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November 2011 Archives

As reported earlier this month, U.S. District Court Judge Richard Leon in R.J. Reynolds Tobacco Co. v. FDA stayed the implementation of a federal requirement effective next year which mandates tobacco companies to put graphic images on their cigarette packages. The FDA has now filed to appeal this ruling in the U.S. Court of Appeals for the D.C. Circuit.

In his piece Obama EEOC Wipes Out Jobs By Making Hiring More Difficult featured on examiner.com, Hans Bader, senior attorney and counsel for special projects at the Competitive Enterprise Institute, outlines his position that President Obama's Equal Employment Opportunity Commission appointees are expanding the agency's enforcement authority via overly broad statutory interpretation. Such interpretation, according to Hans, in effect creates a Catch-22 where businesses attempting to avoid EEOC suits by taking compliance measures get sued anyway for violating other conflicting laws or regulations in their effort to employ those very compliance measures. Such aggressive enforcement has already deterred businesses from hiring new employees.

Hans points to some interesting examples, such as the following:

The EEOC has sued employers who sensibly refuse to hire as truckers people with a history of heavy drinking and alcoholism. It has done so even though if employers do hire alcoholics for such safety-sensitive positions, they will be sued under state tort laws when the alcoholic driver has an accident. The EEOC's demand that such employers disregard histories of alcoholism is based on an extremely expansive, and dubious, interpretation of the Americans with Disabilities Act.

The EEOC is suing employers over the use of criminal histories in hiring, and harassing employers who conduct criminal background checks, even though employers who hire criminals end up getting sued when those employees commit crimes while on the employer's payroll. The EEOC's demands thus place employers in an impossible dilemma where they can be sued no matter what they do.

The EEOC is also suing employers who don't bend sensible workplace rules to accommodate the obese, claiming that obesity is a disability. And it is suing employers who take into account bad credit and financial histories in hiring, even though failure to take that into account can lead to lawsuits against banks and property managers by customers.

U.S. District Court Judge Jed S. Rakoff came back with a decision on the proposed settlement between Citigroup and the Securities and Exchange Commission after an extensive hearing on the matter earlier this month. In a 15 page opinion, Judge Rakoff outlined the legal reasoning which led him to reject the $285 million dollar proposed agreement to settle charges filed by the SEC against Citigroup accusing the company of "selling investors slices of a $1 billion mortgage-bond deal called Class V Funding III, without disclosing it was betting against $500 million of those assets."

As expressed in the hearing, Judge Rakoff's criticism of the settlement was focused on the SEC's standard settlement practice which allows agreements where the accused company does not deny or admit wrongdoing. The SEC was critical of the ruling which they believe will waste both SEC and judicial resources while handicapping an established enforcement mechanism.

In the opinion, Judge Rakoff surely didn't pull any punches,

An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated. If its deployment does not rest on facts- cold, hard, solid facts, established either by admissions or by trials -it serves no lawful or moral purpose and is simply an engine of oppression.

Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances.

Accordingly, the Court refuses to approve the proposed Consent Judgment.

The case is SEC v. Citigroup Global Markets Inc, No. 11-07387 (S.D.N.Y). Judge Rakoff directed "the parties to be
ready to try this case on July 16, 2012."

McDonald's finds the loophole in San Francisco's anti-Happy-Meal law, and the result has unintended consequences. [SF Weekly]

There has been a lot of coverage of the Federalist Society panel on attorneys' fees in class actions: Isaac @ POL, LNL, ATL. Unfortunately, the coverage often discusses my introductory and Professor Fitzpatrick's introductory remarks, they don't cover my response to the professor, and I'd like to expand on it here.

As an initial matter, Fitzpatrick draws a straw man when he accuses critics of fees to be really wanting to abolish class actions. I've said it before, and I'll say it again: the optimal number of class actions is greater than zero. It's likely smaller than the number of class actions we actually have, but my criticism of rubber-stamping settlements that overpay attorneys is not a backdoor attempt to abolish the class action.

Fitzpatrick defends the $123 million fee award in the Bank of America overdraft litigation, but he does so by accusing me of complaining that the class members got small amounts when there are many class members. Again, this is a straw man. If attorneys collect $10 a class member for four million class members, I have no objection to a multi-million dollar fee award. But what happened in the Bank of America case is that the attorneys took two depositions, litigated for five months, and then settled for nine cents on the dollar—virtually a nuisance settlement merely for bringing the complaint. That's a zero-risk proposition that does not merit an extraordinary payday of several times a multiplier of already-handsome lodestar rates. (Remember that "lodestar" can include as much as $400/hour for paralegals, which is almost entirely pure profit for law-firm partners that haven't lifted a finger.) The $123 million the attorneys are getting is at the expense of their clients, who are getting only $250 million. That's only possible because of a legal cartel: if that litigation had been put out to a market-based bid, the fees would be much closer to ten percent rather than a third.

