes that settlements
reached before a lawsuit is filed are most certainly cheaper to the litigation system
in economic terms, it is difficult to predict the total net effect of a secret settlement ban because
of the variety of factors and behaviors in the settlement dynamic. At the very least,
Moss concedes that uncertainty costs prevent economic analysis of secret settlements from

2010] KEEPING SETTLEMENTS SECRET 977
private view result. A legislative ban on secret settlements may incentivize
parties to opt out of the public justice system and into private
arbitration or alternative dispute resolution, where the ban may
not apply. 96 Disputing parties may forum shop or use contractual
choice of law language to select a jurisdiction that allows secret settlements.
97 Parties may also agree to never file a suit with the public
justice system. 98 One could imagine a defendant demanding, as part
of settlement negotiations, that the plaintiff dismiss the publicly filed
lawsuit so that the parties negotiate beyond the shadow of the law altogether,
with secrecy as a possible bargaining chip once the dispute
is completely outside the public system. What is the point of a ban if
any party can still contract around the ban? 99
The civil justice system is built to favor settlement over trial. For
the typical private law dispute, it is a system with values most compatible
with the private view of litigation because the private view
can accommodate some public view concerns in a nonlinear fashion.
100 It appears that the public view is far less effective at accommodating
private view concerns. To that end, it makes most
sense to allow parties to bargain with secrecy if they see fit. Regulation
does no more than reduce opportunities for settlement and upset
the dynamic of settlement negotiations and, in some cases, the very
possibility of settlement at all.
In fact, by keeping secret settlements in effect for nonaggregate private
law disputes in the civil justice system, the private view’s
strength is in its malleability at the system design level. One can focus
on individual private concerns and often simultaneously meet public
providing a clear answer as to whether or not a total ban is beneficial. See Scott A. Moss,
Illuminating Secrecy: A New Economic Analysis of Confidential Settlements, 105 MICH. L.
REV. 867 (2007). See also Depoorter, supra note 47 (noting the ambiguous effect that a ban
on secret settlements would have on litigation behavior).
96. See, e.g., Sedona Conference Working Group, supra note 93, at 173; Luban, supra
note 4, at 2622 (arguing that if public courts cannot compete with private dispute resolution,
litigants will switch to private providers).
97. See Drahozal & Hines, supra note 9, at 1481-82.
98. See id. at 1459 (proposing that parties could circumvent secrecy bans by settling
before the claimant actually files a lawsuit).
99. Unless, of course, the legislative ban also prohibited contracting around the ban
on secret settlements. This creates a host of enforceability and fairness concerns. What if,
for example, it is perfectly appropriate in a highly sensitive case to keep the settlement a
secret? Ontario’s recent experience with a blanket ban on contracting around limitation
periods in section 22 of the Ontario Limitations Act, 2002 is a prime example of how statutory
enforcement can create chaos and confusion. In Ontario, the statute eventually had to
be amended to provide greater clarity for citizens and reasonableness of result. Ontario
risked losing commercial deals through forum-shopping to a jurisdiction that did not have
such a ban on contracting behavior. See, e.g., R. John Cameron, New Limitation Periods—
Contracting in Ontario, 40 CAN. BUS. L.J. 109 (2004) (citing the problems with a ban on
contracting around the newly enacted two year standard limitation period).
100. See Drahozal & Hines, supra note 9, at 1466-67 (arguing that secrecy in the litigation
system makes settlements more likely).

978 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945
interest concerns. For example, keeping secrecy as a viable bargaining
tool can prompt creative settlement solutions that add unique value to
the settlement. The obvious instances are when secrecy has a price for
one party. The price paid to settle the case is higher if secrecy is part of
the settlement package. In some instances, the entire settlement may
be about secrecy. Remove the option to bargain with secrecy, and one
removes the ability to settle some disputes. But keeping secret settlements
in the litigation system allows parties to use secrecy’s value in
creative ways. For example, if one party values secrecy or if the control
of information is important to both, the parties could add to the settlement
a jointly drafted press release. That is a nonmonetary solution
that has a monetary value for one or both parties. Part of a settlement
could also include negotiations concerning the issuance of a warning
about a defective product or a product recall in exchange for secrecy.
Such a settlement solution would satisfy a litigant’s desire to ensure
that harm does not happen to a future consumer, while still protecting
the litigant’s privacy.
The value of secrecy does not always have to be measured in dollars.
Parties could also negotiate for a policy change in an organization
or workplace in exchange for secrecy. Again, the ameliorative effect of
the settlement, so central to the public view of secret settlements, is
not lost but is in fact enhanced by the addition of secrecy to settlement
negotiations. The commodity of secrecy, unlike the commodity of money,
prompts creative settlement discussions such as these. There is
nothing stopping parties from negotiating confidentiality clauses in secret
settlements that are tailored to the specific client’s future needs.
Such needs could include therapy, the recognition of the therapeutic
value of discussing some aspects of the results of the settlement, or the
ability to disclose some information required to keep others safe while
still respecting some private elements of the settlement. If secrecy is
taken off the bargaining table, negotiations are invariably limited to
money alone. Surely the public interest benefits more from any one of
the above alternative settlement arrangements.
For these types of standard private law disputes, the private view
of the civil litigation system thus fosters a more complete dialogue
about how to balance rights of parties with the public interest in operating
a publicly funded and publicly available dispute resolution
mechanism. However, because the public and private views operate
on a nonexclusive, nonlinear continuum, the type of dispute may also
control the perspective from which one views and reforms the system.
A civil rights case or a class action may, by necessity, require some
thinking more in line with the public end of the continuum.
In the secret settlement context for typical private law disputes,
the limits of bargaining with secrecy are thus the limits of partydriven
imagination. If a party sees value in secrecy and the opposing

2010] KEEPING SETTLEMENTS SECRET 979
party sees value in disclosure, there is suddenly opportunity for value-creation
in compromise. The price of secrecy does not always have
to depend solely on the willingness of a party to pay for secrecy but
may also depend on the creativity of a party in trading on secrecy. In
a party-driven adversary system, most disputants with nonaggregate
private law claims are made worse off by removing secret settlements
from the landscape of civil litigation. Only the private view of the civil
justice system equips one to evaluate procedural reforms on, ironically,
both private and public criteria.
By unpacking the criticisms of secret settlements, it becomes evident
that the wholly public view arguments are problematic and reversible.
This suggests that the public view, standing alone, may not
be the best way to normatively design the civil justice system’s procedural
mechanisms for standard private law disputes even if, in
fact, one asserts that typical public values are of equal importance to
private values. Perhaps, then, the public view is best thought of as
operating on a nonexclusive continuum in conjunction with the private
view. At the same time, the private view of secret settlements
does a better job of accommodating many public view concerns while
still preserving the party-driven civil justice system in which party
autonomy is currently of some import. The relationship between
these two standpoints is likely thus complementary and nonlinear. 101
This conception may prove helpful in informing future scholarly debates
about the procedural aspects of any kind of case, whether the
bilateral private law dispute, the mass tort, or the class action. Scholars
should recognize that concerns that were previously thought of
as belonging only to one camp of thinking are actually inversely often
solved by the other perspective when the relationship between the
public and private views is understood as something beyond oppositional.
The public can indeed inform the private, and the private can
inform the public. In the end, the utility of the difference is not one of
kind, but of degree.
101. As opposed to bipolar, thus requiring a balancing or trade-off exercise, as Lederman
argues is necessary when discussing the benefits of legal precedent versus settlement
of civil disputes. See Lederman, supra note 3 at 268.

980 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:945

AN ENERGY-EFFICIENT INTERNET: THE NEXT
REVOLUTION
ALVAN BALENT *
ABSTRACT
The Internet is now a staple of modern society, and as a result, there is great interest in
finding ways to further develop the Internet and expand its services. Recent literature has
begun to focus on one particular aspect of the Internet that needs improvement: its energy
usage. Accordingly, this Note examines the potential benefits of an energy-efficient Internet
and explains how taxation based on energy usage can provide a constant impetus to improve
not only the Internet’s energy efficiency but also that of other industries. Thus far, commentators
have not published many works with regard to an Internet energy tax despite the
longstanding debate over Internet taxation itself, which has largely centered upon the concept
of a sales tax. This Note offers new insights into the Internet tax policy debate and provides
a rudimentary framework for structuring an Internet energy tax.
I. INTRODUCTION ................................................................................................................ 981
II. OVERVIEW OF THE INTERNET TAXATION DEBATE ........................................................... 982
III. WHY AN ENERGY TAX ..................................................................................................... 984
IV. WHY ACHIEVING ENERGY EFFICIENCY REQUIRES GOVERNMENT INTERVENTION .......... 991
V. AN INTERNET ENERGY TAX PROPOSAL ........................................................................... 999
VI. CONCLUSION ................................................................................................................... 1001
I. INTRODUCTION
Over the course of the last two decades, the Internet has revolutionized
American society and humankind as a whole. 1 With the advent
of email and instant messenger, the Internet changed the way
we communicate; with the advent of search engines like Google and
Yahoo, it changed the way we gather information; and now, with the
advent of sites like Facebook and MySpace, the Internet is changing
basic modes of social interactions. 2 The Internet has spurred economic
growth by enabling the e-commerce phenomenon to develop. 3
It has also created many high-tech jobs that help build, maintain,
and improve the Internet’s vast technological infrastructure such as
data centers, which are the buildings that hold the computer equipment
supporting the information and communication systems. 4 This
* Alvan Balent, a graduate of Vassar College, is a May 2010 J.D. graduate from
FSU College of Law. He would like to thank his friends and family for their muchappreciated
assistance with this paper, particularly FSU Law Review editors Nathan Hill,
Nancy Pinzino, and Amanda Swindle, and FSU Professor and Research Center Director,
Faye Jones.
1. See, e.g., MANUEL CASTELLS, THE RISE OF THE NETWORK SOCIETY: ECONOMY,
SOCIETY AND CULTURE 387-88 (2000); CATHERINE L. MANN ET AL., GLOBAL ELECTRONIC
COMMERCE:APOLICY PRIMER 16-18 (2000).
2. See CASTELLS, supra note 1; see also PRESTON GRALLA ET AL., HOW THE INTERNET
WORKS 133 (1998).
3. Keith Regan, UN: E-Commerce Key to Global Economic Growth, E-COMMERCE
TIMES, Nov. 21, 2001, available at http://www.ecommercetimes.com/story/14915.html;
Mark W. Vigoroso, The Golden Age of E-Commerce Profits, E-COMMERCE TIMES, Mar. 19,
2002, http://www.ecommercetimes.com/story/16805.html?wlc=1226258239.
4. Jennifer D. Mitchell-Jackson, Energy Needs in an Internet Economy: A Closer

982 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:981
infrastructure requires a constant supply of energy—one that is more
reliable than the United States energy grid typically supplies—in order
to operate. 5 Between the Internet’s constant expansion and the
reluctance of data centers to share information for security reasons,
it is difficult to determine exactly how much energy the Internet requires.
6 Studies, though, have estimated the Internet’s net energy
consumption, which includes all office equipment, to be anywhere between
1-13% of the United States’ total electrical usage, and demand
is increasing constantly. 7 From 2000 to 2005, “energy use associated
with servers doubled . . . representing an aggregate annual growth
rate of 14% per year for the U.S. . . . .” 8 An energy-efficient Internet
has desirable benefits—namely, the enabling of greater Internet deployment
especially into the poorest regions of the world and improved
Internet reliability in an emergency situation such as a natural disaster.
This Note explores how the U.S. tax code could be used to
achieve an energy-efficient Internet.
II. OVERVIEW OF THE INTERNET TAXATION DEBATE
Taxing the Internet is a subject of contentious debate. This debate
most often focuses on whether a sales tax should be levied upon all
cyberpurchases, i.e., the online “retail sales of products and services,
advertising, and business-to-business commerce.” 9 Since its inception
in the 1990s, e-commerce has been a profitable sector of the U.S.
economy. For instance, government estimates showed that U.S. retail
e-commerce sales were $5.3 billion in the fourth quarter of 1999
alone. 10 While this number was a tiny fraction of the $821.2 billion in
total retail sales for that quarter, it was clear that the e-commerce
Look at Data Centers (July 10, 2001) (unpublished M.S. thesis, University of California,
Berkeley), available at http://enduse.lbl.gov/Info/datacenterreport.pdf, at 3.
5. Id.
6. See generally Peter W. Huber, Dig More Coal—the PCs are Coming, FORBES
MAGAZINE, May 31, 1999, available at http://www.forbes.com/forbes/1999/0531/6311070a_
2.html.
7. JONATHAN G. KOOMEY, ESTIMATING TOTAL POWER CONSUMPTION BY SERVERS IN
THE U.S. AND THE WORLD 6 (2007), available at http://dl.klima2008.net/ccsl/koomey_
long.pdf; see also Huber, supra note 6; Mitchell-Jackson, supra note 4, at 12. It may soon be
possible to more accurately determine the energy usage of data centers because the Environmental
Protection Agency has recently announced that it will soon provide Energy Star
ratings for data centers. EPA to Begin Energy Star Ratings for Data Centers,
ENVIRONMENTAL LEADER, Apr. 21, 2009, http://www.environmentalleader.com/2009/04/21/
epa-to-release-energy-star-rating-for-data-centers/.
8. KOOMEY, supra note 7, at 6 (emphasis added).
9. Isabel M. Isidro, PowerHomeBiz.com, Internet Taxation: Which Side Are You On?,
http://www.powerhomebiz.com/vol4/internet-taxation.htm (last visited Aug. 27, 2010).
10. Press Release, William M. Daley, Secretary of Commerce, Retail E-Commerce
Sales for the Fourth Quarter 1999 Reach $5.3 Billion, Census Bureau Reports (Mar. 2,
2000), available at http://www2.census.gov/retail/releases/historical/ecomm/99Q4.pdf).

