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Cato Supreme Court Review: 2007-2008

By Robert A. Levy; Ilya Shapiro et al. | Go to book overview

A Deal Is Still a Deal:
Morgan Stanley Capital Group
v. Public Utility District No. 1

Richard P. Bress, Michael J. Gergen, and Stephanie S. Lim*

A deal is a deal. This concept is firmly entrenched in American culture and law,1 and is widely viewed as an essential cornerstone of economic development and stability.2 It has thus long been understood in our nation that it is not the role of the government to relieve contracting parties of “hard bargains” resulting from their “indiscretions and bad judgments”; rather, the Constitution “with

* Richard P. Bress and Michael J. Gergen are partners, and Stephanie S. Lim is an
associate, at Latham & Watkins LLP. The authors represented various sellers in the
proceedings addressed in this article. The authors would like to thank Barry J. Blonien,
also an associate at Latham & Watkins LLP, and David G. Tewksbury, a partner at
Kirkland & Ellis LLP, for their assistance in preparing this article.

1 See, e.g., Charles Fried, Contract as Promise: A Theory of Contractual Obligation
(Harvard University Press 1981) (characterizing American contract law as being
rooted in a moral obligation to enforce a promise).

2 Economists have long recognized the critical importance of contracts as a source
of economic growth. See, e.g., Adam Smith, The Wealth of Nations bk. I, ch. IX, at
133 (Edwin Cannan ed., Bantam Dell 2003) (1776) (“When the law does not enforce
the performance of contracts, it puts all borrowers nearly upon the same footing with
bankrupts.”); Ross Levine, The Legal Environment, Banks and Long-Run Economic
Growth, 30 J. Money, Credit and Banking 596 (1998) (contract enforceability facilitates
the development of efficient banking systems and financial markets, which, in turn,
support economic growth); Daniel Kaufman, et al., Governance Matters, World Bank
Policy Research Working Paper No. 2196 (1999) (contract enforceability a key compo-
nent of the “rule of law,” which is critical to economic development). More recently,
economists have stressed the importance of contract enforcement in promoting devel-
opment, especially with respect to economic regulation of capital-intensive industries,
such as the electric and natural gas industries. See, e.g., Mark A. Jamison, et al.,
Measuring and Mitigating Regulatory Risk in Private Infrastructure Investment, 18
Electricity J. 36 (July 2005); Mario Bergara, et al., Political Institutions and Electric
Utility Performance: A Cross Nation Analysis, 40 Cal. Mgmt. Rev. 18 (1998); Pablo
Spiller, A Positive Political Theory of Regulatory Instruments: Contracts, Administra-
tive Law or Regulatory Specificity, 69 S. Cal. L. Rev. 477 (1996).

-285-

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