Youssef Mohamed1Youssef Mohamed is a poet and J.D. Candidate at the University of Chicago Law School, Class of 2023. أولاً الحمدلله و ثانياً الحمدلله – He thanks Kyra Cooper, Cheridan Christnacht, Matthew Makowski, Virginia Robinson, and the rest of the wonderful University of Chicago Law Review Online team for the care with which they have treated this piece.
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In 2019, Turkiye Halk Bankasi A.S. (“Halkbank”)—a commercial bank majority-owned by the Turkish government—was indicted for its participation in a scheme to launder billions of dollars of Iranian oil and natural gas proceeds in violation of U.S. sanctions against the Iranian government and related entities. In United States v. Turkiye Halk Bankasi A.S. (2d Cir. 2021), the Second Circuit held that the bank was not entitled to foreign sovereign immunity from criminal proceedings. The decision highlights a significant and pressing ambiguity in U.S. foreign relations law that could create turmoil in the country’s international relations.
This Case Note examines the Second Circuit’s analysis and explores the current state of U.S. law on foreign sovereign immunity. In Part I, I briefly discuss the development of foreign sovereign immunity law in the United States that led to the enactment of the Foreign Sovereign Immunities Act of 1976. In Part II, I recount the facts and procedural details surrounding Halk Bankasi. Part III analyzes the question of immunity from criminal prosecution under the FSIA. Part IV considers the Halk Bankasi opinion’s analysis of foreign sovereign immunity under the common law. Finally, Part V makes a recommendation for how courts should proceed when confronted with this issue until Congress intervenes.
I. Historical Development & the Foreign Sovereign Immunities Act of 1976
Foreign sovereign immunity is a body of international and domestic law that renders states immune from the jurisdiction of another state’s domestic courts and tribunals.2Andrew Dickinson, State Immunity and State-Owned Enterprises, 10 Bus. L. Int’l 97, 100–02 (2009). The doctrine was first recognized by U.S. courts when Chief Justice John Marshall held in The Schooner Exchange v. McFaddon (1812) that a French ship of war was absolutely immune from judicial process while in a Philadelphia port. Since The Schooner Exchange, U.S. foreign sovereign immunity law has developed significantly in three respects.
The first major development concerned the allocation of decision-making authority for immunity determinations. In the early decades of the twentieth century, the world became increasingly connected, and the field of foreign relations, too, became increasingly complex. As such, courts began deferring to the executive branch’s recommendations of whether a foreign sovereign was entitled to immunity in any particular suit, with the executive generally recommending immunity.3Robert B. von Mehren, The Foreign Sovereign Immunities Act of 1976, 17 Colum. J. Transnat’l L. 33, 40–41 (1978). This shift in attitude was clearly stated by the Supreme Court: “It is therefore not for the courts to deny an immunity which our government has seen fit to allow, or to allow an immunity on new grounds which the government has not seen fit to recognize.” When the executive branch did not give a recommendation, courts were left to their own devices to figure out whether the party had immunity.
The second major development concerned the scope of immunity. Chief Justice Marshall’s opinion in The Schooner Exchange came to be recognized as embracing absolute immunity—the principle that foreign sovereigns could absolutely not be subject to domestic judicial process—as a “matter of grace and comity.” But during the mid-twentieth century, the United States adopted a “restrictive theory” of immunity when it issued the “Tate Letter.”426 Dep’t State Bull. 984 (1952). Under the restrictive theory, foreign sovereigns are immune for “public” or “sovereign” acts (acta jure imperii) but are not immune for strictly “private” or “commercial” acts (acta jure gestionis).
A restrictive theory of immunity coupled with absolute deference to an executive recommendation resulted in foreign nations frequently pressuring the State Department for favorable recommendations. This led to a highly politicized regime in which the State Department was acting in an adjudicatory role for which it was ill-suited and immunity was granted in instances that should have been inappropriate according to the restrictive theory. This regime, which left the State Department in a tough place and plaintiffs feeling cheated out of their claims, led to the third major development in U.S. foreign immunities law: Congress’s enactment of the Foreign Sovereign Immunities Act of 1976 (FSIA), which put the decision of whether a foreign state was immune back in the hands of the judiciary to make the question one of law, not politics.