2010] AN ENERGY-EFFICIENT INTERNET 983
sector of the economy would continue to grow. 11 The number of people
shopping online increased between 1998 and 1999 and consumer ecommerce
gained acceptance globally. 12 Statistics have proven early
studies to be accurate. Between 2000-2009, the world’s Internet
usage grew at a rate of 362.3%, and e-commerce is expected to become
more than a $300 billion sector of the global economy between
2008-2012. 13 This figure will likely continue to increase because, as of
September 2009, Internet service is only available to approximately
25.6% of the world’s population. 14 As worldwide Internet use grows,
e-commerce will expand with it.
In light of the explosive growth of e-commerce, the revenues from
a potential Internet sales tax became impossible to ignore, and soon
there was much literature on the subject. Proponents of such a tax
argue that tax-free e-commerce is like tax evasion in which states
lose billions in annual sales tax revenue. 15 This massive revenue loss
“impair[s] the ability of state and local governments to improve education,
roads, public safety, health, low-income housing, and many
other essential services[,]” and may ultimately lead to an increase in
other taxes to recoup the lost revenue. 16 Proponents of an Internet
sales tax also contend that it is fundamentally unfair not to tax ecommerce
when other services that are important to economic growth
are taxed and when studies indicate that the vast majority of online
shoppers would not be deterred from shopping online by a sales tax. 17
Opponents of Internet taxation, however, argue that the Internet
is in the early and critical stages of development. Thus, any tax on e-
11. Id.; Soyeon Shim et al., An Online Prepurchase Intentions Model: The Role of Intention
to Search, 77 J. RETAILING 397, 397 (2001), available at http://itu.dk/
~petermeldgaard/B12/lektion%203/An%20online%20prepurchase%20intentions%20model
%20_The%20role%20of%20intention%20to%20search.pdf.
12. Isidro, supra note 9; U.S. Consumers Remain Bullish on Online Shopping This
Holiday Season, According to Ernst & Young Study; Holiday Online Volume Projected to
Exceed $10 Billion, BUSINESS WIRE, Nov. 28, 2000, http://findarticles.com/p/articles/
mi_m0EIN/is_2000_Nov_28/ai_67371621.
13. InternetWorldStats.com, Internet Usage Statistics, http://
www.internetworldstats.com/stats.htm (last visited Aug. 27, 2010); Sucharita Mulpuru et
al., US eCommerce Forecast: 2008 To 2012, FORRESTER, Jan. 18, 2008, http://
www.forrester.com/rb/Research/us_ecommerce_forecast_2008_to_2012/q/id/41592/t/2; Sucharita
Mulpuru, Data Charts: US eCommerce: 2008 To 2012, FORRESTER, May 6, 2008,
http://www.forrester.com/rb/Research/us_ecommerce_forecast_2008_to_2012/q/id/41592/t/2;
Barbara M. Fraumeni, E-Commerce: Measurement and Measurement Issues, 91 AM. ECON.
REV. 318, 319 (2001).
14. AllAboutMarketResearch.com, Internet Growth and Stats: Today’s Road to
eCommerce and Global Trade, http://www.allaboutmarketresearch.com/internet.htm (last
visited Aug. 27, 2010).
15. Neil Munro, If It Grows, Tax It, 40 COMM. OF THE ACM 11, 12 (1997), available at
http://delivery.acm.org/10.1145/250000/242859/p11-munro.pdf?key1=242859&key2=
4953504221&coll=GUIDE&dl=GUIDE&CFID=6516967&CFTOKEN=20177739.
16. Isidro, supra note 9.
17. Megan E. Groves, Tolling the Information Superhighway: State Sales and Use
Taxation of Electronic Commerce, 13 HARV.J.L.&TECH. 619, 620 (2000).

984 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:981
commerce would slow the internet’s growth before the tax gains acceptance
among consumers. As evidence, opponents cite studies
showing that e-commerce would decline if it were taxed. 18 They argue
that e-commerce has increased regular retail purchases by citing a
study showing that consumers only used the Internet to learn of an
item before purchasing it in a store. 19 Tax opponents also argue that
in addition to the Internet being a developing “medium whose full
ramifications are not close to being understood[,]” the Internet’s very
nature prevents it from being controlled or regulated. 20 Because it is
“inherently non-geographic,” any tax on the Internet could lead to a
reduction in the number of available jobs in the taxing nation as
companies would relocate to places that do not tax them. 21 As illustrated
by the passage and subsequent legislative extensions of the
Internet Tax Nondiscrimination Act (ITNA), which restricts the taxing
authority of state and local government over the Internet, the anti-Internet
tax camp is currently winning this debate. 22 Although the
ITNA complicated efforts to tax the Internet, this Act would not prohibit
a federal effort to tax the Internet based upon its net energy
consumption. 23 A federal tax scheme focused on energy rather than ecommerce
transactions would thus be outside the scope of the ITNA.
III. WHY AN ENERGY TAX
Regardless of the ITNA’s restrictions, the debate over Internet taxation
has largely been focused around imposing sales and use taxes on
Internet transactions. It is extremely difficult to locate publications
that discuss the idea of an Internet energy tax. 24 Given the variety of
18. Austan Goolsbee, Internet Commerce, Tax Sensitivity, and the Generation Gap, 14
TAX POL’Y &ECON. 45, 45 (2000).
19. Isidro, supra note 9; Shim, supra note 11, at 398.
20. David L. Forst, Old and New Issues in the Taxation of Electronic Commerce, 14
BERKELEY TECH. L.J. 711, 711 (1999); see also Isidro, supra note 9.
21. Isidro, supra note 9.
22. The ITNA, originally known as the Internet Tax Freedom Act, and its impact on
Internet taxation is beyond the scope of this Note. However, for more information on ITNA,
see Austan Goolsbee & Jonathan Zittrain, Evaluating the Costs and Benefits of Taxing Internet
Commerce, 52 NAT’L TAX J. 413 (1999); Burke T. Ward & Janice C. Sipior, To Tax or
Not to Tax E-Commerce: A United Sates Perspective, 5 J. ELECTRONIC COMM. RES. 172
(2004); K.C. Jones, President Bush Signs Internet Tax Freedom Act, INFORMATION WEEK,
Nov. 7, 2007, http://www.informationweek.com/shared/printableArticle.jhtml?articleID=
202801131; Xuan-Thao N. Nguyen, The Internet, E-Commerce and Tax Considerations, in
ALI-ABA COURSE OF STUDY MATERIALS: INTERNET LAW FOR THE PRACTICAL LAWYER,
SK102 (2005).
23. See supra note 22, and accompanying text.
24. In April 2000, the Advisory Commission on Electronic Commerce submitted its
report to Congress on various ways to tax the Internet. While sales and use taxes were
mentioned in this report, an energy tax was not. See ADVISORY COMMISSION OF
ELECTRONIC COMMERCE, REPORT TO CONGRESS (2000), available at
http://govinfo.library.unt.edu/ecommerce/report.htm. Energy taxes, however, do exist in

2010] AN ENERGY-EFFICIENT INTERNET 985
taxes in existence, this lack of diversity among the pro-Internet tax literature
is surprising, especially when one of the primary arguments
for an Internet sales tax is to recoup lost revenue. 25 The sales tax is not
the only tax through which state and local governments raise revenue.
Governments levy taxes on property and income. Governments also
levy various excise taxes—taxes paid for the purchase of a specific
good—such as those imposed on gas and tobacco sales. 26
Of all these other taxes, an energy tax is one form of taxation that
can definitively be imposed on the Internet. Studies examining Internet
energy consumption illustrate that the Internet requires a sustained
and reliable source of energy to operate. 27 Thus, while the Internet
is “inherently non-geographic” in nature, its need for an energy
source is the one grounding point through which it is vulnerable to national
tax schemes. 28 Internet companies would have to submit to the
tax in each country in which they wish to operate. In the case of the
United States, which has an estimated 72.5% of its 300 million population
connected to the Internet, an Internet company would sacrifice
approximately 14.6% of the global Internet market if it avoided this
tax; the rest of the world, with the exception of China, is still catching
up to the United States in terms of Internet usage. 29 It seems unlikely
that a business would sacrifice the opportunity to operate in the large,
profitable U.S. market; therefore, these companies would have to accept
this tax as part of the cost of doing business.
Internet tax opponents will nonetheless argue that this proposal
will curtail Internet development when the Internet is still in the early
stages of development. This argument, however, has been significantly
undermined by the passage of time; consequently, it is difficult to say
that the Internet is in the same early stage of development as it was in
the 1990s, nearly twenty years ago. The fact that many technology
companies survived the “dot-com” crash demonstrates that the Inter-
other forums. See, e.g., FLA. STAT. § 203.01 (2006) (addressing taxes on gross receipts for
utility and communications services).
25. See Isidro, supra note 9.
26. IRS.gov, Excise Tax, http://www.irs.gov/businesses/small/article/0,,id=99517,00.html
(last visited Aug. 27, 2010).
27. See KOOMEY, supra note 7, at 1.
28. Isidro, supra note 9.
29. InternetWorldStats.com, United States of America: Internet Usage and Broadband
Usage Report, http://www.internetworldstats.com/am/us.htm (last visited Aug. 27,
2010); INTERNATIONAL TELECOMMUNICATION UNION, WORLD TELECOMMUNICATION
DEVELOPMENT REPORT: ACCESS INDICATORS FOR THE INFORMATION SOCIETY 22 Table 5.2
(2003) (comparing the degrees of Internet access in different countries); Internet-
WorldStats.com, Internet Usage and Population in North America,
http://www.internetworldstats.com/stats14.htm#north (last visited Aug. 27, 2010); Yuli
Yang, China Tops World in Internet Users, CNN, Jan. 14, 2009, http://www.cnn.com/
2009/TECH/01/14/china.internet/index.html.

986 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:981
net is firmly established in the very threadwork of society. 30 Moreover,
studies of the dot-com era, 1995-2001, found that Internet company attrition
rates were roughly 20% a year, which is no different from other
industries in their formative years. 31 Thus, the histories of how other
industries grappled with the imposition of tax burdens should have
substantive value to those designing an Internet energy tax by illuminating
how best to integrate the tax burden into the new industry.
Moreover, the fact that other industries, such as pharmaceuticals,
have been able to profitably grow despite being taxed at reasonable levels
strongly suggests that the Internet will not crumble once it assumes
its share of societal tax burdens. 32
Further weakening the argument that Internet growth would suffer
if taxed is the fact that the Internet not only survived the dot-com
crash, but it emerged stronger than before. As mentioned above, the
number of global Internet users skyrocketed from 360 million people
in 2000 to nearly 1.5 billion in 2008, and e-commerce also became a
multi-billion dollar industry in the same time span. 33 This rapid increase
and the fact that all indicators point to more growth make it
highly doubtful that Internet usage will decrease. Spikes in gas prices
also make the likelihood of decreased Internet usage more remote
because businesses and consumers will likely turn to e-commerce
shopping and delivery services in order to save money by reducing
their gas costs. 34 In fact, the Internet is now so strong that it is an
emerging threat to the livelihood of well-established business like
newspapers, which are struggling to cope with massive losses in ad
revenues as advertisers invest more heavily in online ads. 35 Online
viewership has also aggravated the financial strain of newspapers by
depressing sales of printed papers. 36
Perhaps most emblematic of the Internet’s strong footing in society
is its newfound centrality in American political campaigns. 37 For
example, in 2004, the Internet helped propel Howard Dean from a
30. See Lee Gomes, The Dot-Com Bubble Is Reconsidered–And Maybe Relived, WALL
ST. J., Nov. 8, 2006, at B1.
31. Id; Brent Goldfarb et al., Was There Too Little Entry During the Dot Com Era?, 86
J. FIN.ECON. 100, 124 (2007).
32. See, e.g., GARY GUENTHER, FEDERAL TAXATION OF THE DRUG INDUSTRY AND ITS
EFFECTS ON NEW DRUG DEVELOPMENT 23-25 (2009), available at http://
www.policyarchive.org/handle/10207/bitstreams/18823.pdf.
33. InternetWorldStats.com, supra note 13.
34. See generally Cool-Companies.org, Energy & the Internet: Internet, New Economy
Technology Yield Dramatic Energy and Environmental Savings, http://www.coolcompanies.org/energy/debunk.cfm
(last visited Aug. 27, 2010).
35. Richard Perez-Pena, Papers Facing Worst Year for Ad Revenue, N.Y. TIMES, June
23, 2008, at C3; see also Kathy Shwiff, McClatchy to Cut Additional Jobs and Dividend,
WALL ST. J., Sept. 17, 2008, at B7.
36. Penez-Pena, supra note 35.
37. See Aaron Smith, The Internet’s Role in Campaign 2008, PEW INTERNET, Apr. 15 2009,
http://www.pewinternet.org/Reports/2009/6--The-Internets-Role-in-Campaign-2008.aspx.

2010] AN ENERGY-EFFICIENT INTERNET 987
dark horse candidate in the Democratic presidential primaries to
front-runner status. 38 In 2006, the Internet helped give the Democrats
control of the U.S. Senate by capturing and broadcasting the infamous
“macaca moment” of former Senator George Allen of Virginia,
a Republican who was previously considered “a sure bet for reelection”
and a possible 2008 presidential contender. 39 That broadcast
contributed to his defeat. 40 These events, though, were mere harbingers
of the Internet’s political relevance in Barack Obama’s presidential
campaign. One only needs to look at the 2008 U.S. presidential
election cycle to see how central the Internet is in political campaigns.
41 The Internet enabled Mr. Obama to amass a political organization
so strong that he was able to defeat Hillary Clinton and consistently
raise record-setting amounts of campaign cash—upwards of
$150 million in a month and about $600 million total. 42 It also allowed
Mr. Obama to appeal to and engage younger voters at unprecedented
levels, as they tend to be more Internet-savvy. 43 Mr. Obama,
as a result, became the 44 th President of the United States. 44
Considering all of the above, it is clear that the Internet has a firm
place in society. Thus, one can argue that it is time the Internet start
shouldering its fair share of the societal tax burden. 45 It is highly unlikely
that subjecting the Internet to some form of taxation would
cripple it because it is so well accepted by younger generations. 46
Thus, Internet companies have a guaranteed client-base that will naturally
expand through the on-going process of generational change
in society. The Internet taxation argument, therefore, boils down to
one question: if the Internet is not taxed now, then when? In answering
this question, one must remember that as time passes, the
strength of the interest groups vested in the status quo of a tax-free
Internet only increases, which makes implementing any new policy
more difficult.
38. Jodi Wilgoren & Jim Rutenberg, The 2004 Campaign: The Former Governor; Missteps
Pulled A Surging Dean Back to Earth, N.Y. TIMES, Feb. 1, 2004, at 11.
39. Kate Zernike, Macaca, N.Y. TIMES, Dec. 24, 2006, at 44.
40. Id.
41. Brian Stelter, The Facebooker Who Friended Obama, N.Y. TIMES, July 7, 2008, at C1.
42. Id.; Jeff Zeleny et al., Donation Record as Colin Powell Endorses Obama, N.Y.
TIMES, Oct. 20, 2008, at A1.
43. See Stelter, supra note 41, at C1; Leslie Sanchez, Commentary: GOP Needs to
Catch up to Obama’s Web Savvy, CNN, Nov. 9, 2008, http://www.cnn.com/2008/
POLITICS/11/07/sanchez.technology/index.html.
44. Sarah Lai Stirland, Propelled by Internet, Barack Obama Wins Presidency, WIRED,
Nov. 4, 2008, http://www.wired.com/threatlevel/2008/11/propelled-by-in/.
45. Geoffrey A. Fowler & Erica Alini, States Plot New Path to Tax Online Retailers,
WALL ST. J., July 3, 2009, at B1.
46. See Sucharita Mulpuru et al., Why US B2C eCommerce Will Weather the Economic
Downturn Well, FORRESTER, Apr. 30, 2008, http://www.forrester.com/rb/Research/
why_us_b2c_ecommerce_will_weather_economic/q/id/45932/t/2.

