The Lemonade Stand: Feminist and Other Reflections on the Limited Liability of Corporate Shareholders
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Vanderbilt Law Review Volume 45 Issue 6 Issue 6 - November 1992 Article 1 11-1992 The Lemonade Stand: Feminist and Other Reflections on the Limited Liability of Corporate Shareholders Theresa A. Gabaldon Follow this and additional works at: https://scholarship.law.vanderbilt.edu/vlr Part of the Business Organizations Law Commons Recommended Citation Theresa A. Gabaldon, The Lemonade Stand: Feminist and Other Reflections on the Limited Liability of Corporate Shareholders, 45 Vanderbilt Law Review 1387 (1992) Available at: https://scholarship.law.vanderbilt.edu/vlr/vol45/iss6/1 This Article is brought to you for free and open access by Scholarship@Vanderbilt Law. It has been accepted for inclusion in Vanderbilt Law Review by an authorized editor of Scholarship@Vanderbilt Law. For more information, please contact [email protected]. VANDERBILT LAW REVIEW VOLUME 45 NOVEMBER 1992 NUMBER 6 The Lemonade Stand: Feminist and Other Reflections on the Limited Liability of Corporate Shareholders Theresa A. Gabaldon* I. AN EXTENDED INTRODUCTION .......................... 1388 A. The Lemonade Stand ......................... 1388 B. The American Dream Meets Dr. Frankenstein... 1390 C. Mary Shelley Was a Woman ................... 1393 II. LOOKING BACK: FRANKENSTEIN'S CONTRACT ............ 1394 A. A Definition and Brief History of Limited Liabil- ity in A m erica ................................ 1394 B. A Little (Still Historical) Reinterpretation...... 1398 C. Economic Perspectives: The Convincing, the Cred- ible, and the Strained ......................... 1402 1. With an Air of Conviction ................. 1405 2. Risk-Shifting and the Nexus of Contract: Finding What You Seek ................... 1407 3. How People Who Ride in Taxis Get What They Deserve ............................ 1410 4. Sum m ary ................................ 1413 III. THE FEMINIST EXPERIENCE ............................ 1413 A. On Silence When There Is Nothing to Say ...... 1413 B. Themes and Variations ........................ 1415 1. In the House There Are Many Rooms ...... 1415 * Associate Professor of Law, George Washington University. The author notes with grati- tude the research assistance of Geoffrey Hillsberg and Barton House and the comments of Law- rence Mitchell. In addition, she acknowledges with deep appreciation the efforts and insights of Robert L. Palmer. 1387 1388 VANDERBILT LAW REVIEW [Vol. 45:1387 2. The House Tour .......................... 1417 a. Liberal Feminism .................... 1418 b. Socialist Feminism ................... 1419 c. Radical Feminism ................ 1420 d. Relational Feminism .................. 1422 e. Analytical Feminism 1423 IV. POSSIBLE FEMINIST VIEWS OF LIMITED LIABILITY ....... 1424 A . R ecapitulation................................ 1424 B. Feminist Responses ........................... 1425 1. Econom ic M an ................... ....... 1425 2. Betting the Farm ......................... 1427 a. A Model for Organization............. 1428 i. The M odel Itself ................. 1428 ii. Risk-Shifting as Distinct from Pas- sivity ........................... 1430 iii. The Empire Strikes Back: Response of the Contractarians ............. 1432 b. The Effect on Entrepreneurshipand In- vestm ent ............................ 1433 i. Calling the Question ............. 1433 ii. The Benefits of Enterprise Partici- pation .......................... 1436 c. Reflections of Larger Legal Themes .... 1439 i; Industry as Favored Child ........ 1439 ii. Separate Spheres ................ 1440 iii. And Back to the Feminists ....... 1445 C. A PracticalFeminist Solution .............. 1445 1. Goals and Constraints ..................... 1445 a. The General ......................... 1445 b. The Specific ......................... 1446 2. A Recommendation ....................... 1448 a. Investor Empowerment ............... 1448 b." Adequate Insurance .................. 1449 V . CONCLUSION ....................................... 1454 A. The Revisitation .............................. 1454 B. And What About Todd? .... 