The FSIA articulates a general presumption that “a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States.” This presumption is qualified by sections 1605 through 1607, which state that foreign states are not immune if certain enumerated criteria are met. The Act further provides that district courts have original jurisdiction for any nonjury civil action against a foreign state where immunity has been denied on one of the enumerated bases. Finally, “foreign state” is defined more broadly than may be immediately obvious, as political subdivisions and any “agency or instrumentality” of a foreign state are included. Halkbank falls within the definition of “agency or instrumentality” because it is a separate legal corporate entity with a majority of shares owned by the Turkish government.
Sections 1605 through 1607 provide several exceptions to the general presumption of immunity. Of particular relevance to the Second Circuit’s decision is the “commercial activity” exception under which a foreign state is denied immunity where the action brought against it is based on (1) commercial activity carried on in the United States by the foreign state; (2) acts performed in the United States by a foreign state related to commercial activity elsewhere in the world; and/or (3) acts by the foreign state that are related to commercial activity elsewhere in the world but that also cause a direct effect in the United States. The FSIA directs courts to determine an activity’s commercial character by referencing the nature of the conduct, transaction, or act but not the perceived or stated purpose of such conduct or act.
II. Factual and Procedural Background of Halk Bankasi
Halkbank was indicted in 2019 for its participation in a scheme to launder billions of dollars of Iranian oil and natural gas proceeds in violation of U.S. sanctions against the Iranian government and related entities. Specifically, Halkbank was charged with transferring approximately twenty billion dollars of Iranian funds to companies that served as fronts to obfuscate the money’s connection to Iran; these funds were used to make payments and purchases both internationally and through the U.S. financial system on behalf of the Iranian government. Halkbank was also charged for the acts of its executives, who purposefully concealed the transactions’ true nature from the U.S. Department of the Treasury.
In August 2020, Halkbank moved to dismiss the indictment on the grounds that it was immune from criminal prosecution as an instrumentality of a foreign state under the FSIA. Halkbank argued, in the district court and later on appeal, that (1) it was entitled to immunity under the FSIA’s general rule; (2) the exceptions to immunity were only applicable in civil cases but not criminal cases; (3) even if the exceptions were applicable, its conduct did not fall within the “commercial activity” exception; and (4) it was nevertheless entitled to immunity under the common law. In October 2020, the district court denied Halkbank’s motion, and Halkbank immediately appealed the immunity decision, moving to stay proceedings in the district court pending the interlocutory appeal. The Second Circuit granted both the appeal and the bank’s motion to stay and in December directed that the case be heard on an expedited basis.
Although this appeal presented the court with two questions, this Case Note is concerned only with whether Halkbank was entitled to foreign sovereign immunity under either the FSIA or the common law. The following sections do not discuss the Second Circuit’s “commercial activity” analysis, as that is a separate question from whether Halkbank should be afforded presumptive or absolute immunity from criminal process under the FSIA or the common law.
III. Does the FSIA Confer Immunity in Criminal Proceedings? The Second Circuit’s (Non)Answer
A. The Second Circuit’s Analysis
Halkbank’s primary position on the question of whether the FSIA conferred immunity in criminal cases was (1) yes, the FSIA does confer immunity; and (2) the immunity is in effect absolute because the FSIA’s exceptions are only applicable in civil suits. The thrust of this argument was that the FSIA’s general rule of immunity from all U.S. court jurisdiction under § 1604 must be read in tandem with another of the Act’s provisions, § 1330. Section 1330 states that district courts shall have original jurisdiction over any nonjury civil actions against foreign states if said state is not entitled to immunity. Halkbank then relied on Argentine Republic v. Amerada Hess Shipping Corp. (1989) and United States v. Assa Co. Ltd. (2d Cir. 2019) for the proposition that a party “must go through the FSIA” to gain jurisdiction over a foreign state in federal court. Given this interpretation of the FSIA’s structure, Halkbank argued that it not only was entitled to immunity but that the exceptions could not apply to criminal proceedings because the district court would still lack subject-matter jurisdiction.