988 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:981
Taxing the Internet in a way that encourages energy efficiency
will not curtail its future growth. In fact, the exact opposite will occur.
Studies have shown that the Internet’s power needs restrict the
areas where it can be deployed. This in turn restricts its ability to expand
because electricity is a scarce resource in many parts of the
world. 47 By reducing the Internet’s energy consumption, companies
will be able to deploy more Internet devices and services, and the
profits from these new deployments will likely offset the costs of an
energy tax. 48
VNL, a Swedish mobile phone company, used this approach to
economically expand its business into the world’s poorest and most
remote areas. 49 Companies generally cannot afford to reach these
areas, which in India alone amounts to writing off approximately 700
million potential customers. 50 In VNL’s case, the company was confronted
with the high costs of installing, running, and maintaining
transmission towers and recovering these costs from people who
could only afford to pay about $2 per month for phone service. 51 VNL,
however, managed to profitably expand into these rural areas by remodeling
their transmission towers and making them energy efficient.
52 These new towers are “roughly the size of a laser printer . . .
[and] are powered by solar energy and use only as much energy as a
100-watt lightbulb.” 53 These towers only cost $3500 to install, which
is significantly lower than the $10,000 to $100,000 installation price
range for standard transmission towers. 54 Overall, these rural base
stations generate $15 billion in annual profits, and this number is
expected to grow at a rate of 15% to 20% a year. 55
In addition to increasing business revenues, it is common knowledge
that Internet access benefits society by allowing for greater
communication and distribution of information. The development of an
energy-efficient Internet will expand Internet access, providing these
benefits to presently underserved regions. Similarly, society will receive
the environmental and national security benefits that are commonly
associated with energy efficiency. An energy-efficient Internet,
however, will uniquely benefit society in that it may help save lives in
47. MARUTI GUPTA & SURESH SINGH, GREENING OF THE INTERNET 20 (2003),
http://delivery.acm.org/10.1145/870000/863959/p19-gupta.pdf?key1=863959&key2=
3731670221&coll=GUIDE&dl=GUIDE&CFID=1877967&CFTOKEN=84349380.
48. See id.
49. Jennifer L. Schenker, Making Mobile Networks Cheap and Green, BUS.WEEK ONLINE,
Aug. 4, 2008, http://www.businessweek.com/globalbiz/content/aug2008/gb2008081_590263.htm.
50. Id.
51. Id.
52. Id.
53. Id.
54. Id.
55. Id.

2010] AN ENERGY-EFFICIENT INTERNET 989
the event of a disaster. 56 In disaster-hit areas, network equipment
must largely rely on batteries in order to operate; therefore, by having
communication devices that require less energy, these batteries will
last longer. 57 Longer battery life will enable hospitals, police, rescue
workers, and other agencies to have access to critical communication
networks and resources they need for longer lengths of time.
The importance of having energy-efficient equipment in disaster
areas was keenly illustrated during the aftermath of Hurricane Katrina.
After Katrina, communication between different emergency response
agencies was essentially non-existent because many cell towers,
emergency communication equipment, and 911 centers were
rendered inoperable. 58 Communication was sporadic, and as a result,
Washington officials had trouble gathering information about the
area, impairing their ability to assist local officials in the recovery effort.
59 These communication difficulties were surprising because since
September 11, 2001, the government has spent millions of dollars
upgrading emergency phone and radio communication systems, with
states receiving $830 million in the 2004 fiscal year alone. 60 Although
some state and local communities were slow to upgrade their communication
systems, rescue efforts were not hampered because they
were lacking modern or advanced technology, but because they
lacked something far more basic—adequate power. 61 As a result, this
high-tech, expensive radio and phone equipment became useless.
“Field personnel are beginning to lose power on the radios because
they don’t have any way to recharge them.” . . . Emergency generators
powering some cell towers and underground phone switches,
which route traditional phone calls, may also soon begin to go
dark. “The issue is a power issue at its core.” 62
This lack of power not only hindered the government’s rescue efforts,
it also delayed the restoration of normal social services because
the limited energy available was needed to keep emergency services
operational. 63 The fact that energy inefficiency contributed to these
post-Katrina power problems is particularly disturbing because energy
efficiency can begin to be achieved through simple efforts. An energyefficient
communication system may have saved lives during Katrina
56. GUPTA &SINGH, supra note 47, at 20.
57. Id.
58. Christopher Rhoads & Amy Schatz, In Katrina’s Wake: Power Outages Hamstring
Most Emergency Communications, WALL ST. J., Sept. 1, 2005, at A7.
59. Id.
60. Id.
61. Id.
62. Id. (quoting Courtney McCarron, spokeswoman for the Assoc. of Public-Safety
Commc’ns Officials, and an unnamed FCC official).
63. Id.

990 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:981
and during other emergencies as well. It is, therefore, imperative that
energy efficiency measures be taken to save lives in the future.
Moreover, energy efficiency is a very safe area for routine corporate
investments because such investments have quick, guaranteed,
and continuing returns in terms of corporate savings. 64 Companies do
not need to do much more than take small actions to save energy.
These actions include “changing the light bulbs . . . installing . . .
double-pane windows, or simply buying a new lamp,” and eventually,
these “many small actions can add up to big savings[.]” 65 This point is
best illustrated through Dow Chemical’s Louisiana division, whose
energy department in 1982 began a yearly contest to discovery energy-saving
projects. 66 Many of the discovered projects were simple,
such as more efficient compressors and better insulation, yet this
contest also yielded surprising results. 67
The first year of the contest had 27 winners requiring a total
capital investment of $1.7 million with an average annual return
on investment of 173 percent. Many at Dow felt that there couldn’t
be others with such high returns. The skeptics were wrong. The
1983 contest had 32 winners requiring a total capital investment
of $2.2 million and a 340 percent return�a savings of $7.5 million
in the first year and every year after that. Even as fuel prices declined
in the mid-1980s, the savings kept growing. The average return
to the 1989 contest was the highest ever, an astounding 470
percent in 1989—a payback of 11 weeks that saved the company
$37 million a year. 68
Ten years and 700 projects later, “the 2,000 Dow employees” are not
yet “tapped out of ideas.” 69 The 1991-93 contests “each had in excess
of 120 winners with an average return on investment of 300 percent.
Total savings to Dow from just those projects exceeded $75 million a
year.” 70 An energy tax is therefore nothing more than a tool to insure
that these small actions are taken. Thus, so long as it is reasonable,
an energy tax should not hamper growth as the anti-Internet tax
camp argued with respect to an Internet sales tax. An Internet energy
tax should therefore be examined.
64. Joseph Romm, Why We Never Need to Build Another Polluting Power Plant,
SALON, July 28, 2008, http://www.salon.com/news/feature/2008/07/28/energy_efficiency/
print.html; see generally BOOSTING RESTAURANT PROFITS WITH ENERGY EFFICIENCY: AGUIDE
FOR RESTAURANT OWNERS AND MANAGERS (2006), available at http://www.fypower.org/
pdf/BPG_RestaurantEnergyEfficiency.pdf.
65. Sarah Jane Tribble, Small Changes Can Yield Energy Savings in California,
MERCURY NEWS, June 8, 2007, http://www.mercurynews.com/greenenergy/ ci_6086258.
66. Romm, supra note 64.
67. Id.
68. Id.
69. Id.
70. Id.

2010] AN ENERGY-EFFICIENT INTERNET 991
IV. WHY ACHIEVING ENERGY EFFICIENCY REQUIRES GOVERNMENT
INTERVENTION
Given that energy efficiency is beneficial to corporate interests,
opponents of government regulation will nevertheless claim that improvements
in energy efficiency will occur without government involvement.
71 Such opponents will also say that market forces have
yet to address energy efficiency because the issue itself is relatively
novel and only recently became an issue of serious consideration. The
EPA’s voluntary “Energy Star” program, for example, has only existed
since 1992. 72 Accordingly, these opponents will likely assert that
the best role for the government is not to tax but to create educational
programs on energy efficiency, which will then facilitate the development
of market solutions. 73
Educational programs would obviously be helpful, but they already
exist. The United States Department of Energy (DOE), for instance,
has a separate office—the Office of Energy Efficiency and Renewable
Energy—that has many programs to assist in delivering
energy savings. 74 Private organizations, such as environmental
groups, also provide similar information. For example, Greenpeace
releases a guide to greener electronic products every three months. 75
Because the Internet makes all this information easily accessible,
additional education programs are unnecessary.
The failure of corporate executives to utilize these programs shows
that educational programs can be ignored and demonstrates the need
for government involvement beyond the educational level. Education
alone does nothing to insure that companies will seriously invest in
energy efficiency on the consistent basis that meaningful energy efficiency
requires, especially because new technologies continuously en-
71. See Romm, supra note 64; see generally WILLIAM J. BAUMOL, THE FREE-MARKET
INNOVATION MACHINE: ANALYZING THE GROWTH MIRACLE OF CAPITALISM (2002) (arguing
that free-market pressures inherent in capitalism are constantly forcing firms to innovate,
without need of government intervention).
72. Marla C. Sanchez et al., Savings Estimates for the United States Environmental
Protection Agency’s ENERGY STAR Voluntary Product Labeling Program, 36 ENERGY
POL’Y 2098, 2098 (2008).
73. See generally Julie A. Caswell & Eliza M. Mojduszka, Using Informational Labeling
to Influence the Market for Quality in Food Products 78 AM. J. OF AGRIC. ECON. 1248,
1248 (1996) (arguing that “government policies and regulations” on labeling—i.e., facilitating
the communication of information to consumers—greatly affects the development of
markets for food quality).
74. United States Department of Energy, Energy Efficiency and Renewable Energy,
http://www.eere.energy.gov/ (last visited Aug. 27, 2010).
75. Simon Avery, New Tech Battleground: Who is the Greenest?, GLOBE & MAIL, Sept. 9,
2008, at B6, available at http://www.theglobeandmail.com/news/technology/article708478.ece;
Greenpeace, Guide to Greener Electronics, http://www.greenpeace.org/electronics (last visited
Aug. 27, 2010).

992 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:981
able greater efficiency. 76 Further, as developments in the American
and Japanese auto industries illustrates, leaving energy efficiency to
market forces alone makes it difficult to determine which companies
will pursue the matter. Thus, without government involvement,
progress towards energy efficiency will likely occur in a piecemeal fashion
with progress only occurring when the issue has the public’s interest.
77 Piecemeal progress towards energy efficiency, however, is
unacceptable given this issue’s national security implications. 78
The current state of the American auto industry exemplifies how
market forces alone do not induce companies to save energy. As seen
by its need for congressional bailouts and GM’s and Chrysler’s subsequent
bankruptcy filings, the U.S. auto industry is in dire straits. 79
The industry, however, had been on the road to its current situation
for many years as sales of SUVs and pick-up trucks declined because
customers, due to rising oil prices, shifted to smaller, more fuelefficient
passenger cars. 80 Such cars were not staples of the Big
Three—Ford, GM, and Chrysler. The 2008 credit crisis merely magnified
the financial strain that the Big Three faced.
To be fair to the Big Three, SUV and pick-up truck sales were, until
recently, a very profitable market. 81 Given that America’s loveaffair
with such vehicles, which only began to wane in the past few
years, it makes sense that these companies invested resources into
these cars. 82 These cars accordingly became bigger and faster but not
more fuel-efficient. 83 The Big Three’s failure to improve every aspect
of these vehicles is odd because increasing fuel efficiency was clearly
possible. Honda’s 2000 model vehicles, for example, had an average
fuel efficiency that was six miles to the gallon higher than the aver-
76. See Romm, supra note 64; see also Pam Frost Gorder, Materials May Help Autos
Turn Heat into Electricity (July 25, 2008), http://www.renewableenergyworld.com/
rea//news/article/ 2008/07/material-may-help-autos-turn-heat-into-electricity-53145.
77. See generally Baumol, supra note 71.
78. Daniel Yergin, Ensuring Energy Security, 85 FOREIGN AFF. 69, 69 (2006), available
at http://www.un.org/ga/61/second/daniel_yergin_energysecurity.pdf.
79. Aparajita Saha-Bubna, Corporate News: U.S. Auto Makers Seek Bailout for Bad
Car Loans–Relief Plan, Part of Original Wall Street Rescue Package, Could Free Up Loans
for Car Dealers as Well as Their Customers, WALL ST. J., Oct. 1, 2008, at B3; Jim Rutenberg
& Bill Vlasic, Chrysler Files for Bankruptcy; U.A.W. and Fiat to Take Control, N.Y.
TIMES, May 1, 2009, at A1; Neil King Jr. & Sharon Terlep, GM Collapses into Government’s
Arms: Second-Largest Industrial Bankruptcy in History, WALL ST. J., June 2, 2009, at A1.
80. Bill Vlasic & Nick Bunkley, The Struggles of Detroit Ensnare Its Workers, N.Y.
TIMES, July 3, 2008, at C1; Bill Vlasic, As Gas Costs Soar, Buyers Are Flocking to Small
Cars,N.Y.TIMES, May 2, 2008, at A1.
81. Micheline Maynard, With $3 Gas, Detroit Pays for its Past, N.Y. TIMES, July 28,
2006, at C1, available at http://www.nytimes.com/2006/07/28/business/worldbusiness/
28auto.html.
82. See id.; see also Bill Vlasic, Interest Fades in the Once-Mighty V-8, N.Y. TIMES,
Jan. 16, 2008, at C1.
83. Micheline Maynard, Downturn Will Test Obama’s Vision for an Energy-Efficient
Auto Industry, N.Y. TIMES, Dec. 21, 2008, at A38.

