Introduction

In their recent article in The Yale Law Journal, Professors Richard R.W. Brooks and Alexander Stremitzer make the case for a liberal allowance of rescission and restitution—an “off the contract” remedy that allows a party to a contract to rescind following breach by a counterparty and to receive back the contract price. This Essay argues that Brooks and Stremitzer’s recommendations are based on an incomplete analysis of the effects of rescission rights on the marketplace and are ultimately misplaced.

Brooks and Stremitzer argue that liberal rescission rights will lead to two socially desirable effects: “First, foreseeing the possibility of rescission by counterparties, promisors will invest to enhance the quality of performance . . . . Second, promisors can also make rescission less desirable for counterparties by reducing the price that they charge, implying a lower, less attractive remedy in restitution.” The threat of rescission can thus lead to higher investments in quality and lower prices.

This Essay challenges the second of these claims. Once we broaden Brooks and Stremitzer’s analysis of a single buyer-seller relationship to include multiple buyers, the effect of liberal rescission rights on price might be the opposite of what they predict for two principal reasons. First, promisors will not be incentivized to reduce their prices because lower prices do not lead to a drop in the number of counterparties that opt for rescission. This is because a drop in prices allows low-value buyers to enter the market—an effect Brooks and Stremitzer critically neglect. These buyers have a relatively high probability of opting for rescission, and their entrance can therefore increase the overall number of returns that a seller faces. Second, liberal rescission rights, because they serve a valuable insurance function for the counterparty and are costly to the seller, might actually lead to higher prices. I do not contend that liberal rescission rights will never induce sellers to lower their prices but rather that, under many circumstances, they will either have no effect on sellers’ incentives or may actually induce sellers to raise their prices. Without any evidence as to the likelihood of the differing effects on price, Brooks and Stremitzer cannot enlist the price effect of rescission as an argument in favor of a regime that provides for a more liberal allowance of rescission rights.

Introduction: Democratic Spring

The news is filled with reports of democratic movements challenging authoritarian rule in the Middle East and elsewhere, prompting a nigh unanimous outpouring of support from across the American political spectrum. But a conflict much closer to home—the crisis in Wisconsin and a growing number of states over collective bargaining rights for public-sector workers—has produced a more mixed and complex reaction. To be sure, most polls suggest that a majority of Americans opposes efforts by Republican-dominated state governments to strip public-sector employees of their bargaining rights. But a sizeable minority supports those efforts, and challenges to the role of teachers unions—the public sector’s most visible organized cohort—have been issuing from the right and left alike. And while a consensus may be emerging among the credible commentariat that Wisconsin Governor Scott Walker “overplayed his hand”—using a budget crisis as a pretext for punishing unions he views as political opponents—the frequent portrayal of teachers and other civil servants as members of a privileged and overpaid class who enjoy jobs for life and the benefits of “lavish” health care and pension plans has clearly found some traction with the viewing public, despite the considerable gap between that image and the daily lives of most of those thus portrayed.

But I want to argue here that the stakes in Wisconsin have less to do with the bona fides of budget crises and benefits packages than with something a great deal more fundamental: the struggle between democratic governance and authoritarian control in the American workplace. I don’t wish to overstate the parallel to events in the Middle East, where the courage of the men and women who have joined the unprecedented wave of antigovernment protests is nearly beyond measure. But unions give American workers something that markets and employers seldom afford them and that contemporary American law does not otherwise provide: a genuine voice in important decisions about their work lives and the power to make that voice heard. The attack on public-sector unions thus threatens to exacerbate what is already a breathtaking “democracy deficit” in U.S. labor relations and—should the effort gain traction and succeed—to cut American workers altogether out of a role in workplace governance. Indeed, now that private-sector union representation in the United States has reached a post-World War II low of under 8%, the mantra of Republican state officials that government should be “run like a business” may well portend a clean and decidedly non-union sweep for the public-sector workforce as well.

**This Essay is part of a new Yale Law Journal Online series called "Summary Judgment," featuring short commentaries on recent Supreme Court cases.**

Over the past decade, scholarship tax credit programs, like the one at issue in Arizona Christian School Tuition Organization v. Winn, have emerged as a popular education policy tool. While details vary by state, scholarship tax credit programs allow individuals or corporations (and in some cases, including Arizona, both) to receive a state income tax credit for donations to charitable organizations—called “scholarship tuition organizations” in Arizona—that provide scholarships for children to attend private schools. Currently, seven states—Arizona, Florida, Georgia, Indiana, Iowa, Pennsylvania, and Rhode Island—have such programs in place. During the 2010-2011 school year, the scholarship organizations participating in these programs awarded nearly $290 million through over 123,000 scholarships. With two exceptions, scholarship tax credit programs exclusively target low-to-moderate-income students. For example, in Florida—the state with the largest scholarship tax credit program in the nation—eligibility is limited to students qualifying for free or reduced-price lunches, and scholarships are disproportionately awarded to Latino and African-American students. And the most recent evidence suggests that even the non-means-tested tax credit program at issue in Winn—Arizona’s individual scholarship tax credit program—disproportionately benefits low-income kids. Thus, scholarship tax credit programs help open the doors of high-quality private schools to thousands of children of modest means who might otherwise languish in failing public schools.

**This Essay is part of a new Yale Law Journal Online series called "Summary Judgment," featuring short commentaries on recent Supreme Court cases.**

In Arizona Christian School Tuition Organization v. Winn, the U.S. Supreme Court decided, by the thinnest of margins, that Arizona taxpayers cannot mount an Establishment Clause challenge to Arizona’s state income tax credits for “contributions to school tuition organizations.” Writing for a five-Justice majority, Justice Kennedy held that Flast v. Cohen only bestows standing upon taxpayers contesting direct monetary outlays on Establishment Clause grounds. Flast, the majority held, does not extend standing to taxpayers objecting under the Establishment Clause to tax provisions such as the Arizona income tax credit. In dissent, Justice Kagan, joined by three of her colleagues, concluded that Flast does afford standing to the Arizona taxpayers challenging the state’s tax credits for contributions to school tuition organizations. Central to Justice Kagan’s dissent was her invocation of the academic doctrine of “tax expenditure” analysis. That analysis, Justice Kagan wrote, recognizes that “targeted tax breaks . . . are just spending under a different name.”

The Court has often confronted the question of whether direct public outlays and tax subsidies are equivalent for constitutional purposes. However, Justice Kagan’s dissent in Winn is only the second time that tax expenditure doctrine has formally played such an explicit, prominent role in the Court’s decisionmaking.