Writing for the Second Circuit, Judge José Cabranes tersely rejected Halkbank’s position. He first stated that Amerada Hess was a civil case and that neither the Supreme Court nor the Second Circuit had thus far extended its holding—that the FSIA was the sole basis for obtaining jurisdiction over a foreign state—to the criminal context. He then concluded that Congress had already granted district courts jurisdiction over criminal cases in 18 U.S.C. § 3231, which grants original jurisdiction for all offenses against the laws of the United States. “All means all,” he reasoned, “[and] nothing in the [FSIA’s] text expressly displaces [§] 3231’s jurisdictional grant.” He similarly reasoned that the FSIA’s exceptions, particularly the “commercial activity” exception, still applied in criminal cases since § 1605(a)’s text applies the exceptions to “any case.”
Despite the seeming ease with which Judge Cabranes reached these conclusions, there are serious questions about their doctrinal soundness. Although § 3231 is a facially broad grant of jurisdiction, it is unclear why the later in time and more specific provisions regarding immunity and jurisdiction in the FSIA shouldn’t control, particularly when courts often apply the generalia specialibus non derogant maxim—that the specific should control the general—in many other instances of statutory interpretation. Further, in Amerada Hess, plaintiffs had sought jurisdiction over a foreign sovereign through the Alien Tort Statute (ATS), but the Supreme Court stated that § 1330 was the “sole basis for obtaining jurisdiction over a foreign state.” In effect, the Second Circuit did the same thing the plaintiffs in Amerada Hess wanted to do: take a grant of jurisdiction from elsewhere in the U.S. Code and transplant it to the FSIA.
Judge Cabranes said that Amerada Hess’s holding, which was an interpretation of the FSIA’s text and structure, hadn’t been “extended.” To try and clarify why a statute’s meaning might differ depending on the type of the case, he explained that § 1604’s broad grant of immunity “has no effect on the scope of the underlying jurisdiction, any more than a vaccine conferring immunity from a virus affects the biological properties of the virus itself.” But he left unanswered why the FSIA should only affect the scope of jurisdictional grants in civil statutes like the ATS. The position is plausibly supported by the Supreme Court’s brief discussion in Amerada Hess that, given the FSIA’s comprehensive structure, it is unlikely that Congress thought it needed to explicitly “amend pro tanto the Alien Tort Statute and presumably such other grants of subject-matter jurisdiction in Title 28.” That said, it is far from obvious that the Court’s comment meant to license transplanting grants of jurisdiction from other titles of the U.S. Code.
B. The Threshold Question
The opinion’s apparent tensions point to the question the Second Circuit, like the D.C. Circuit in the secretive and messy In re Grand Jury Subpoena (D.C. Cir. 2019), refused to answer: Is the FSIA even applicable in criminal cases? The Second Circuit skirted the question by assuming that even if the FSIA did apply and accordingly confer presumptive immunity, Halkbank’s laundering scheme was not sovereign in nature but instead fell within the commercial activity exception. In addition to the textual and structural incongruities discussed above, in this section I suggest there are historical reasons to believe the FSIA has nothing to say one way or another about foreign sovereign immunity in criminal proceedings. I then address why the Second Circuit was nonetheless reluctant to decide the question.
First, historical evidence suggests that immunity from criminal process was not even in Congress’s contemplation when enacting the FSIA. Neither the Act nor the legislative history “say a single word about possible criminal proceedings under the statute.”5Joseph W. Dellapenna, Suing Foreign Governments and Their Corporations 37 (2d ed., 2003). In fact, the legislative history repeatedly and exclusively discusses the problems faced by private litigants when trying to find legal recourse against foreign states and their state-owned enterprises (SOEs). Because the FSIA was replacing the prior political and arbitrary regime of State Department immunity recommendations, the Act’s purpose was specifically to dictate “when and how parties can maintain a law suit against a foreign state and its entities” and “when a foreign state is entitled to sovereign immunity.”6H.R. Rep. 94-1487, at 6. Further, a compilation of all State Department recommendations in the years between adoption of the restrictive theory and the FSIA’s enactment contains only one reference to a criminal proceeding related to a subpoena for documents.7John A. Boyd, Sovereign Immunity Decisions of the Department of State—May 1952 to January 1977, in Dig. U.S. Prac. Int’l L. 1017, 1038 (Michael Sandler et al. eds., 1977). This evidence corroborates the view that Congress was not providing guidance on immunity in criminal cases by enacting the FSIA because it had no reason to address something that was clearly not an issue.