2010] AN ENERGY-EFFICIENT INTERNET 993
age American automobile. 84 Moreover, there were signs that consumers
wanted greater fuel-efficient vehicles by the increased demand for
hybrid vehicles. In 2004 for example, the demand for hybrids was so
strong that there was a two year waiting list for the new Toyota
Prius; meanwhile, Ford and GM needed to prop up their SUV and
pick-up truck sales through discount offers. 85 The Big Three were
basically absent from the hybrid market until 2005 when Ford introduced
the Escape Hybrid. 86 In contrast, the Toyota Prius debuted in
Japan in 1997 and over 1 million vehicles had been sold in the United
States by 2008, allowing Toyota to capitalize on this shift in consumer
demand. 87 The Big Three’s past decisions complicated their recent
efforts to be more fuel-efficient because these companies have the
reputation of producing “gas-guzzlers.” 88 Consequently, they must
overcome this reputation while playing “catch-up” with their competitors
on the issue of fuel efficiency. 89
While one can argue that the Big Three’s management decisions
were rational at the time they were made, these automakers not only
ignored fuel efficiency but actively campaigned against congressional
efforts to raise federal fuel efficiency standards. 90 Their opposition to
such efforts stemmed from the fact that it is costly to implement
changes in fuel efficiency. 91 Congress’ 2007 increase in U.S. fuel standards
was the first increase in these standards since 1984. 92 It, therefore,
becomes easy to understand why the Big Three invested in other
84. Danny Hakim, Honda Takes up Case in U.S. for Green Energy, N.Y. TIMES, June
12, 2002, at C1.
85. Jane Gross, From Guilt Trip to Hot Wheels, N.Y. TIMES, June 13, 2004, at 9; John D.
Stoll & Joseph B. White, Moody’s Cuts GM, Ford Debt to Junk; Cost Concerns Gain Focus
Ahead of UAW Negotiations; Downgrade Follows S&P’s, WALL ST. J., Aug. 25, 2005, at A3.
86. Jerry Garrett, Around the Block: A Look at an Overlooked Hybrid, N.Y. TIMES, July
30, 2006, at 12; Richard Truett, Big 3 Play Catch-up in the Hybrid Game, but Automakers
Have Different Approaches (Apr. 11, 2005), http://www.autosafety.org/big-3-play-catchhybrid-game.
87. Todd Kaho, Decade of the Toyota Prius Hybrid (Nov. 5, 2007),
http://www.greencar.com/features/decade-of-the-toyota-prius; Chuck Squatriglia, Prius Sales
Top 1 Million. Want One? Better Move Fast, WIRED, May 15, 2008, http://www.wired.com/
autopia/2008/05/prius-sales-top.
88. Mike Spector & Maya Jackson-Randall, Big Three Try to Rev Up Weakened Political
Clout—Congress Is Asked to Ease its Plans on Fuel Standards, WALL ST. J., June 7,
2007, at A4.
89. Id.; Bill Vlasic, As Gas Costs Soar, Buyers Are Flocking to Small Cars, N.Y. TIMES,
May 2, 2008, at A1.
90. Maynard, supra note 81; Hakim, supra note 84 (2002 Senate proposal to raise fuel
efficiency standards for the first time since the 1980s defeated). The documentary Who
Killed the Electric Car even suggests that the Big Three conspired against more energyefficient
vehicles. Who Killed the Electric Car? (June 9, 2006), http://www.pbs.org/now/
shows/223/.
91. Stephen Power & Christopher Conkey, U.S. Orders Stricter Fuel Goals for Autos,
WALL ST. J., May 19, 2009, available at http://online.wsj.com/article/
SB124266939482331283.html.
92. Id.; see also John M. Broder & Micheline Maynard, Deal in Congress on Plan to
Raise Fuel Efficiency, N. Y. TIMES, Dec. 1, 2007, at A1.

994 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:981
aspects of their cars but ignored fuel efficiency over this twenty-three
year stretch of time. Small but continual investment over these twenty-three
years would have lessened the financial burden now associated
with improving fuel efficiency. Such systematic investment
would also have been financially manageable and have enabled the
Big Three to better compete in today’s market. For instance, the
companies may have advanced the use of potential energy saving devices
like thermoelectrics—materials that can possibly make cars
more efficient by converting heat wasted through engine exhaust into
electricity. 93 Instead, General Motors and Chrysler went bankrupt 94
and must comply with the new federal fuel standards. These new
cars, however, will not be ready until some future date when it is
possible that technological advancements will already have outdated
the 2007 standards.
While the current state of the U.S. auto industry may be the result
of market forces playing themselves out, it shows that market forces
alone do not produce comprehensive progress in energy efficiency; they
just award innovation. Additionally, the Big Three’s former profitability
illustrates that energy inefficiency can at times be financially rewarding.
However, wasting energy is socially undesirable given the
aforementioned environmental and national security implications. The
attacks of September 11, 2001, and oil’s rise to $147 a barrel in 2008
have only served to reiterate this correlation. 95 Energy efficiency is too
important an issue to be left to market forces. Government must be involved
in some form. Regulations like fuel standards are helpful because
they provide a comprehensive minimum that must be met. However,
given technology’s ability to constantly open up new avenues for
greater energy savings, government energy efficiency regulations
would have to constantly be revised and updated. 96 The aforementioned
lobbying efforts of the Big Three show how difficult it can be to
update regulations. In contrast, a tax-based approach to energy efficiency
would be able to inherently update itself because taxes can be
established so that they are paid and reassessed annually.
In addition to insuring that there would be continuous investments
in energy efficiency, a tax-based approach has a proven record
93. Gorder, supra note 76.
94. Chris Woodyard, Ford Faces Competition; Bankruptcy Gives Rivals Benefits, USA
TODAY, June 2, 2009, http://www.usatoday.com/money/autos/2009-06-01-bankruptcy-competitionford_N.htm.
95. UNITED STATES ENERGY ASSOCIATION, NATIONAL ENERGY SECURITY POST 9/11 4-6
(2002), http://www.usea.org/publications/documents/useareport.pdf; see also Kathryn
Hopkins, Fuel Prices: Iran Missile Launches Send Oil to $147 a Barrel Record, THE
GUARDIAN, July 12, 2008, http://www.guardian.co.uk/business/2008/jul/12/oil.commodities.
96. See Romm, supra note 64; see also Broder & Maynard, supra note 92.

2010] AN ENERGY-EFFICIENT INTERNET 995
of effectively achieving energy efficiency. 97 For example, in 1973,
Denmark imported 99% of its energy needs from the Middle East,
and consequently, it was gravely affected by the 1973 oil embargo. 98
To cope with the ensuring energy crisis, the Danish government had
to take stringent measures, such as “bann[ing] all Sunday driving for
a while” to curb energy demand. 99 Denmark also seriously engaged
the issue of energy independence in a “focused and systematic
way.” 100 As a result, Denmark now imports no oil from the Middle
East and gets nearly 20% of its energy from wind. 101 Denmark
achieved these results through a series of taxes, such as $10 gas taxes,
and “green” building and appliance standards. 102 Contrary to popular
belief, these taxes did not cripple the Danish economy. Instead,
the economy grew while national energy consumption barely increased.
103 Denmark has also developed one of the world’s most competitive
clean-power industries, and energy-efficient technology has
emerged as one of Denmark’s fastest-growing export areas. 104 The resulting
energy revenues have prompted Denmark to look into reforming
its tax code to include more emphasis on energy taxes and less on
personal income taxes. 105
Market forces alone, by comparison, do not produce similar results.
For instance, the United States has gone from importing 24%
of its oil to 70%–roughly 12 million barrels a day–during the same
thirty-five year time span and only gets about 1% of its energy from
wind. 106 It is also absent from the clean-energy market. 107 Some companies,
though, have begun making investments in this area. Google,
for instance, recently patented a way to power its Internet data servers
using tidal power. 108 Personal computer manufacturers have also
begun “tackling the problem” of their products’ enormous energy
use. 109 However, as seen in Denmark, meaningful progress in energy
97. Thomas L. Friedman, Flush with Energy, N.Y. TIMES, Aug. 10, 2008, at WK,
available at http://www.nytimes.com/2008/08/10/opinion/10friedman1.html?_r=1.
98. Id.
99. Id.
100. Id.
101. Id.
102. Id.
103. Id.
104. Id.
105. Id.
106. Id.; Pickens Plan, Did You Know?, http://www.pickensplan.com/didyouknow (last
visited Aug. 27, 2010).
107. Friedman, supra note 97 (“We’ve had 35 new competitors coming out of China in
the last 18 months . . . and not one out of the U.S.”).
108. Thomas Claburn, Google Granted Floating Data Center Patent, INFORMATION WEEK,
Apr. 30, 2009, http://www.informationweek.com/news/internet/google/showArticle.jhtml?
articleID=217201005.
109. Jim Carlton, The PC Goes on an Energy Diet, WALL ST. J., Sept. 8, 2009, at R8.

996 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:981
efficiency requires government involvement. 110 If left to market forces
alone, Google may be the next Honda among a sea of Big Three-like
companies that waste energy. 111 Although energy crises periodically
occur, commentators have debated that the energy efficiency fervor
may again subside with the passing of the 2008 energy crisis. 112 Given
the centrality of energy resources to all parts of American society,
there must be strong government measures to more comprehensively
insure that energy resources are utilized efficiently.
Some may argue that Denmark’s success with energy taxes cannot
be equated to the United States because of the many differences between
the two countries, most notably geographical size. California,
though, has successfully implemented measures similar to those of
Denmark, and the energy consumption differences between California
and the rest of the United States further illustrate how energy efficiency
is best achieved through government involvement. 113 California
began legislating energy efficiency in the 1970s, and its energy
consumption has subsequently remained constant, in spite of the
tech-boom and its growing population; meanwhile, over those same
forty years, the rest of the nation’s per capita electricity consumption
increased 60%. 114 If all Americans adopted California’s energy standards,
U.S. electrical consumption would decrease by 40%. 115 According
to a 2007 report from the international consulting firm McKinsey
and Co., such energy savings could “offset almost all of the projected
demand for electricity in 2030 and largely negate the need for new . .
. power plants.” 116 The magnitude of these savings should also allow
for the quick recovery of any implementation costs. 117 The fact that
companies can quickly recover their energy investments through savings
consequently undermines the argument that a tax-based approach
to energy efficiency would unduly burden business.
Nevertheless, a tax proposal will likely be criticized as unnecessary
government involvement in corporate affairs. Such criticisms, however,
overlook the fact that while there may be some overlap, corporations
exist to make money, not to further important social objectives.
110. See generally Levine, supra note 77.
111. See Hakim, supra note 84.
112. See Vivienne Walt, Is Cheaper Oil a Good Thing?, TIME, Oct. 10, 2008,
http://www.time.com/time/business/article/0,8599,1849215,00.html; Vivienne Walt, What’s
Behind (and Ahead for) the Plunging Price of Oil, TIME, Oct. 24, 2008,
http://www.time.com/time/printout/0,8816,1853775,00.html.
113. Romm, supra note 64.
114. Id. (providing an overview on California’s energy efficiency efforts); see also The
California Energy Commission, http://www.energy.ca.gov/ (last visited Aug. 27, 2010).
115. Romm, supra note 64.
116. Id. (citing McKinsey and Co., Reducing U.S. Greenhouse Gas Emissions: How
Much at What Cost?, http://www.mckinsey.com/clientservice/ccsi/greenhousegas.asp (last
visited Aug. 27, 2010)).
117. Id.

2010] AN ENERGY-EFFICIENT INTERNET 997
This scenario was seen in 2006-2007 when U.S. beverage companies,
in order to fend off mounting public pressure and potential lawsuits or
government regulations, voluntarily agreed to stop selling sugared sodas
and limit the size and caloric content of their other drinks in
schools. 118 Under this agreement, only “bottled water, unsweetened
juices and lowfat or nonfat milk products” would be sold in elementary
and middle schools, and only “diet soft drinks . . . sports drinks, juices,
milk and water” would be sold in high schools. 119 One year later,
though, beverage makers were able to quietly amend the agreement so
that “water” for high school sales included fortified waters, drinks that
can have up to 100 calories per 12 ounce serving. 120 The beverage industry
pushed for this change because enhanced water sales had skyrocketed
from $20 million in 2000 to $884.7 million in 2006. 121 The
original agreement was suddenly denounced by the beverage industry
as draconian because it served only to limit the industry’s growth potential
and ignored student needs. 122 Although this amendment did not
fundamentally destroy the agreement, it weakened its effectiveness in
combating student obesity because it provided students with access to
another caloric drink, which was exactly what the voluntary agreement
sought to restrict.
The fact that this amendment passed without much notice also illustrates
the superior position business leaders have in pursuing
their own financial agendas when there is no public pressure to act
as a watchdog. The Internet companies that would be affected by an
energy tax have an even greater likelihood to vigorously pursue their
financial interests because, unlike beverage companies, Internet
companies essentially have a captive market. Soft drinks are widely
available such that students can obtain these drinks without using a
school vending machine. In contrast, everyone must pay his or her
Internet provider’s fee in order to have legal access to the Internet.
Thus, once public interest in energy efficiency fades, these Internet
companies have little incentive to improve their energy efficiency because
they have a guaranteed income from their customer base.
However, too much government regulation or taxation can have a
negative effect on economic growth. Mandating that corporations invest
in energy efficiency, however, will most likely have a positive rather
than negative economic impact. A 1993 DOE report showed that if
one were to make the requisite investments to reduce American indus-
118. Betsy McKay, Beverage Firms Yield to Pressure on School Sales, WALL ST. J.,May
4, 2006, at D6.
119. Id.
120. Jane Zhang, Drink Makers Expand Offerings in Schools, WALL ST. J., Aug. 20,
2007, at B2.
121. Id.
122. Id.

