Law-Fixing: Should Lawyers Agree How to Interpret Statutes?

Abstract

Section 402 of the Sarbanes-Oxley Act of 2002 prohibits loans from publicly traded corporations to their officers or directors. Although the statute is worded broadly, there are some insider loans, such as travel advances, that Congress probably did not intend to prohibit. The SEC has chosen not to provide an authoritative interpretation of section 402, though, so the section's scope is unclear. Twenty-five prominent law firms have responded to this lack of clarity by issuing a 'position paper' assessing the legality of various types of loans under section 402. The firms conclude that, of the types of loans they consider, none violates the section. For some types of loans, like travel advances, their conclusions seem reasonable. But in other cases the firms' conclusions are questionable. For instance, the firms conclude that although section 402 prohibits material modifications of pre-existing loans, forgiveness of such loans is permissible. This article asks whether the firms' collective interpretative effort might be an antitrust violation. The article asks, first, whether the law firms have agreed on interpretations of section 402, and, second, whether such an agreement would violate the antitrust laws. On the first question, the firms do seem to have agreed on their interpretations. Although it is possible that the firms are not following the interpretations they present in the position paper, the paper itself says that the firms concur in its conclusions. And at least one of the firms had, prior to the issuance of the position paper, advised its clients not to engage in several of the practices described by the paper as permissible. As to whether such an agreement would be a violation, there are no real efficiencies in acting collectively, and doing so may lead the firms to offer more permissive advice. If they agree on such advice, they not only avoid being disadvantaged ex ante by competition from other firms offering permissive advice, but are less subject to ex post second-guessing if their advice turns out to be wrong. And even if permissive advice is what their corporate clients (i.e., their clients' officers) want to hear, that advice might ultimately injure the clients if it turns out to be wrong. Moreover, one might view the injured 'consumers' as the shareholders of the clients, or the public, both of which are entitled to have legislation operate without collective private efforts that impose particular legislative interpretations. Although in some respects this would be a novel antitrust theory, the Supreme Court has on several occasions objected to private agreements of non-lawyers that it has viewed as akin to private legislation.