A look at the international legal climate at the time of, and since, the FSIA’s enactment further supports the position that immunity in criminal cases is not addressed by the Act. The FSIA’s enactment was part of a movement by several countries to codify the restrictive theory of foreign sovereign immunity in their domestic law. Several of these countries’ immunities acts, such as the UK’s and Canada’s, explicitly exclude criminal proceedings from the scope of their immunities act.
Moreover, the 2004 United Nations Convention on Jurisdictional Immunities of States and Their Property (“the Convention”), which codified the restrictive theory of immunity, does not apply to criminal proceedings. The Convention was the product of nearly twenty-five years of international negotiation; even if not law itself, the Convention serves as good evidence of the contours of the restrictive theory in international law. Although the United States has not ratified the Convention—and the Convention differs from the FSIA in some respects8See Dickinson, supra note 2, at 115–19.—the United States was involved in its negotiation and sent a delegee to the committee that negotiated the Convention’s final text. And numerous statements from that committee confirm that the Convention’s provisions do not apply to criminal proceedings.9See David P. Stewart, The UN Convention on Jurisdictional Immunities of States and Their Property, 99 Am. J. Int’l L. 194, 196–97 (2005).
Despite all this, the Second Circuit—quite understandably—didn’t want to go all in on deciding whether the FSIA does or does not apply in criminal cases. To hold that it applies generally in criminal cases might too narrowly circumscribe the government’s ability to combat certain types of crime that don’t fall into any of the FSIA’s exceptions. Considering the Act’s complete silence on the subject, courts are rightfully wary to tie the executive’s hands in such a way absent a clear indication from Congress. On the other hand, to conclude that the FSIA is simply inapplicable would be to take away the clear roadmap to foreign sovereign immunity on which the judiciary has relied for nearly fifty years. Yes, the roadmap was likely intended for civil cases, and yet the absence of some statutory authority would leave judges in the uncomfortable and tense position of divining the applicable common law rule. In cases that often involve serious allegations of wrongdoing and international friction, it is not at all surprising that the Second Circuit wanted to avoid this outcome.
IV. The Second Circuit’s Analysis of Foreign Sovereign Immunity Under the Common Law
Toward the end of the opinion, Judge Cabranes briefly rejects Halkbank’s arguments that it is entitled to immunity under the common law for three reasons. He first stated that the FSIA displaced any pre-existing common law practice. He then said that, even if the common law wasn’t superseded, any common law on foreign sovereign immunity had developed a commercial activity exception (into which Halkbank’s scheme fell). He concluded by saying, “in any event, at common law, sovereign immunity determinations were the prerogative of the Executive Branch; thus, the decision to bring criminal charges . . . manifest[s] the Executive Branch’s view that no sovereign immunity existed.”
Although Judge Cabranes’s first contention is seemingly supported by the comprehensive nature of the FSIA’s framework as well as its legislative history, which includes broad statements of preempting “any other State or Federal law,”10H.R. Rep. 94-1487, at 12. this reasoning only holds together if the FSIA covered immunity in criminal proceedings. If, as I argued in Part III.B, the FSIA is wholly inapplicable to criminal proceedings, it is hard to believe Congress intended to supersede an area of the common law important to foreign relations without giving it any treatment in the statute or mentioning it specifically in its deliberations. Moreover, during the process of presentment executive branch officials did not see the Act as implicating (either expanding or contracting) their prosecutorial powers. It is best for courts to avoid such assumptions when no dog has barked.
Judge Cabranes’s second argument that the restrictive theory had an exception for commercial activity at common law poses the same potential problems that strict adherence to the FSIA’s framework does. Under this theory of immunity, the government’s ability to punish and deter conduct that isn’t commercial but is nevertheless carried out by foreign states and their instrumentalities and implicates vital national interests is thwarted. “[G]iven how unsettled the common law of criminal immunities . . . was in 1976 and remains today,” it is questionable whether the judiciary should take the lead in dictating the rules, particularly when prosecutions of foreign states, their agencies, and their instrumentalities are highly political.
V. Moving Forward Through the Thorny Path Ahead
Yet courts cannot just throw their hands in the air, shrug, and sigh, “Whoops, looks tough.” Ultimately, Judge Cabranes’s final argument concerning common law immunities—that immunity determinations became the executive branch’s prerogative during the twentieth century—is the most viable path forward until Congress says otherwise. The FSIA was enacted for two primary purposes: (1) to ensure that determinations of whether a private plaintiff had her day in court were decided by the rule of law and not by politics; and (2) to vindicate private parties’ and foreign states’ ex ante expectations of immunity.