998 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:981
try waste by just ten to twenty percent, such investments would “generate
a cumulative increase of $2 trillion in the gross domestic product
from 1996 to 2010. By 2010, the improvements would be generating 2
million new jobs.” 123 The aforementioned examples of Denmark and
California demonstrate the accuracy of this report’s findings. Reasonable
energy taxes can thus be a pro-growth economic policy.
Also, because energy efficiency can be achieved through simple
measures and can yield large profits, there should not be a need for
government subsidies. Corporations should be able to self-finance the
installation of these smaller measures without undue hardship. The
savings that materialize should then enable a corporation to selffinance
larger-scale energy efficiency projects, whose return savings
will more than likely cover their investment costs and finance other
energy savings projects. 124 Furthermore, with new technologies constantly
allowing for greater energy savings, determining what to subsidize
could become complicated. Subsidies may also stifle corporate
innovation with respect to finding new ways to save energy by drawing
attention to the subsidized item and focusing on its implementation.
125 Such narrow focus diminishes the subsidy’s effectiveness,
which is inherently better achieved when the corporation is broadly
looking for ways to reduce its energy bill. Thus, an energy tax is
merely a way to force corporations to constantly address the issue of
energy efficiency by making inefficiency more costly.
An Internet energy tax alone may be criticized because it addresses
the issue of energy efficiency in just one segment of our economy,
rather than comprehensively addressing all industries. The Supreme
Court, though, has repeatedly recognized that Congress has
the authority to legislate in the manner it so chooses, thus rendering
this argument meritless. 126 Moreover, unlike market forces, this tax
will at least insure that an entire industry is pursuing energy efficiency
rather than just a handful of innovative companies. However,
the Internet companies may object to this proposal on fairness
grounds and argue that it arbitrarily and capriciously singles them
out when all industries waste energy and the Internet is far from the
most wasteful. While it is true that an energy tax can, and ideally
should, be applied to all industries, an energy source is the Internet’s
123. Romm, supra note 64.
124. See id.
125. Id.
126. Massachusetts v. EPA, 549 U.S. 497, 499 (2007) (“Agencies, like legislatures, do
not generally resolve massive problems in one fell swoop . . . but instead whittle away over
time, refining their approach as circumstances change and they develop a more nuanced understanding
of how best to proceed . . . .” (internal citations omitted)); Williamson v. Lee Optical
of Okla., Inc., 348 U.S. 483, 489 (1955) (“[A] reform may take one step at a time, addressing
itself to the phase of the problem which seems most acute to the legislative mind.”).

2010] AN ENERGY-EFFICIENT INTERNET 999
primary requirement. 127 An energy-efficient Internet provides unique
benefits. These benefits are then strong grounds to argue that steps
must be taken to ensure that the Internet is at the forefront of this
energy reform movement.
The Internet is at least partially responsible for helping reduce
U.S. energy needs in the 1990s during a booming economy, which is
usually associated with greater energy consumption. 128 One way in
which it helped reduce U.S. energy consumption was through ematerialization,
the process by which things are handled online rather
than in hardcopy. 129 This process thereby reduces paper manufacturing,
one of the most energy and resource intensive processes in
the economy. 130 While the Internet’s current contributions to greater
energy-efficiency are commendable, there are always new ways to invest
in greater energy efficiency. Energy resources, after all, are finite
in supply and therefore must be conserved. Furthermore, the Internet,
as the epitome of technological creations, should be the industry
with the greatest capacity to adapt to energy-saving technological
changes. Thus, Internet companies appear to be the perfect “guinea
pig” to test this tax proposal before it is expanded to businesses in
general, especially when this industry is currently protected from
other tax burdens. 131
V. AN INTERNET ENERGY TAX PROPOSAL
In order to achieve Internet energy efficiency, this energy tax
could be structured as follows. The federal government should impose
a gasoline-like excise tax upon all Internet service providers and
network companies such as AT&T, Comcast Cable, and others. This
tax shall be an additional expense that these companies will pay on
their overall energy bill. This charge will reflect the amount of energy
the company uses to run the equipment that powers and maintains
the Internet. This tax structure should ideally insure that the tax
does not unduly burden small businesses because they use less energy
and thus will pay less tax. Calculating how much this additional
fee will be is difficult because, as mentioned above, there is uncer-
127. See KOOMEY, supra note 7, at 6.
128. Cool-Companies.org, Energy & the Internet: Internet, New Economy Technology
Yield Dramatic Energy and Environmental Savings, http://www.cool-companies.org/energy/
debunk.cfm (last visited Aug. 27, 2010).
129. JOSEPH ROMM ET AL., THE INTERNET ECONOMY AND GLOBAL WARMING: A
SCENARIO OF THE IMPACT OF E-COMMERCE ON ENERGY AND THE ENVIRONMENT 38 (1999),
available at http://www.p2pays.org/ref%5C04%5C03784/0378401.pdf; but see Gerry Bayne,
Cyberinfrastructure in a Carbon-Constrained World (Nov. 25 2009), http://
www.educause.edu/blog/gbayne/SessionCyberinfrastructureinaC/191981.
130. Id.
131. See Jones, supra note 22.

1000 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:981
tainty as to how much energy the Internet consumes. 132 Thus, in order
to better assess the tax, these companies would first have to install
monitoring devices, like those recording how much electricity,
water, and gas individual homes consume, that measure their Internet
equipment’s energy consumption. 133
While there may be some difficulty in determining an appropriate
tax rate, this determination is not central to the tax because its intent
is not to raise revenue, but to make the Internet energy efficient. The
number just needs to be enough to make corporations seriously examine
ways to improve energy efficiency. This objective could possibly
be reached by establishing the tax so that it also self-credits, up to the
entire amount of the tax, any investments a corporation makes towards
energy efficiency. This self-credit will ideally foster corporate
innovation and flexibility in meeting its annual energy efficiency
mandate. 134 The company would accordingly have to provide the government
with a long term plan, in which its Internet energy efficiency
is ultimately improved, in order to qualify for this self-credit. The corporation
should then be able to structure the investments so that they
are not burdensome and provide the highest return to the company.
Such flexibility is particularly important for Internet companies
because improving the Internet’s energy efficiency involves much
more than changing light bulbs. 135 For example, in their article
Greening the Internet, Maruti Gupta and Suresh Singh argue that
greater use of sleep modes for Internet components not in use can
significantly improve the Internet’s energy efficiency. 136 While this
approach seems promising, the authors do not mention how much its
implementation costs would be in terms of both time and money, but
these costs are likely high given the number of variables in this ap-
132. See generally KOOMEY, supra note 7, at 1 (discussing the common speculation that
occurs in discussions concerning how much energy the Internet uses). While an estimated
energy consumption range does exist, the consensus among studies is towards the lower
end of the spectrum. The study that reached the 13% figure is widely seen as an inflated
value. However, this study—the Mills and Huber project—was heavily cited by the media,
which then lent credibility, in the general public’s mind, to the idea that the Internet is a
mammoth power consumer. Mitchell-Jackson, supra note 4, at 12-15.
133. As mentioned above, the EPA’s forthcoming Energy Star ratings for data centers
may make such assessments easier and possibly make the installation of such monitoring
devices unnecessary. EPA to Begin Energy Star Ratings for Data Centers, supra note 7.
134. Though beyond the scope of this paper, it must be mentioned here that the inclusion
of this self-credit provision would also differentiate this energy tax from already existing
energy taxes such as Florida’s sales tax on non-residential sales of electricity and its grossreceipt
tax on all sales of electricity. See generally supra note 22 and accompanying text.
135. See Gupta & Singh, supra note 47; USF Energy-efficient Internet Project,
http://www.csee.usf.edu/~christen/energy/main.html (last visited Aug. 27, 2010); Enrico
Rantala et al., Modeling Energy Efficiency in Wireless Internet Communication (Aug. 17,
2009), http://conferences.sigcomm.org/sigcomm/2009/workshops/mobiheld/papers/p67.pdf.
136. Gupta & Singh, supra note 47, at 20-25.

2010] AN ENERGY-EFFICIENT INTERNET 1001
proach. 137 If an energy tax proposal were to force Internet companies
to immediately begin implementing Gupta and Singh’s proposal, the
companies would probably elect to pay the tax and pass its cost off to
consumers because paying the tax would likely be cheaper. However,
under the aforementioned self-credit provision, the company could
take various “small actions [that] can add up to big savings,” which
could then fund the more costly energy saving projects.” 138
Again, the goal of this tax is not to raise revenue for the government,
but it is likely that some revenue will be collected should an Internet
company decide to annually pay this tax rather than invest in energy efficiency.
Any revenue that is raised could then be placed into an energy
fund similar to the Universal Service Fund that was established by the
US Telecommunications Act of 1996 to try to expand Internet access into
rural and underserved areas by subsidizing access rates. 139 Another
possible use of any generated revenue is to earmark it for financing improvements
on the nation’s electrical grid making it similar to California’s
because such changes are an expensive but integral part of making
meaningful progress towards energy efficiency. 140
VI. CONCLUSION
The importance of energy efficiency is common knowledge, and thus
any and all measures that can help lead to greater energy efficiency
should be explored. As shown above, the tax code is one measure that
can help the United States make meaningful and consistent progress
towards this objective, and it is perhaps the most effective. The tax
code, however, is under-utilized with regard to penalizing inefficient
energy usage. This under-utilization must change. Given the dangers
posed by climate change, the potential for another energy crisis, and
the current state of the U.S. economy, this under-utilization should
change now. The results could rival the societal and economic revolutions
that the Internet itself sparked in the 1990s.
137. Id. at 22 (describing the difficulties involved in maximizing the energy savings of
this approach such as insuring that an Internet component can sleep long enough so the additional
amount of energy it takes to reawaken the component is offset by the amount saved).
138. Tribble, supra note 65.
139. Heather E. Hudson, Universal Access: What Have We Learned from the E-rate?,
TELECOMM. POL’Y, Apr. 1, 2004, at 309, available at http://intel.si.umich.edu/tprc/papers/
2002/119/tprc02eratehudson.htm.
140. Though the process of nationalizing California’s energy standards is beyond the
scope of this paper, the federal government would obviously be heavily involved in such a
large-scale project. The legislative process, however, is notoriously cumbersome, and given
the evident complexity that changing the nation’s energy grid entails, passing the necessary
legislation for this project will be difficult. This difficulty is, in itself, another reason to
pass an energy tax because it is a much simpler approach and thus potentially easier to
enact. The process towards energy efficiency can then at least begin while the more complex
issues are hammered out.

1002 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:981

BUSINESS INSURANCE: FIRST-PARTY
COMMERCIAL PROPERTY INSURANCE AND THE
PHYSICAL DAMAGE REQUIREMENT IN A
COMPUTER-DOMINATED WORLD
AMY R. WILLIS *
I. INTRODUCTION .................................................................................................. 1003
II. CYBERSPACE ..................................................................................................... 1006
A. The New Form of Property ......................................................................... 1006
B. E-Businesses ............................................................................................... 1007
C. E-Commerce Insurance .............................................................................. 1008
1. E-Commerce Insurance and Conflicts of Interest ................................ 1010
III. THE PHYSICAL DAMAGE REQUIREMENT ............................................................ 1010
A. The Physical Damage Requirement and Computers ................................. 1011
B. The Physical Damage Requirement in Other Contexts .............................. 1014
IV. BOILERPLATE LANGUAGE .................................................................................. 1015
A. Insurance Services Office ........................................................................... 1016
V. CONCLUSION ..................................................................................................... 1020
I. INTRODUCTION
We live in an intangible world—a world where computers dominate
business operations at a level that would have been unheard of
twenty years ago. Vital ingredients of a business, such as customer
and proprietary information, product design data, and accounting information,
are now stored on computers. 1 This intangible information
often constitutes a large portion of a company’s assets. 2 If this information
is lost or computers malfunction during some fortuit-
ous event, the affected businesses may suffer devastating losses, and
operations may be interrupted for an extended period of time. 3 When
this occurs, businesses will turn to their insurance companies
for coverage.
* J.D., Florida State University College of Law, with honors. With special thanks to
my family and friends for their love, support, and encouragement. I would also like to
thank the Florida State University Law Review’s editorial staff for all of their assistance
with this Article.
1. See Hazel Glenn Beh, Physical Losses in Cyberspace, 8 CONN.INS. L.J. 55, 55-56 (2001).
2. Id. at 57.
3. See, e.g., Robert L. Carter, Jr. & Donald O. Johnson, Power to Policyholders: Court
Supports Insurance Recoveries for Loss of Electronic Data, 86 A.B.A.J. 66, 66 (2000); Paula
M. Yost, Paul E.B. Glad & William T. Barker, In Search of Coverage in Cyberspace: Why
the Commercial General Liability Policy Fails to Insure Lost or Corrupted Computer Data,
54 SMU L. REV. 2055, 2061 (2001) (noting that large economic losses can result from “the
deletion or corruption of valuable business data,” and “[i]n a digital economy in which information
is the new currency, businesses are increasingly dependent upon their ability to
access, store, and transmit computerized data . . . . Any interference with that ability can,
and does, translate into titanic financial losses”).

1004 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:1003
First-party commercial property policies provide insurance benefits
directly to the affected business when there is a loss. 4 Business
interruption insurance, also known as business income insurance, is
often purchased as part of a first-party commercial property business
insurance package to protect against lost earnings that a policyholder
would have earned absent the interruption in business. 5 Virtually all
first-party property coverage, including business interruption insurance,
will not provide coverage unless a covered peril causes actual
physical damage resulting in loss or interruption. 6 For decades this
coverage was sufficient because businesses typically faced physical
perils that caused tangible damage. 7 Today, this coverage is insufficient
because it often fails to cover significant intangible assets, such
as electronic data. 8
To determine whether a policy covers losses that result from loss
of electronic data, a court will first look at the language of the insurance
policy. 9 Insurance companies often use boilerplate language
from standard insurance forms created by the Insurance Services Office
(ISO) to draft policies. 10 Thus, the policies and practices adopted
by the ISO encourage insurance companies to follow suit. The current
ISO language in first-party policies excludes or limits electronic data
from coverage. 11 Despite the ISO’s position, the issue of coverage for
electronic data and other intangibles remains widely discussed and
litigated, and not all insurance companies strictly follow ISO forms.
In today’s business world, coverage that excludes electronic data is
unworkable because property forms have changed. 12 Many businesses
4. Anna Lee, Note, Why Traditional Insurance Policies Are Not Enough: The Nature
of Potential E-Commerce Losses & Liabilities, 3 VAND.J.ENT.L.&PRAC. 84, 85 (2001).
5. See, e.g., Robert J. Brennan & Laura C. Conway, Business Income Insurance Coverage,
32 THE BRIEF 65, 65 (2003). To recover under business interruption insurance, the
business must actually show a loss of income. Id. at 69. Business interruption policies may
also contain extra expense coverage, which covers extra costs incurred as a result of the
event, such as rental or transportation expenses. Id. at 66.
6. See, e.g., Beh, supra note 1, at 67. Individual policy language will determine what
perils are covered; however, common losses covered in business interruption policies include
“fire; explosions; power failures; earthquakes; closure by order of civil authority . . .
hail; floods; riots and civil commotions.” Brennan & Conway, supra note 5, at 67.
7. See Beh, supra note 1, at 64-68.
8. See id. at 64.
9. Under standard contract law, the plain and unambiguous meaning of policy provisions
will be given effect. See, e.g., Ward Gen. Ins. Servs., Inc. v. Employers Fire Ins. Co., 7
Cal. Rptr. 3d 844, 852 (Cal. Ct. App. 4th Dist. 2003).
10. Michelle E. Boardman, Contra Proferentem: The Allure of Ambiguous Boilerplate,
104 MICH.L.REV. 1105, 1113 (2006).
11. See Insurance Services Office, Building and Personal Property Coverage Form,
2007, at § (A)(2)(n), available at LEXIS ISO Policy Forms No. 00 10 06 07; Insurance Services
Office, Business Income (and Extra Expense) Coverage Form, 2007, at § (A)(5)(d),
available at LEXIS ISO Policy Forms No. 00 30 06 07; William K. Austin, Cyber Risk—
Data Damage and Destruction Beyond the Naked Eye, IRMI ONLINE, July 2009,
http://www.irmi.com/expert/articles/2009/austin07-commercial-property-insurance.aspx.
12. See Beh, supra note 1, at 55.

