In Rule 10b-5 cases, courts must link the fraud in question to its effect on the value of investor’s securities. Recoverable damages are limited by the requirement of “loss causation,” which courts use to separate declines in the value of the plaintiff's security that are the result of the defendant’s material misrepresentations or omissions from declines that are the result of market forces, mismanagement, or other events not directly linked to the fraud itself. Separating recoverable harm from unrecoverable harm, however, is (and has been) a difficult task for courts assessing securities fraud cases, as it is predicated on two conflicting common law principles-the tort principle of limiting recovery to harm proximately caused and the fraud principle of disgorging an injurer’s unjust enrichment. As a result, in measuring and limiting recovery under Rule 10b-5, “damages” and “loss causation” jurisprudence evidences a lack of judicial consensus and provides little guidance for litigants. Even after the Private Securities Litigation Reform Act of 1995 codified loss causation as an element of a Rule 10b-5 cause of action, subsequent courts and litigants are seeking a coherent body of law that expresses both an appropriate burden of proof and an appropriate measure of damages.

This Article challenges the policies of the federal securities acts and common law precedents that underlie current loss causation tests and their related damage measures in the context of face-to-face transactions, and suggests means for optimizing both the substantive tests and the damage calculus. It propagates an optimal model of loss causation; a model designed to deter fraud, to adequately compensate investors’ for their injuries resulting from misrepresentations or omissions that cause them to accept undisclosed or unwanted risks, and to limit the costs of enforcing Rule 10b-5. The Article suggests several means for optimizing damage measures through both common law choice of remedy and statutory changes. It concludes that, in any event, courts should employ a damage rule predicated on a defendant’s profits from the fraud in Rule 10b-5 cases involving face-to-face transactions. Finally, this Article evaluates circuit courts’ current approaches to loss causation against this optimal model.

INSIDER TRADING LIABILITY FOR TIPPERS AND TIPPEES: A CALL FOR THE CONSISTENT APPLICATION OF THE PERSONAL BENEFIT TEST
By Nelson S. Ebaugh
Vol. 39, No. 2 (Fall 2003)

In Dirks v. SEC, the United States Supreme Court held that in order to establish tipper/tippee liability under the classical theory of insider trading, the plaintiff must prove, among other elements, that the tipper gained a personal benefit from disclosing material, nonpublic information to a tippee. Until 1997, the classical theory was the only theory recognized by the Supreme Court to prove insider trading liability for the use of material, nonpublic information. In United States v. O’Hagan, the Supreme Court recognized two additional bases for establishing insider trading liability: (1) the misappropriation theory under Rule 10b-5 and (2) Rule 14e-3. The lower courts are divided as to whether proof of personal benefit is required in order to establish tipper/tippee liability under either the misappropriation theory or Rule 14e-3. This Article urges courts to incorporate the personal benefit test under the misappropriation theory and Rule 14e-3 for the same reasons that the Supreme Court developed the personal benefit test in Dirks.

ENRON, SARBANES-OXLEY, AND THE END OF EARNINGS MANAGEMENT
By Matthew S. Mokwa
Vol. 39, No. 2 (Fall 2003)

The rapid economic expansion of the late 1990’s came to a screeching halt with the failure of Enron in 2001. While Enron has come to define a period of American history that was plagued by corporate greed and deceit, it is only one piece of a very complex puzzle that ultimately represents a complete failure of the American financial reporting system. Much of the problem associated with this failure can be attributed to the corporate practice of earnings management. Earnings management is the process of manipulating financial data in an effort to achieve a predetermined earnings target. This Note examines this once widespread practice, locating and defining the specific accounting tools that companies use to manage their earnings. Additionally, this Note addresses the cause of abusive earnings management and discusses the alternative proposals that have been offered to remedy it.

CHOICK OF ENTITY ALTERNATIVES
By Byron F. Egan
Vol. 39, No. 3 (Winter 2004)

In selecting a form of business entity in which to engage in business in the United States, the organizer or initial owners now must consider the following five forms of business entities: (1) corporation; (2) general partnership; (3) limited partnership; (4) registered limited liability partnership; and (5) limited liability company. Deciding which of these forms of business entity is available and most advantageous in a particular situation depends on the objectives and circumstances of the business for which the entity is being organized and a range of legal issues. This Article analyzes the statutes authorizing these entities, federal and state tax law considerations, and other aspects of the choice of entity decision process, together with pertinent Texas legislative history. The Article provides a decision framework that can be used by those who are not experienced entity lawyers, but contains a depth of information that even the most experienced lawyer will find valuable.