The first reason is a nonfactor in criminal prosecutions. The executive branch is not put in the position of deciding a private person’s access to judicial recourse; rather, using its prosecutorial power, it demonstrates its decision that immunity is inappropriate by commencing criminal proceedings. Megan Liu has astutely noted that this position, which finds support in the Second Circuit’s decision, assumes that the executive branch acts uniformly with a single set of incentives. Liu noted that the Department of Justice may be more aggressive in pursuing law enforcement whereas the State Department would prefer “looking the other way” or employing other diplomatic means of correcting behavior—meaning that prosecutions may be commenced in instances where the different arms of the executive branch do not agree on whether immunity was appropriate or not. However, making sure that the different departments of the executive branch are on the same page for policy goals, particularly in the highly political area of foreign relations, is not a job for which the judiciary is particularly well-suited. Thus, courts should still defer even under circumstances indicating that the inappropriateness of immunity was not a uniform or agreed-upon determination.
Under a regime of judicial deference to executive branch determinations of immunity in criminal proceedings, foreign states’ ex ante expectations can still be maintained because of the pressures and norms of international law and state practice. Courts in other countries have stated that “[a] state is not criminally responsible in international or [our domestic] law, and therefore cannot be directly impleaded in criminal proceedings.” It is also generally accepted under customary international law that criminal proceedings cannot be brought against a foreign state in a municipal jurisdiction.11Dickinson, supra note 2, at 124 (citing H. Fox, The Law of State Immunity 84 (2d ed., 2008)). Instead of operating within a criminal liability regime, foreign sovereigns’ wrongful acts towards one another are typically dealt with either through diplomacy or under a separate body of law known as State Responsibility.
As the “sole organ of the federal government in the field of international relations,” the President—and the executive branch more broadly—are surely more aware of and sensitive to contemporary state practice and international law than the judiciary. Accordingly, the executive is more competent than the judiciary to assess the repercussions of criminally prosecuting a foreign state’s agencies or instrumentalities or the foreign state proper. Like in other areas of international law, there are serious concerns about reciprocal retaliation. If the United States were to prosecute an entity that a majority of the world would consider immune, the United States may find itself, or one of its own instrumentalities, facing the same treatment in one or several other countries. These concerns of reciprocal retaliation, as well as considerations of conforming to prevailing international practice, are likely sufficient to restrain the executive’s prosecutorial lust from completely upending other states’ ex ante expectations of immunity and jeopardizing the United States’ international interests. Even if we don’t assume different departments act with a singular motivation or policy, the international pressure and stakes of retaliation may very well increase communication and information-sharing between the relevant agencies for the purpose of avoiding disastrous outcomes. Thus, if the criminal act is sufficiently egregious to prompt prosecution in the face of high foreign relation costs, the United States’ communication of what other states should expect with respect to immunity will likely be clear.
In an article published not too long before the Second Circuit handed down its judgment in Halk Bankasi, Professor Chimène Keitner suggested that foreign states (including political subdivisions) should be afforded more favorable treatment than SOEs, who qualify as “foreign states” under the FSIA’s broad definition. She bases this distinction on the grounds that the inclusion of SOEs in the law of foreign sovereign immunity was a novel development by the FSIA and that even the FSIA provides greater protection to foreign states than instrumentalities in some situations. Specifically, Professor Keitner argued that courts should proceed with the understanding that foreign states themselves are not subject to criminal jurisdiction, even for commercial activities, but that separate entities like SOEs should be subject to, at minimum, criminal jurisdiction for commercial activities and “perhaps [ ] other acts that violate U.S. criminal law.”
While this solution seems sensible, the distinction is unnecessary and may put undue emphasis on determining which specific “separate entities” (for instance, all agencies and instrumentalities or just particular subsets?) are entitled to more preferential treatment and whether a particular entity falls in the more or less favorably treated group. In addition, if serious concerns of reciprocal retaliation or international condemnation animate the preferential treatment, the immense costs I discussed earlier make it very unlikely the executive will ever prosecute a foreign state itself and unlikely the government would take a step past a line that other states think shouldn’t be crossed.