2010] BUSINESS INSURANCE 1005
have abandoned physical storefronts and the familiarity of face-toface
transactions and operate exclusively on the Internet as electronic
businesses (e-businesses). 13 Bricks and mortar businesses that once
stored valuable data in office filing cabinets now store most data electronically.
Businesses are evolving, but the insurance industry has
intentionally lagged behind, ensuring businesses will have inadequate
coverage for electronic assets.
ISO standard forms, insurance policies, and case law contain inconsistencies
that further confuse and leave policyholders uncertain
as to property and business interruption coverage involving electronic
data. Drafters of ISO policy language should take a step back and
reconsider their positions on electronic data exclusions. Some insurance
companies are providing endorsements to policies notwithstanding
the language, 14 and courts have recognized the physicality of electronic
data. 15 Additionally, courts and scholars failing to recognize
electronic data loss as physical damage often cite third-party commercial
general liability policies (CGL) as support, which is inappropriate
due to first- and third-party coverage differences. 16
As we move ahead in the twenty-first century and become increasingly
more dependent on computer-run businesses, the number of
possible events that may not meet the physical damage requirement
continues to grow. Why has the insurance industry failed to make
changes to standard first-party commercial property policies that reflect
the modern realities of our computer-dominated world?
I will address this question and argue that the physical damage requirement
in standard first-party policies is outdated or unsuitable for
the evolving insurance needs of modern businesses because it excludes
electronic data from coverage. First, I will discuss the impact cyberspace
has had on property forms, business operations, and insurance
needs, and I will explore current problems many businesses face when
obtaining cyber-related coverage. Second, I will provide an analysis of
the issues and case law surrounding the physical damage requirement
13. E-businesses transact business over the Internet instead of at a physical location.
Id. at 56.
14. See Lambrecht & Assocs., Inc. v. State Farm Lloyds, 119 S.W.3d 16, 22 (Tex. App.
12th Dist. 2003).
15. See Am. Guar. & Liab. Ins. Co. v. Ingram Micro, Inc., No. 99-185 TUC ACM, 2000
U.S. Dist. LEXIS 7299, at *6 (D. Ariz. Apr. 18, 2000).
16. Courts should not use third-party liability policies as a guide in interpreting firstparty
property policies because, from an insurer’s perspective, coverage risks in each policy
are very different. See Erik S. Knutsen, Confusion About Causation in Insurance: Solutions
for Catastrophic Losses, 61 ALA. L.REV. (forthcoming 2009) (manuscript at 11, on file with
author). In a liability policy, an insurer’s scope of coverage is as broad as tort law, and in a
property case insurers have greater control over underwritten risks. Id. Although courts
and scholars have argued for the different treatment of first and third-party policies, comparisons
continue to be made. See id. at 70; see also Ward Gen. Ins. Servs., Inc. v. Employers
Fire Ins. Co., 7 Cal. Rptr. 3d 844, 852 (Cal. Ct. App. 4th Dist. 2003).

1006 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:1003
in a computer-related context, and I will briefly introduce problems the
requirement creates in other insurance contexts. Lastly, I will discuss
the implications of boilerplate language in insurance contracts, dissect
current ISO forms, present theories on why the industry has not
evolved, and make recommendations for the future.
II. CYBERSPACE
Computers have taken the world by storm. Many businesses’ most
valuable assets now exist in cyberspace. 17 Businesses are changing,
and traditional insurance products should be updated to reflect these
changes. The rise in e-businesses and specialized cyber insurance
products evidence the need for change. Businesses that once cautiously
flirted with cyberspace now trust the cyberworld with some of
their most precious information.
A. The New Form of Property
Electronic data has become a significant form of commercial property.
18 Many businesses have purged familiar steel filing cabinets, opting
instead to transfer paper data into an electronic form. Other than the
occasional post-it note, people today rarely use handwritten materials to
communicate information, and typewriters are practically extinct. Businesses
likely believe they are keeping up with technology by engaging in
these practices and may not realize the insurance implications.
Much of the electronic data stored by businesses is the same data
previously stored in filing cabinets and, thus, has simply changed
forms. The ability to store data in an electronic form has enabled
companies to go “green” by reducing their environmental impact. 19
Storing data electronically may also provide additional safeguards
because paper can be more easily destroyed by fires, floods, and other
natural disasters. While this kind of damage is easily seen with the
naked eye, damage to data stored on computer systems is intangible
and cannot be seen. 20 Property forms have changed so drastically that
if a natural disaster destroys all of a company’s computers, the company
will probably be more concerned about the intangible information
the computer held than the loss of the physical system.
The emergence of electronic data as a major property form is a
significant reason why the current physical damage requirement is
17. See Beh, supra note 1, at 55.
18. See id.
19. The paper production process comes with significant costs to the environment.
Many companies are finding that reducing paper consumption saves money, is more efficient,
and may bolster their reputations for being “environmentally conscious.” Heather
Sarantis, Business Guide to Paper Reduction, September 2002, pp. 1-4, available at
http://www.environmentalpaper.org/documents/REDUCE-BUSINESS-GUIDE.pdf.
20. See id. at 56.

2010] BUSINESS INSURANCE 1007
outdated. Businesses are simply choosing to store data in a different
way. Their choice is an optimal one for the environment, and wording
in standard insurance policies should not incentivize businesses to
regress. For insurance purposes, it should not matter what form a
company uses to store data. Insurance companies themselves likely
use computers as their major source of data storage.
B. E-businesses
Cyberspace has changed conventional business operations. Ebusinesses
are on the rise. Without having to maintain a physical location,
e-businesses are important for the economy because they can
expand and break into markets faster than conventional businesses,
thus maximizing profits. 21 E-businesses can potentially reach an unlimited
number of customers through the Internet, and conducting
business online reduces transaction costs. 22 These business forms
have no use for an insurance policy that covers only physical losses
and physical perils even though they desperately need business interruption
and property protection. If a policyholder’s entire business
is conducted online, any interruption that keeps the business offline
could result in huge losses. 23 Further, any data loss or software corruption
could also result in substantial interruptions. 24
One reason traditional first-party policies are inadequate is that ebusinesses
face different risks and damages in the cyberworld than
those that threaten the traditional business. 25 The risks that affect ebusinesses
are different than the physical risks once contemplated by
traditional commercial property policies. 26 E-perils, such as computer
viruses 27 and computer hacking, 28 threaten to harm e-businesses more
21. See id. at 57.
22. See id.
23. See id. at 59-60.
24. Yost, Glad & Barker, supra note 3, at 2061.
25. See id. Modern traditional bricks and mortar businesses face many of the same
risks as e-businesses. Viruses and worms may be the most serious threat facing corporations
today. Robert W. Hahn & Anne Layne-Farrar, The Law and Economics of Software
Security, 30 HARV.J.L.&PUB.POL’Y 283, 289-90 (2006).
26. See Beh, supra note 1, at 55-56 (“The perils that face these new business forms are
not the traditional perils of fires, floods, and other physical forces of man and nature, but
perils that exert no apparent physical force and leave no sign of physical damage behind.”).
27. Worms and computer viruses are self-replicating programs that usually arrive via
email and corrupt data and programs on computers. One infamous worm, the Love Bug,
spread from Asia in 2000 and even reached government computers at Congress, the White
House, and the Pentagon. The Love Bug may have caused up to $10 billion in damages.
Hahn & Layne-Farrar, supra note 25, at 289.
28. Computer hackers often use social engineering tactics to invade secure networks.
They may send fraudulent emails to customers to trick them into divulging confidential information,
or they may gain access to networks when employees and consumers select unoriginal
passwords or fail to keep passwords private. In these cases they are posing as legitimate
users when they hack into sites. Id. at 290-91.

1008 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:1003
than any physical peril. 29 E-perils include the risks of “information
theft, insertion of malicious codes, denial of service attacks, 30 access violations,
failure of computer security, programming errors, and misuse
or misappropriation of intangible assets.” 31 Because e-businesses face
more danger in the cyberworld, they need business interruption and
property coverage for e-perils instead of physical perils. 32
Similar to the way fires and floods interrupt the business of a
shopkeeper, e-perils interrupt the operations of an e-business. Surprisingly,
even the slightest website interruption can have devastating
consequences on profits due to the impatient nature of e-customers. 33 If
Amazon.com and Overstock.com are both selling the same product at
the same price, a customer will naturally prefer the site that is working
properly. A prudent e-business owner will seek to insure for these
interruptions, particularly because they could last for extended periods
of time. 34 E-businesses today should shy away from traditional firstparty
commercial property policies and look for an e-commerce policy
with some kind of business interruption coverage. 35
C. E-Commerce Insurance
Despite the radical changes cyberspace has brought to modern
businesses, many traditional insurance products have remained the
same. Both first-party commercial property policies and CGL 36 policies
require the incurrence of some kind of physical damage. 37 Instead
of modifying traditional products, some insurance companies
29. See Beh, supra note 1, at 56.
30. A denial of service attack is when a network is overwhelmed with traffic that
shuts down and prevents customers from accessing the network. Hahn & Layne-Farrar,
supra note 25, at 288.
31. See Beh, supra note 1, at 58-59.
32. See id.
33. See id. at 60 (noting that the average web surfer will only wait approximately
eight seconds for a website to load before moving on to a different site).
34. Claims for web interruptions may be more successful when interruptions last for
extended periods of time. The majority of courts require business operations to be completely
suspended and will not provide coverage for slowdowns. See Clark Schirle, Time
Element Coverages in Business Interruption Insurance, 37 THE BRIEF 32, 34 (2007). This
requirement is problematic because e-commerce-related losses often involve brief interruptions
or network slowdowns.
35. See Robert H. Jerry, II & Michele L. Mekel, Cybercoverage for Cyber-Risks: An
Overview of Insurers’ Responses to the Perils of E-Commerce, 8 CONN.INS. L.J. 7, 13 (2001).
36. CGL policies will be referred to in this Note because courts and scholars often use
these cases as a guide in interpreting physical damage under first-party property cases due
to the requirement in CGL policies of damage to tangible property. See, e.g., Ward Gen. Ins.
Servs., Inc. v. Employers Fire Ins. Co., 7 Cal. Rptr. 3d 844, 852 (Cal. Ct. App. 4th Dist.
2003); Kendall Bodden, Note, Tangible Cash for an Intangible Loss? Insurance Coverage for
Damage or Loss of Third-Party Data, 1 SHIDLER J.L. COM. &TECH. 6, *2 (2005), available
at http://www.lctjournal.washington.edu/Vol1/a006Bodden.html.
37. See Jerry & Mekel, supra note 35, at 10, 15-16.

2010] BUSINESS INSURANCE 1009
have created new products that are specifically tailored to e-perils. 38
These e-commerce or cyber policies are specialized and aim to cover
intangible assets. 39 For example, insurance giant AIG recently
created a new cyber-breach package that covers many risks including
network interruptions, cyber extortion, and network security. 40 Businesses
that want insurance for electronic data can purchase ecommerce
policies designed to cover cyber risks. These policies provide
coverage for e-perils and will often compensate the insured for
loss of income when a website becomes inoperable during a cyber
event. 41 Although these products sound desirable, many believe the
cyber insurance market is under used because of expensive premiums.
42 Many of these products were created at the beginning of the
decade and because of their relatively short history, there may be uncertainty
regarding their scope of coverage. 43
Cyber products may be effective for some businesses, but they do
not appeal to all clients. 44 Fortune 1000 companies may not want to
negotiate and administer these stand-alone policies. 45 These companies
have the clout to induce insurance companies into drafting endorsements
or individualized policies, but smaller companies may
find that standardized cyber policies are their only option. 46 Many cyber
insurers require businesses to implement certain IT security
standards before providing coverage, and these security measures
may be too costly for smaller businesses. 47 Modern brick and mortar
businesses that have significant intangible assets but are not involved
in e-commerce may be stuck between a rock and a hard place.
Traditional first-party policies will not provide electronic data coverage,
and standardized e-commerce policies may not cover businesses
that are not engaged in e-commerce. 48 Business owners may believe
their standard first-party policy is enough, they may fail to appre-
38. See Beh, supra note 1, at 56-57.
39. It is important to distinguish between commonly used cyber insurance terminology
for first-party policies (often called e-business or e-commerce insurance) and third-party
policies (often called cyber-risk insurance). These terms are often used interchangeably in
material and due to this trend both terms will be used in this Note. See F. LAWRENCE
STREET,LAW OF THE INTERNET § 13.02 (2009).
40. Pete Brush, Ailing AIG Rolls out New Cyber-Breach Product, LAW 360, Jan. 27,
2009, http://www.law360.com/print_article/84826. AIG’s cyber-breach product is a thirdparty
policy and is only for businesses with annual revenue of over $500 million. Id.
41. See Jerry & Mekel, supra note 35, at 13.
42. Ross Anderson & Tyler Moore, The Economics of Information Security, SCIENCE,
Oct. 27, 2006, at 610, 612.
43. See Jerry & Mekel, supra note 35, at 13.
44. See id. at 28.
45. Id.
46. Id. at 28-29.
47. See Bodden, supra note 36, at *5.
48. See Insurance Services Office, Electronic Commerce (E-Commerce), 2007, available
at LEXIS ISO Policy Forms No. CP 00 30 06 07.