WHAT TRANSACTIONAL DRAFTERS SHOULD KNOW ABOUT PLAIN ENGLISH
By Wayne Schiess
Vol. 39, No. 3 (Winter 2004)

This Article, aimed at transactional lawyers, addresses four aspects of plain-English legal drafting. It makes the following points: (1) Plain-English legal drafting will affect many areas of transactional practice and is being pushed forward by many, including the government. This section includes examples the most recent plain-English documents produced by the Texas Office of the Consumer Credit Commissioner. (2) Plain English means much more than brevity-short words and short sentences. This section includes lists of plain-English principles from experts in the field. (3) Traditional legal language is no more precise than plain English, and the existence of case law behind legal language is not necessarily an assurance that the language is useful. This section contains a brief example of the problems with one traditional legal word. (4) Generally, clients dislike traditional legal language and prefer plain English. This section tries to debunk the myth that traditional legal language retains clients.

APPLYING TORTIOUS INTERFERENCE CLAIMS TO AT-WILL CONTRACTS
By Sean Farrell
Vol. 39, No. 3 (Winter 2004)

This Article examines a confusing question in Texas law: What kind of behavior supports a tortious interference cause of action when the contract can be terminated at will? The Article begins by briefly outlining the traditional requirements for tortious interference and then reviews Texas case law to determine when the courts have found tortious interference in at-will contracts. As a result of this study, the author reconciles Texas holdings to conclude that tortious interference may be found in an at-will contract where the defendant knowingly and intentionally causes harm to the plaintiff by: (1) entering into an agreement with a party under terms that require the party to breach any term in their prior agreement with plaintiff; (2) breaching or exceeding the bargained-for terms of an agreement with a party to accomplish the interference between that party and the plaintiff; or (3) interfering in a manner that would allow either the induced party or the plaintiff to sue the defendant under a separate tort. The Article’s conclusion clarifies and expands the traditional scope of tortious interference generally to comport with Texas common law and equitable principles; it also crystallizes the application of tortious interference to at-will and prospective contracts.

AUDIT COMMITTEES: THE POLICEMEN OF CORPORATE RESPONSIBILITY
By Jody K. Upham
Vol. 39, No. 3 (Winter 2004)

The Sarbanes-Oxley Act of 2002 dramatically affected the corporate world and how corporations conduct business. One important aspect of the law is the new requirements governing audit committees. This Note sets out the important changes made to the roles, responsibilities, and qualifications of the audit committee and its members. These changes are analyzed in light of the New York Stock Exchange and Nasdaq listing requirements and the Securities and Exchange Commission rules related to audit committees and company reporting requirements. In addition, this paper sets out some potential pitfalls corporations may find when attempting to implement the new rules, as well as problems the SEC and other governing bodies may have in enforcing the rules. A method for implementing the changes required by the various reporting agencies is set out, followed by an assessment of the impact these changes may have on operations of the corporation and on investor confidence.

REVISED ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE AND AGRICULTURAL LIENS IN TEXAS
By Eric J. Pullen
Vol. 40, No. 1 (Spring 2004)

This Article begins with a brief history of agricultural liens, examining the early dominance of the statutory lien as the preferred agriculture lending security, the emergence of the chattel mortgage, and the factors leading to the return of the statutory lien. It then examines the basics of Revised Article 9 and agricultural liens in general and looks in-depth at attachment, perfection, priority, and default as they relate to agricultural liens under Revised Article 9. Following that is a succinct analysis of the Food Security Act and its importance with regard to agricultural finance. Finally, the Appendix is an attempt to catalogue every statutory agricultural lien in Texas and provide answers to ten basic questions regarding each lien.

TEXAS CHOICE OF LAW ANALYSIS FOR CONTRACTS
By Jeffrey D. Dunn,
Vol. 40, No. 1 (Spring 2004)

This Article examines the status of Texas choice of law analysis as applied to contracts. The Article includes suggestions on drafting choice of law clauses, as well as a discussion of general concepts and considerations applicable to contract conflicts analysis, the historical evolution of common law conflicts analysis, Texas choice of law statutes, the Restatement (Second) of Conflict of Laws as applied to contracts, and a diagram flow chart outlining choice of law analysis under Texas law.

GOING PRIVATE TRANSACTIONS
By Gregory R. Samuel and Sally A. Schreiber
Vol. 40, No. 1 (Spring 2004)