In sum, judicial deference to the executive’s immunity determinations in criminal proceedings—manifested by commencing prosecution—is the most sensible and viable path forward. Although one may say that this approach constitutes abdication of judicial responsibility, it is actually an allocation of decision-making authority to the institutional actor that is more competent to make such determinations. Because a criminal prosecution is a vindication of the state’s interests in public safety and enforcing the laws, the concern that private citizens will lose their days in court because of political or arbitrary reasons is nonexistent. Moreover, because of strong international legal and diplomatic norms, the executive branch will likely face high costs should it commence criminal proceedings, and accordingly, it is unlikely to run wild with its prosecutorial powers, even if there are disagreements within the executive branch about immunity in specific instances. But if such a bulwark proves insufficient to dam overzealous prosecution, Congress has, and always has had, the power to step in and clarify the playing field.
Conclusion (or Rather, the Continuation?)
The Second Circuit’s opinion in Halk Bankasi is truly an important one of which scholars of foreign relations law should take note. Although courts have addressed the question of whether a foreign state has immunity from criminal prosecution in the contexts of grand jury subpoenas or Racketeer Influenced and Corrupt Organizations (RICO) Act claims, Halk Bankasi presents the first time a federal court has had to decide on immunity when the foreign state or its instrumentality was itself being prosecuted. However, it is likely because of these very stakes that the Second Circuit’s opinion charges headstrong through doctrinal murkiness and inconsistencies to reach the “safe” answer: the FSIA applies to criminal proceedings, courts still have jurisdiction under § 3231, and Halkbank’s conduct falls within the “commercial activity” exception.
Pushing back against the seeming ease with which the Second Circuit reached its conclusions, this Case Note has argued that a persuasive quantum of evidence suggests that the FSIA does not even apply to criminal proceedings. First, even if any of the exceptions to the FSIA’s general presumption of immunity were applicable, a district court would still not have subject matter jurisdiction, and attempting to transplant a grant of jurisdiction from elsewhere in the U.S. Code is a door the Supreme Court has doctrinally closed. Second, the historical evidence leading up to, and surrounding, the enactment of the statute betrays no indication that Congress was contemplating criminal prosecutions at all when drafting the FSIA. In fact, the historical evidence shows that Congress was almost exclusively concerned with private actions against foreign states and their instrumentalities. And third, the international legal climate in which the FSIA was enacted lends further support to the proposition that Congress was trying to codify the restrictive theory of immunity in civil cases only.
Beyond arguing that the FSIA simply is inapplicable to criminal proceedings, this Case Note has further advocated that the judiciary should defer to the executive branch’s immunity determinations, which are manifested by the commencement of prosecution itself. Although the Second Circuit adopted this position arguendo as a last resort, it is the most sensible path forward and balances competing interests absent explicit congressional direction. On the one hand is the government’s interest in enforcing the laws and deterring harmful and unlawful behavior. On the other hand are foreign states’ ex ante expectations about immunity and the government’s interest in avoiding diplomatic ire and reciprocal retaliation. A policy of deferring in effect puts this inherently political balancing in the lap of the executive branch, the institution better suited to receiving information and weighing the pros and cons of either course of action than the judiciary. Lastly, this proposal leaves the door open to, and perhaps even encourages, Congress to step in with new rules pertaining to immunity in criminal proceedings.
However, like all good stories, Halk Bankasi’s may not be over quite yet. On May 13, 2022, Halkbank filed a petition for a writ of certiorari, and on July 18, the government filed its opposition to the petition. In its petition, Halkbank squarely asks the Court to decide whether “U.S. district courts may exercise subject-matter jurisdiction over criminal prosecutions against foreign sovereigns and their instrumentalities under 18 U.S.C. § 3231 and in light of the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1330, 1441(d), 1602–1611.” The Justices are set to discuss the case at conference on September 28, 2022.
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Youssef Mohamed is a poet and J.D. Candidate at the University of Chicago Law School, Class of 2023. أولاً الحمدلله و ثانياً الحمدلله – He thanks Kyra Cooper, Cheridan Christnacht, Matthew Makowski, Virginia Robinson, and the rest of the wonderful University of Chicago Law Review Online team for the care with which they have treated this piece.