1010 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:1003
ciate their coverage needs, or their insurance agent may misrepresent
the extent of coverage. 49
1. E-Commerce Insurance and Conflicts of Interest
One reason obtaining insurance can be a hazard to businesses seeking
e-commerce-related coverage is that there is an inherent conflict of
interest between insurance agents and the insured. 50 Both experienced
and rookie insurance agents are faced with ethical dilemmas when
clients ask coverage questions. 51 Both agents want to make the sale
and may be tempted to lead clients to believe policies will provide coverage.
52 An experienced insurance agent knows he cannot accurately
predict coverage. 53 Businesses spend thousands—even millions of dollars
on premiums and they want to be assured of coverage. 54
When selling a policy, insurance agents may be tempted to suggest
that traditional policies will cover e-commerce-related losses. Insurance
agents may also misinform policyholders of coverage available
under specialized products and may not spend enough time accurately
assessing businesses’ coverage needs. It may be particularly
problematic for insurance agents to accurately predict coverage scenarios
under specialized e-commerce or cyber products because they
are relatively recent editions to insurance companies’ inventories.
An insurance agent’s temptation to misinform or inability to accurately
predict coverage is nothing new and is certainly not limited to ecommerce-related
coverage; however, businesses should be aware of the
uncertainty that may accompany e-commerce policies. Until nuances in
these policies have been litigated, it is impossible for the conscientious
agent to accurately estimate coverage, and it may be easier for the rookie
agent to engage in insincere sales tactics. Clients may expect some
degree of “puffing” by any salesperson, but they will likely expect their
insurance agents to provide clear answers regarding coverage.
III. THE PHYSICAL DAMAGE REQUIREMENT
What is physical damage? This seems to be the million dollar
question when it comes to cyber-related commercial property and
49. See Lee Roy Pierce, Jr., The Ethical Dilemma Insurance Agents Face Which May
Tempt Some to Mislead Their Clients Regarding Coverage, and What to Do to Protect Your
Business from the Consequences of Such Conduct, 19 W. ST. U.L.REV. 507, 507-08 (1992)
(providing general information on the problems that may arise as a result of the conflict of
interest between insurance agents and their clients).
50. See id.
51. See id. at 508.
52. See id.
53. Id. at 509-10.
54. Id. at 511.

2010] BUSINESS INSURANCE 1011
business interruption litigation. Can the concept of physical damage
change with advances in technology, or is it a static concept?
Generally, to meet the physical damage requirement, the insured
must prove there was a “material or substantive physical change to
the insured property;” 55 however, policy definitions may differ. If the
term physical damage is undefined in the contract between the parties,
courts often differ in interpretations of what constitutes physical
damage. 56 These inconsistencies threaten to leave policyholders uncertain
about what property will be covered. If insurance companies
and courts strictly construe the concept of physical damage, many
businesses could be left without electronic data coverage.
A. The Physical Damage Requirement and Computers
Insurance companies and policyholders disagree over what constitutes
physical damage. 57 Policyholders argue that physical damage
occurs when magnetic changes occur within the computer’s memory.
58 Policyholders can also analogize computer-related losses to other
invisible forms of damage like mold spores, odors, and gasses. 59 Insurance
companies will likely consistently oppose these arguments
and contend that changes in electronic information are intangible
and do not constitute physical damage. 60
E-commerce-related losses could be covered in first-party commercial
property policies that are written on an all-risk basis. 61 All-risk policies
typically provide coverage when a fortuitous event causes physical loss
or damage. 62 There is some confusion over whether the word “physical”
applies merely to losses or applies to damages as well. 63
Businesses may have more luck with e-commerce-related losses in
all-risk business interruption policies. A leading case on the subject,
American Guarantee & Liability Insurance Co. v. Ingram Micro,
Inc., 64 demonstrates that some courts will stretch traditional business
55. Peter E. Kanaris, Analytical Approach to Business Interruption, Extra Expense,
and Civil Authority Coverage Issues, 43 TORT TRIAL &INS.PRAC. L.J. 113, 114 (2007).
56. See, e.g., Am. Guar. & Liab. Ins. Co. v. Ingram Micro, Inc., No. 99-185 TUC ACM,
2000 U.S. Dist. LEXIS 7299, at *10 (D. Ariz. Apr. 18, 2000) (holding that physical damage
included loss of use or functioning of computer); Ward Gen. Ins. Servs., Inc. v. Employers
Fire Ins. Co., 7 Cal. Rptr. 3d 844, 850 (Cal. Ct. App. 2003) (holding that loss of electronic
database did not constitute physical damage).
57. See Beh, supra note 1, at 66.
58. See id.
59. Id. at 66-67.
60. Id. at 66.
61. Lee, supra note 4, at 86.
62. Id.
63. Id.
64. See generally No. 99-185 TUC ACM, 2000 U.S. Dist. LEXIS 7299 (D. Ariz. Apr. 18,
2000) (holding that damage to a computer system resulting from a power outage constituted
“physical damage”).

1012 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:1003
interruption policies to find coverage. 65 Ingram, “a wholesale distributer
of microcomputer products,” purchased an all-risk property policy
from American to insure against business interruption losses. 66
The policy insured against “[a]ll [r]isks of direct physical loss or damage
from any cause.” 67 Ingram’s business operations depended solely
on the functioning of a computer network used to conduct daily business.
68 As a result of a power outage, Ingram’s computer lost all programming
information from the random access memory, and it took
almost eight hours for Ingram to return to full operation due to a
malfunctioning matrix switch. 69 American argued that there was no
physical damage because the matrix switch and the computer had
not lost the ability to accept data. 70 Ingram argued that physical
damage includes loss of use and functionality. 71
The court referenced language in penal statutes that defined computer
damage and held in favor of Ingram, stating the following:
At a time when computer technology dominates our professional as
well as personal lives, the Court must side with Ingram’s broader
definition of “physical damage.” The Court finds that “physical
damage” is not restricted to the physical destruction or harm of
computer circuitry but includes loss of access, loss of use, and loss
of functionality. 72
The court found language in penal statutes to be relevant to insurance
because “[l]awmakers around the country have determined that
when a computer’s data is unavailable, there is damage; when a
computer’s services are interrupted, there is damage; and when a
computer’s software or network is altered, there is damage.” 73
Ingram served as a warning to the insurance industry, and some
companies drafted electronic data exclusions. 74 Notwithstanding
possible exclusions, the Ingram case is evidence that businesses may
be covered under all-risk policies for business interruption losses that
result from corruption or loss of electronic data. 75 Although Ingram
has not been widely accepted, 76 some courts still follow the Ingram
65. See, e.g., Beh, supra note 1, at 68-69; Lee, supra note 4, at 86.
66. Ingram, 2000 U.S. Dist. LEXIS 7299, at *2-*3.
67. Id. at *3.
68. Id. at *3.
69. Id. at *4-*5.
70. See id. at *5.
71. Id. at *6.
72. Id.
73. Id. at *7.
74. See, e.g., Beh, supra note 1, at 68-69; Felix’s Rest., Inc. v. Aspen Specialty Ins. Co.,
No. 07-4290, 2008 U.S. Dist. LEXIS 82815, at *15 (E.D. La. Oct. 17, 2008) (interpreting
policy containing endorsement that excluded electronic data from coverage unless damage
was caused by a covered peril).
75. STREET, supra note 39, at §13.02.
76. Id.

2010] BUSINESS INSURANCE 1013
holding. 77 In Southeast Mental Health Center, Inc., v. Pacific Insurance
Co., Ltd., the plaintiff’s operations were interrupted after a
storm and a power outage caused data loss to the pharmacy computer.
78 Although the storm did not physically damage plaintiff’s real
property, plaintiff sought recovery for business income losses that resulted
from its inability to fill customer prescriptions on the pharmacy
computer. 79 The court, noting that the Ingram court’s reasoning
was persuasive, held that “the corruption of the pharmacy computer
constitutes ‘direct physical loss of or damage to property’ under the
business interruption policy.” 80
Despite Ingram’s persuasiveness, the recent trend in CGL cases is
to find that electronic data is not tangible property. 81 Although there
are vast differences between third-party and first-party policies that
should not be ignored, some courts follow the reasoning in thirdparty
cases. 82 In Ward General Insurance Services, Inc., v. Employers
Fire Insurance Co., the court held that loss of electronically stored
data was not a physical loss without any “loss or damage to the storage
media or to any other property.” 83 The court used dictionary definitions
of the term physical and followed holdings in third-party
cases, including a widely-cited case, America Online, Inc., v. St. Paul
Mercury Insurance Co. 84 In the America Online case, the court held
that “computer data, software and systems are not ‘tangible’ property
in the common sense understanding of the word.” 85 The court declined
to follow Ingram, stating the following:
The court in Ingram Micro did not apply the plain meaning of the
word “physical.” Rather, the court relied on the increased importance
of computers in our lives and the reflection of this level of
importance in various state and federal statutes qualifying loss of
computer data as physical damage. Although the importance of
computers in our personal and professional lives cannot be overstated,
this Court is bound by the terms of the insurance policy. 86
Both the Ingram and the America Online courts recognized the importance
of computers in today’s society; however, the America On-
77. See Se. Mental Health Ctr., Inc. v. Pac. Ins. Co., 439 F. Supp. 2d 831, 837-38 (W.D.
Tenn. 2006).
78. Id. at 833.
79. Id. at 834, 836.
80. Id. at 837.
81. STREET, supra note 39, at §13.02.
82. See Ward Gen. Ins. Servs., Inc. v. Employers Fire Ins. Co., 7 Cal. Rptr. 3d 844, 852
(Cal. Ct. App. 4th Dist. 2003) (“We see no reason to attribute different meanings to ‘direct
physical loss,’ as used in first-party coverage provisions, and ‘physical damage to tangible
property,’ as used in third-party coverage provisions.”).
83. Id. at 851.
84. 207 F. Supp. 2d 459 (E.D. Va. 2002).
85. Id. at 462.
86. Id. at 469-70.

1014 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:1003
line court was unwilling to use public policy in its decision. Also, the
America Online court failed to recognize that property forms have
changed, while in Ingram the court recognized that strict construction
of the definition of physical damage would be “archaic.” 87
The physical damage requirement should be modified because
electronic data can be damaged and is merely a different form of data
storage. Electronic data can be manipulated, altered, and changed 88
and is used as a substitute for paper records. These changes should
be considered to constitute physical damage. Further, there are important
public policy reasons to change the way we view physical
damage. Computers have changed our lives and the way we do business.
Computers are important for the economy and have aided businesses
in maximizing profits by lowering transaction costs. Computers
have become the premier storage device utilized by businesses,
and electronic data is a vital asset that should be covered in firstparty
policies. As discussed in Ingram, legislators have already recognized
that electronic data can be damaged. Businesses today already
face a precarious existence. Leaving modern businesses without
adequate coverage of intangibles will only further the problem.
B. The Physical Damage Requirement in Other Contexts
The cyberworld is not the only context in which the physical damage
requirement has started controversy. 89 Litigation over the definition
of physical damage still ensues and is anticipated in other situations.
A power grid stops functioning—physical damage? Swine flu
contaminates a work place—is the contamination physical damage?
These are just a few of the many issues that arise in litigation involving
business interruption insurance.
The recent swine flu pandemic has alarmed many businesses and
encouraged them to reexamine their insurance coverage. 90 The number
of swine flu cases has continued to grow, and businesses are worried
about coverage when business operations shut down. 91 Attorneys
expect insurance companies will contend that swine flu losses do not
constitute property damage. 92 These disagreements will likely lead to
litigation. Under applicable law, some contamination is considered
87. Am. Guar. & Liab. Ins. Co. v. Ingram Micro, Inc., No. 99-185 TUC ACM, 2000 U.S.
Dist. LEXIS 7299, at *7 (D. Ariz. Apr. 18, 2000).
88. See Beh, supra note 1, at 66.
89. This Note focuses on the physical damage requirement and electronic data; however,
it is useful to examine other areas in which the requirement has created confusion
regarding scope of coverage.
90. See Christie Smythe, Swine Flu Prompts Cos. to Examine Insurance, LAW 360,
May 1, 2009, http://www.law360.com/print_article/99373.
91. See id.
92. Id.

2010] BUSINESS INSURANCE 1015
physical damage to property. 93 Businesses should be covered for
losses sustained during the time they were decontaminating the
property, but only time will tell. 94
Power outages can wreak havoc on business operations, and there
is controversy regarding whether outages constitute physical damage.
In a recent case, Wakefern Food Corp. v. Liberty Mutual Fire Insurance
Co., a New Jersey appellate court found that an electrical
grid was physically damaged when it was unable to provide electricity.
95 As a result of this case, Liberty Mutual was ordered to cover a
group of supermarkets for losses they suffered during a power outage
that lasted four days. 96 The trial court had found there was no physical
damage to the power grid because it was able to function after the
interruption. 97 The appellate court found that “the trial court construed
the term [physical damage] too narrowly, in a manner favoring
the insurer and inconsistent with the reasonable expectations of
the insured.” 98 The plaintiffs in this case had paid a $5.5 million dollar
premium for a policy that included coverage for power outages. 99
Many of these concepts are obvious, and perhaps drafters of traditional
business interruption insurance policies anticipated these
risks and chose not to provide coverage. Notwithstanding policy language,
many businesses urge courts to stretch the term physical
damage, and sometimes courts agree. The power outage case and the
possibility of swine flu litigation provide additional support for the
modification of the physical damage requirement. Not all physical
damage can be easily seen with the naked eye, but this does not
mean damage does not exist. Businesses spend fortunes in premiums
and are being denied coverage on technicalities. Although insurance
litigation in our society will continue, some courts are construing the
definition of physical damage broadly, and insurance companies and
the ISO should take note.
IV. BOILERPLATE LANGUAGE
Boilerplate language can make even the most attentive reader’s
eyes glaze over with confusion. Like many contract drafters, the insurance
industry is no stranger to ambiguous boilerplate language. 100
93. Richard P. Lewis, Securing Business Income Coverage in a Pandemic, LAW360,
May 1, 2009, http://www.law360.com/print_article/99440.
94. Id.
95. 968 A.2d 724, 734 (N.J. Super. Ct. App. Div. 2009); Tina Peng, Liberty Must Cover
Markets for Power Outages: Court, LAW 360, Apr. 23, 2009,
http://www.law360.com/print_article/98222.
96. Wakefern Food Corp., 968 A.2d at 739.
97. Id. at 734.
98. Id.
99. See Peng, supra note 95.
100. See Boardman, supra note 10, at 1111.