1455 I. AN EXTENDED INTRODUCTION A. The Lemonade Stand The sultriness that was summer in D.C. blanketed the pedestrians returning to Capitol Hill. Trickling toward home through air that pas- sively resisted, I almost overlooked a shape emerging from the haze of 1992] LEMONADE STAND 1389 my own street. It might have been some atmospherically-induced appa- rition; rather, there, in the 1990s, in front of a well-kept urban rowhouse with door adorned by yuppie wreath, sat an immaculate child, seraphically presiding over a linen-covered table bearing a pitcher made of Tupperware. His neatly lettered sign, presumably prepared by an in- visible caregiver in endorsement of his enterprise, read "Lemonade - 50 Cents." The little boy with the pitcher became a fixture of late August. Each business day, he held his post from four to six p.m. Although I never patronized his stand, I watched others who did. He seemed quite pleased as each quarter clinked into his pocket, and he never failed to thank each customer and to suggest a repeat transaction. There may be some romantic explanation for the young merchant's dedication. He might, after all, have been contributing to a shortfall in the family mortgage payment consequent to the recession that rippled across the Washington legal community-in this scenario, the briefcases and well-tailored suits sported by both his parents might just have been a brave front. He might have been saving for a life-preserving operation for a younger sister (who, to the best of my knowledge, did not exist). Although I occasionally amused myself by speculating about his mo- tives, I eventually concluded that I would really rather not know what they were. As it is, he can remain to me an intriguing symbol. One of the things the little boy symbolizes is good old American enterprise. He saw a need and he filled it. Better yet, he created it: after all, did people only yards from their own GE appliances really need lemonade that, to all appearances, wasn't even sugar-free? To any reasonably imaginative alumna of the first year of law school, the little boy also embodies liability waiting to happen. Lemons are produce-that means pesticides, doesn't it? Suppose there are seeds in the lemonade, waiting to choke an unwary customer. And sugar causes tooth decay. In the event the lemonade is sugar-free, what might that mean? Can a few oversaturated test rats really be trfisted? Of course people know about these risks when they consume lemonade, but has that line of argument been quite the slam-dunk the tobacco companies would have liked? Today, the little boy, whom I will now call Todd, may have an in- surance policy in the form of his chubby cheeks and adorable cowlick. In our increasingly litigious society, however, I wouldn't count on it. Besides, Todd is probably not going to be cute forever. If, when he was counting the start-up capital in his Ninja Turtle bank, Todd had real- ized that he was putting at risk his tricycle and college education, would Capitol Hill have been minus one lemonade stand? 1390 VANDERBILT LAW REVIEW [Vol. 45:1387 B. The American Dream Meets Dr. Frankenstein A significant part of the story of American enterprise has been written by state legislators hoping to stimulate entrepreneurship and investment.1 As a result, there are several forms of business organiza- tions that at least ostensibly will permit an economic actor to limit the amount that she puts at risk.2 The most popular of these forms is the corporation.3 If it was ever true that limited liability was necessary to encourage economic development,4 it is arguably even more necessary today. The litigious society facetiously posited as a foil for young Todd does exist.5 Moreover, the statistics indicating the chance of success for any new business are frightening: the majority of start-up enterprises fail,6 leav- ing debts in excess of assets. Even traditional bastions of investment security seem to be collapsing in record numbers. 7 Since these facts log- ically compel a perception that the "upside" potential of entrepreneur- ship and investment is limited, it may make sense to assure that 1. See Henry Winthrop Ballantine, Questions of Policy in Drafting a Modern Corporation Law, 19 Cal. L. Rev. 465, 466 (1931); Martin E. Gold, Economic Development Projects: A Perspec- tive, 19 Urban Law. 193 (1987); Wiley B. Rutledge, Jr., Significant Trends in Modern Incorpora- tion Statutes, 3 U. Pitt. L. Rev. 273, 278-79 (1937). Note that the statement in the text reflects generally accepted wisdom, but probably overstates the deliberate nature of legislative action. 2. For a brief discussion of several forms, including the limited partnership, the real estate investment trust, and the Massachusetts business trust, see Robert W. Hamilton, Corporations Including Partnershipsand Limited Partnerships 119 (West, 4th ed. 1990); Harry G. Henn and John R. Alexander, Law of Corporations§ 34 at 43-46 (West, 3d ed. 1983). For a discussion of the ways in which the ideal of limited liability may fall short of the reality, see notes 82-84. 3. See Henn and Alexander, Law of Corporations § 1 at 2; E. Merrick Dodd, Jr., Statutory Developments in Business CorporationLaw, 50 Rarv. L. Rev. 27, 29 (1936). 4. See notes 51-60 and accompanying text. 5. See Warren E. Burger, Isn't There a Better Way?, 68 A.B.A. J. 274, 275 (1982); Marc Galanter, Reading the Landscape of Disputes: What We Know and Don't Know (and Think We Know) About our Allegedly Contentious and