Document Type

Article

Publication Date

1998

Abstract

In "The Death of Liability" Professor Lynn M. LoPucki argues that American businesses are rendering themselves judgment proof.- Using the metaphor of a poker game, Professor LoPucki claims American businesses are increasingly able to participate in the poker game without putting "chips in the pot." He argues that it has become easier for American companies to play the game without having chips in the pot because of the ease with which a modern debtor can grant secured credit, because of the growth of the peculiar form of sale known as asset securitization, because foreign havens for secreting assets are now available, and because firms can use traditional ways of avoiding legal liability-such as scattering their assets among subsidiary corporations. In Part I, I describe Professor LoPucki's thesis, and in Part II, I present an empirical response to it. Part II is composed principally of data collected from the Compustat database, which contains financial information on almost all American public companies. The data on secured debt, asset-to-liability ratio, and the presence of insurance show that the story Professor LoPucki tells is fictional. Part III explains why. It offers reasons that firms choose not to judgment proof themselves and considers various barriers to judgment proofing. The analysis explains not only why judgment proofing is less prevalent today than Professor LoPucki suggests, but also why it is unlikely ever to grow into a serious problem in the United States.

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