1016 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:1003
Insurers likely use boilerplate language not because clients understand
it, but because courts have already interpreted the language.
Insurers continue to use ambiguous language even though courts often
construe such language against them. 101
In her article, Contra Proferentem: The Allure of Ambiguous Boilerplate,
Professor Michelle E. Boardman evaluates the insurance industry’s
attraction to boilerplate language despite incentives to draft
clearer policies. 102 Professor Boardman makes the following observation
about courts’ attempts to incentivize insurance companies:
“Courts try to improve the language of insurance policies, as a parent
tries to improve a child’s behavior, both by punishment and by encouragement.
The frustration of courts in this endeavor suggests that
they realize their efforts are being wasted.” 103 When courts construe
ambiguous boilerplate language against insurance companies, the result
is less than optimal. 104 Instead of redrafting language to increase
policy clarity, insurance companies use ambiguous language to their
advantage. They retain language that is unreadable, but has been interpreted
by courts because they know courts will use precedent in
the future to interpret the provisions. 105 They may retain language
that has been construed in their favor but is confusing to policyholders,
or they may even retain language that has been construed
against them but will mislead policyholders into believing they have
no meritable claim. 106 Boilerplate language takes on a private meaning
between courts and insurers, but policyholders are left out in the
cold. 107 The result only perpetuates path dependency. 108
A. Insurance Services Office
As discussed in the Introduction, the ISO drafts standard insurance
forms that many insurance companies use as models for their
own first- or third-party policies. The ISO copyrights these forms and
sells them to insurance companies. 109 The ISO also seeks approval of
policy language from state insurance commissioners, and after courts
interpret policies and data on losses is received, the ISO may begin
redrafting forms. 110 The ISO maintains that this process increases
clarity in standard language. 111 However, redrafts usually only in-
101. Id. at 1106.
102. Id.
103. Id. at 1107.
104. See id. at 1111.
105. See id.
106. See id.
107. See id.
108. See id. at 1113.
109. Id.
110. Id.
111. Id.

2010] BUSINESS INSURANCE 1017
crease clarity for courts and insurers. 112 Professor Boardman contends
that “[i]t should be questioned both whether language does indeed
evolve from less to more clear and who benefits from the language
changes that are made.” 113 ISO forms are ideally supposed to
represent current changes in the law, the insurance industry, and
market conditions. 114 Despite sweeping changes in technology and
new markets for cyber-related coverage, current ISO forms primarily
exclude or limit electronic data coverage. 115
Under the ISO form for first-party coverage, electronic data is
listed as one of the items that is not covered. 116 The form does contain
a $2,500 extension of coverage for the cost to replace electronic data,
but not for the data itself. 117 This limit is too small for most businesses,
118 and the form further provides that “the loss will be valued at
the cost of replacement of the media on which the electronic data was
stored.” 119 The ISO form for business interruption coverage also contains
a $2,500 limit and will only provide coverage for electronic data
related interruptions that are caused by covered perils. 120 The ISO ecommerce
form provides business interruption coverage, but only for
businesses engaged in e-commerce. 121 This specification means modern
brick and mortar businesses will not be eligible for e-commerce
policies modeled after ISO forms. These forms essentially provide no
workable solutions for brick and mortar businesses that do not engage
in e-commerce. 122
Because courts may look to third-party policy language as a guide,
it is useful to examine ISO forms for CGL policies. Businesses often
rely on these third-party policies when they lose or damage their customers’
data. 123 In 2001, the ISO changed the standard CGL form to
exclude electronic data from property coverage. 124 The definition of
property damage in the ISO form contains the following language:
For the purposes of this insurance, electronic data is not tangible
property. As used in this definition, electronic data means infor-
112. Id.
113. Id.
114. See id.
115. Austin, supra note 11.
116. Insurance Services Office, Building and Personal Property Coverage Form, 2007,
at § (A)(2)(n), available at LEXIS ISO Policy Forms No. 00 10 06 07.
117. Austin, supra note 11.
118. Id.
119. Insurance Services Office, Building and Personal Property Coverage Form, 2007,
at § (A)(4)(f), available at LEXIS ISO Policy Forms No. 00 10 06 07.
120. See Insurance Services Office, Business Income (and Extra Expense) Coverage
Form, § (A)(5)(d), available at LEXIS ISO Policy Forms No. 00 30 06 07.
121. See Id.
122. Austin, supra note 11.
123. Bodden, supra note 36, at *1.
124. Id. at *2.

1018 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:1003
mation, facts or programs stored as or on, created or used on, or
transmitted to or from computer software, including systems and
applications software, hard or floppy disks, CD-ROMS, tapes,
drives, cells, data processing devices, or any other media which are
used with electronically controlled equipment. 125
This language ensures that data loss will not be covered under CGL
policies that adopt ISO language. However, “the new language does
not exclude the third party’s loss of use of undamaged hardware (i.e.
tangible property) caused by data loss (i.e. intangible property).” 126
If insurance companies follow ISO forms, businesses will be forced to
try to obtain e-commerce policies or litigate their claims. 127
The current ISO forms present a significant obstacle to reform of
the physical damage requirement. ISO forms greatly influence insurance
companies. Ideally, these forms should be modified to reflect
modern realities. The ISO is setting an unworkable example, and
some insurance companies have recognized this and have added endorsements
providing for e-commerce-related losses. 128 Restricting ecommerce
policies to businesses engaged in e-commerce prevents
modern brick and mortar businesses from obtaining sufficient electronic
data coverage. If insurance companies follow these standard
forms, modern brick and mortar businesses will not be covered under
traditional first-party policies and will not be eligible to obtain ecommerce
insurance.
While the ISO reports that its standardized policy forms are actually
drafted to benefit consumers, it seems that electronic data exclusions
were drafted to shield insurers from taking on risks in a relatively
novel area. This behavior makes sense, and insurers are not
expected to serve as saviors to modern businesses. Property forms
have drastically changed in a relatively short period of time. The insurance
industry may be cautious because they are alarmed by the
rapidity of the changes, or they may be using changes in technology
as an excuse to withhold coverage under traditional policies, thus
creating an insurance market for expensive cyber products.
The industry is getting its feet wet by offering limited e-commerce
coverage and seems to have no immediate plans to broaden coverage
under traditional first-party policies. Insurance companies may be
worried about accurately assessing risks presented by insuring electronic
data. There may be concern about how to accurately measure
electronic data damages. Insurance companies could also be worried
125. Id. at *4.
126. Id. at *5.
127. See id.
128. Policy endorsements issued by some companies do not contain the e-commerce requirement.
See Lambrecht & Assoc., Inc., v. State Farm Lloyds, 110 S.W.3d 16, 22 (Tex.
App. 12th Dist. 2003).

2010] BUSINESS INSURANCE 1019
about proof—if filing cabinets go up in smoke, the extent of the damage
can be easily seen, but there is no obvious sign of damage to electronic
data. If insurance companies are worried about proof, they
should consider that, as a practical reality, proof is an issue when it
comes to insuring any kind of data. If a business’s filing cabinet goes
up in smoke, it will be difficult to ascertain the extent of damage even
though it can be easily seen. The cabinet could have been filled with
blank sheets of paper. If a business is going to commit insurance
fraud, they will likely be motivated to do this whether or not electronic
data is involved.
By maintaining forms that exclude or limit electronic data from
coverage, the ISO is doing the insurance industry a disservice. Under
current ISO extension forms, paper is insurable. The provision provides
that: “You may extend the insurance . . . to apply to the cost to
replace or restore the lost information on valuable papers and records
for which duplicates do not exist. But this Extension does not apply
to valuable papers and records which exist as electronic data.” 129
Many businesses are likely seeking insurance for the same data that
was previously stored on paper. Insurance companies can cover electronic
data and still restrict covered perils. Many insurance companies
are missing out on profits because they are following ISO forms.
Although other model forms exist, smaller insurance companies cannot
afford to use non-ISO forms or to draft individualized forms.
These smaller companies are missing out on a productive market
while profits are being siphoned by specialty carriers offering ecommerce
coverage. 130
There could be additional motivations for following ISO forms that
have nothing to do with insurance. For example, “an insurance executive
may be able to keep her job and steadily advance, all the
while endorsing ISO-drafted language that all other insurers are using,
even if that language causes millions or billions of dollars in litigation.”
131 An executive may be held accountable for a bad decision if
she makes an individual decision to depart from ISO forms, but she
will not be held accountable for following industry standards. 132
President Barack Obama has stressed the importance of cyberspace
in our lives, 133 and based on the government’s recent trend of
becoming involved in many industries, it is possible that someday the
government could offer cyber insurance subsidies. If this happens, in-
129. Insurance Services Office, Building and Personal Property Coverage Form, 2007,
at § (A)(5)(c)(1), available at LEXIS ISO Policy Forms No. 00 10 06 07.
130. Telephone Interview with William K. Austin, Partner, Austin & Stanovich Risk
Managers, LLC (Nov. 23, 2009).
131. Boardman, supra note 10, at 1128.
132. See id.
133. Austin, supra note 11.

1020 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:1003
surers will lose money. Insurers are undoubtedly taking on some risk
by insuring for electronic data loss; however, due to changing property
forms, the benefits likely outweigh the risks. In ten or twenty
years, businesses will have little to no use for a first-party policy that
does not cover electronic data. The ISO should recognize the direction
the world is heading and should change the physical damage requirement
and protect itself by limiting covered perils or requiring
the implementation of affordable security measures prior to underwriting
the policy.
V. CONCLUSION
The Internet has seduced the world and changed the way we do
business. People have become so accustomed to communicating
through the World Wide Web that Twitter messages have even been
sent from outer space. 134 Advances in technology have changed the
way businesses operate, what they value most, and most importantly,
how their most valuable data is stored. Businesses now operate in
a computer-dependent world; however, the majority of the insurance
industry is refusing to take the bait. The ISO is continuing to design
cyber-excluding forms, and current e-commerce products are illsuited
for bricks and mortar businesses that have substantial intangible
assets but are not engaged in e-commerce. If technology has
changed, it only makes sense to redraft standard insurance forms.
An insurance policy is only as good as its drafter. Although the majority
of insurance companies follow ISO boilerplate language that excludes
electronic data from coverage, some policies may still have loopholes
or remain ambiguous. When faced with an ambiguous policy,
insurers will be dragged into court by businesses attempting to convince
courts to stretch the physical damage requirement. Because
these situations exist and litigation on these coverage issues will likely
only increase, insurance companies would be wise to modify existing
products instead of creating more specialized products. Adding newfangled
products that have not stood the test of time and have not been
litigated enough creates risks for the insurer and the insured.
Modern brick and mortar businesses now face the worst of both
worlds. They face the traditional perils of floods and fires that
threaten to destroy their business sites, and they face perils that
threaten to destroy valuable intangible assets. Under standard ISO
forms, businesses are likely not even covered for intangible damage
that results from physical perils. A hurricane may strike and cause
computers to lose important electronic data and software programs.
Although this data has been manipulated, altered, or changed under
134. Clara Moskowitz, First Twitter Message from Space Sent, May 15, 2009,
FOXNEWS.COM, http://www.foxnews.com/story/0,2933,520225,00.html.

2010] BUSINESS INSURANCE 1021
standard forms, policyholders are not adequately covered and, even
in an all-risk policy, courts could find that the physical damage requirement
has not been met.
The physical damage requirement in first-party commercial policies
is inadequate because property forms have changed. Property
has become a much more intangible concept. Until the insurance industry
recognizes that keeping traditional first-party policies the
same is unprofitable, businesses must be cautious when assessing
coverage needs. If insurance companies do not provide sufficient coverage
solutions to meet the needs of modern businesses, the government
could provide a public option for e-commerce-related coverage.
Although this is an unlikely possibility, if the economy fails to recover
and businesses are left uninsured for some of their most valuable
assets, it is likely that demand for insurance reforms will arise.
Failing to update the physical damage requirement is like keeping
archaic language in a statute—inefficient and confusing. Cyberspace
is not the only area in which the physical damage requirement causes
problems. Insurers may draft exclusions regarding electronic data
but may still lose when it comes to litigation involving black-outs or
property contamination. Case law reflects that courts often look at
the reasonable expectations of the insured, and in ambiguous situations
insurers could lose the physical damage battle. To prevent future
litigation in the cyber context, it would be prudent to adopt a
broader definition of physical damage that includes deletion or corruption
of electronic data. Adopting this definition would be also be
financially advantageous to insurers.
Until the ISO redrafts standard forms, insurance companies
should decline to follow forms that contain electronic data exclusions
because the insured is not the only loser when these forms are used.
Insurers using these forms are missing out on a valuable insurance
market. Brick and mortar businesses that have merely transferred
data into an electronic form are willing to pay a premium to protect
this data. These businesses are not engaged in e-commerce and do
not need (or cannot afford) specialized cyber policies. They also may
not have the complex security measures in place that many cyber policies
require. While it may be prudent to set reasonable limits on
electronic data losses, by excluding these losses altogether, insurers
are shooting themselves in the foot. Insurers should discount for any
perceived risks of providing coverage and should price premiums in
accordance with these risks.
Insurers should consider petitioning the ISO to develop rates and
forms for first-party electronic data coverage. This will enable companies
to collect profits currently going to specialty carriers. The first
step in the right direction for the ISO could be to design electronic
policy endorsements. Coverage limits and certain exclusions could be

1022 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 37:1003
in place while still providing brick and mortar businesses with electronic
data coverage. After these endorsements stand the test of time
and insurers receive back statistics on policy claims, the ISO can incorporate
coverage into standard first-party forms.
As technology progresses and the world becomes even more computer-dominated,
the insurance industry should modify traditional
policies to update coverage concepts. It is likely the standard business
insurance package will soon be wholly inadequate to cover business
assets. Businesses will not want to insure against paper losses
when their valuable data exists in electronic form. Changes in technology
should not provide a basis for insurers to change the essential
function of first-party policies by failing to provide coverage for a
business’s most valuable assets. Insurance companies can dive into
this new market by modifying existing products, assessing the costs
of the risks of these modifications, and charging premiums accordingly.
If insurance companies fail to take advantage of this lucrative
market, they will have to watch large, specialized carriers rake in the
profits they could have been making.