Moreover, Fitzpatrick justifies all this through the value of "deterrence." But if attorneys' incentives are to bring "big" cases, rather than "high-merit" cases, that completely undermines any deterrence value. Bank of America gets sued because it's big, rather than because it did something wrong. And if Bank of America actually did something wrong, the attorneys willing to settle quick and cheap lets it get away with that—they've still made billions on something the attorneys claim was illegal. Why should the class attorneys make $123 million for enabling that? (Fitzpatrick doesn't mention that he was retained by the class attorneys in that case for several hundred dollars an hour (again, coming out of the class's pockets), though of course they retained him because of his previously-stated views; I don't believe he's defending that outrageous fee solely because he's been paid to do so.) When attorneys can profit from nuisance settlements against deep pockets because they don't have to ensure that their clients actually receive any proceeds, that hurts deterrence, because the good companies are getting taxed by the class action system almost as much as the bad actors are.

Fitzpatrick points to his study showing $5 billion of fees for $33 billion of recovery. But that analysis is flawed in several ways. First, most acknowledge that fees should be smaller for megafund cases, but when you add megafund cases to tiny cases, the effect of the megafund case is to overwhelm the overpayments in the smaller cases. If attorneys collected $4 billion for a $30 billion settlement, that would be too high: it's not 1000 times more difficult to bring a $30 billion case than a $30 million case; meanwhile the other $3 billion from several hundred cases would result in $1 billion of fees, which is also too high. So "only" 15% recovery may well be too high, depending on what the mix of cases looks like.

Second, the study mixes apples and oranges. Securities cases, which make up the larger share of class action settlements, generally have lower percentage fees than consumer-fraud class actions. That's because securities cases are more likely to have sophisticated lead plaintiffs, and better distribution of settlement funds to class members. That ends up supporting my argument more than Fitzpatrick's: securities cases are harder to bring, and are more likely to lose on a motion to dismiss because of higher pleading standards. Yet, with even the minimal constraints provided by the PSLRA, securities attorneys end up getting a much smaller percentage than consumer-class attorneys, showing how much the consumer-class attorneys are getting overpaid. But the securities attorneys are overpaid, too. First, the PSLRA requires fees to be a reasonable percentage of the amount actually paid to the class, but this statutory language is generally ignored by the settling parties and the courts: in the Franklin Templeton Mutual Fund settlement, the attorneys are asking for almost as much money as the amount that will actually be paid to the class, because they include payments to third-parties such as the settlement administrator in their denominator, against the express language of the PSLRA. Second, the PSLRA forbids courts from using the Vaughn Walker method of requiring class counsel to bid for lead-counsel status, but we know from experience that that market constraint results in multiple bids from experienced counsel that are much lower than what class counsel tend to get in securities cases today. So Fitzpatrick's study hides what how much attorneys are being overpaid.

Third, Fitzpatrick's study hides how much attorneys are being overpaid in another way, by exaggerating the denominator. That "$33 billion" figure is fictional: it includes "injunctive relief" that doesn't actually benefit the class. The Fitzpatrick study would count the Blessing v. Sirius XM settlement as worth $180 million, when it actually pays zero to the class. And in securities cases, much of the settlement fund is coming out of the pockets of class members who bought-and-held the defendant's shares: those payments from the right-hand pocket to the left-hand pocket are a loss, not a gain, for shareholders. (Such settlements really raise 23(a)(4) questions when they don't bring in new money from third parties.) But the full amount counts in the denominator, even though it didn't win the class anything.

The cases where the lawyers are abusing the system are not an anomaly. When the Center for Class Action Fairness is deciding whether to take a case, it's almost always deciding between cases where the attorneys are abusing the system a little, or whether they're abusing the system a lot.

Netflix subscribers initiated a lawsuit alleging a price agreement between Netflix and Wal-Mart which they claim allowed Netflix to overcharge customers and manipulate subscription pricing between 2005 and 2010. Wal-Mart agreed to settle the suit earlier this year and in a recent email announced that the corporation had set aside $27,250,000 to be distributed to the class and lawyers. Netflix on the other hand continued their battle in court which paid off when U.S. District Court Judge Phyllis J. Hamilton granted Netflix's motion for summary judgment.

Judge Hamilton explained in the opinion that,

Ultimately, the court agrees with Netflix. While the record is disputed with respect to whether Netflix internally viewed Walmart as a strong competitor at various points in time, there is simply no material dispute as to whether Walmart in fact impacted Netflix's pricing decisions and whether, in the face of Walmart's continued competition (i.e., absent the Promotion Agreement), Netflix would have lowered its prices to the $15.99 price point that plaintiffs assert...

Second, and more significantly, the actual facts belie plaintiffs' attempt to catapult Netflix's internal debate over whether to lower its prices in response to Blockbuster's December 2004 $14.99 price decrease into a triable dispute as to whether Netflix would have lowered its price to $15.99 in the face of Walmart's continued competition in the market for online DVD rentals....Since plaintiffs' theory of injury ultimately depends upon proof of what Netflix would have done, rather than what Netflix could have done, the evidence therefore falls far short of the necessary mark.

In short, even viewing the undisputed facts in the light most favorable to plaintiffs, the court concludes that no reasonable juror could believe that Netflix would have lowered its 3U price to $15.99 in response to continued competition from Walmart, whose 3U price was set at $17.49--particularly when those facts demonstrate that Netflix chose not to lower its price in the face of Blockbuster's $14.99 price cut, despite the fact that Blockbuster had a higher market share than Walmart.

Nor can plaintiffs' expert vault plaintiffs over the injury hurdle.

There are numerous theories which may explain why Wal-Mart chose to settle the case instead of seeing the litigation through as Netflix has done.

PointofLaw has been closely following the debate and reform efforts with regard to the Foreign Corrupt Practices Act. Passed in 1977, the FCPA prohibits companies from paying bribes to foreign officials in an attempt to win business. According to the WSJ, enforcement of the FCPA has led to approximately $4 billion in penalties against corporations in just the past 5 years. While proponents of staunch enforcement of the Act claim that the FCPA levels the playing field, opponents argue that the law is overly vague and detrimental to American businesses.

Some specific proposals to reform the FCPA include:

  • Allowing companies to avoid liability if they can prove they had robust measures in place to prevent bribes, such as training programs.
  • Offering companies a reduction in penalty--as much as 40%--if they self-report a possible violation. Companies could receive additional discounts for informing on other companies involved in corrupt practices.
  • Quantifying credit for real cooperation so companies and boards can make informed decisions.
  • A grace period allowing companies to investigate new acquisitions and disclose what they find without fear of prosecution.

This growing debate has gained some attention in light of reports that Pfizer is near an over $60 million dollar settlement to resolve investigations of alleged FCPA violations by the company in its efforts to win business overseas. And it seems support for FCPA reform cuts across many industries, even those which may come unexpected.

Hans Bader, senior attorney and counsel for special projects at the Competitive Enterprise Institute, in a piece featured on CEI's blog OpenMarket.org, discussed recent challenges to class-action abuses focusing his commentary specifically on cy pres distributions.

In his discussion of Nachsin v. AOL, Inc., where the Ninth Circuit struck down cy pres to local Los Angeles charities unrelated to the class or the claims of the lawsuit, Hans cited the appeals court,

As the appeals court noted, judges have often wrongly used class-action settlements to enrich groups that have nothing to do with consumers' rights, like the ACLU: "courts have awarded cy pres distributions to myriad charities which, though no doubt pursuing virtuous goals, have little or nothing to do with the purposes of the underlying lawsuit or the class of plaintiffs involved," such as "awarding $2 million from an antitrust class action settlement to fifteen applicants, including the San Jose Museum of Art, the American Jewish Congress, a public television station, and the Roger Baldwin Foundation of the American Civil Liberties Union of Illinois.

Ted Frank of PointofLaw and the Center for Class Action Fairness who represented the objecting consumer in the AOL settlement is also "challenging a settlement in a class-action lawsuit over mishandling of Native American trust accounts that massively enriched some favored claimants while ripping off others. CEI filed an amicus brief in support of that challenge in a case called Cobell v. Salazar."

Wherein CCAF is "justly lauded"

More coverage of the AOL victory in a Washington Examiner op-ed. And Reuters Legal does a lengthy story.

AOL's attorney's comment is revealing: all they cared about was whether they were able to get rid of the frivolous claims against them in a nuisance lawsuit. But the Center cares more about establishing precedents and rules governing the long-term fairness of class actions than any individual result. That larger issue was irrelevant to AOL, so they think they have a victory, but the Center does, too. Reuters, through Professor Brian Fitzpatrick, questions whether it makes a difference: it does. Class actions are supposed to benefit the class first, rather than the attorneys. When the attorneys have carte blanche to choose cy pres recipients, they effectively get double-payment. To the extent Professor Fitzpatrick cares about defendant deterrence as a reason for class actions, he should be pleased that future defendants should not be allowed to dictate illusory cy pres that goes to their preferred charitable donee.

Interestingly, Kabateck Brown Kellner, whose attorneys had written a dishonest Daily Journal op-ed criticizing CCAF's defense of class members in cy pres settlements without revealing they were adverse to us in four cases (all four of which have now resulted in CCAF court victories), couldn't even be bothered to file a Ninth Circuit brief making a public-policy argument for their preferred tactic of abusive cy pres. Which leaves the question of why AOL spent money on its attorneys to do so.

Gregory Conko, a senior fellow at the Competitive Enterprise Institute, a Washington D.C.-based public interest group, authored an interesting piece discussing the FDA's ban on off-label promotion published on our sister blog Medical Progress Today.

Greg writes,

The problem is that FDA bans not just false or misleading claims about an off-label use's safety and efficacy. That is, it's not just preventing snake oil salesmen from peddling quick fixes that don't work. The agency bans all promotion of off-label uses, even if those uses have been proven to be safe and effective in clinical trials. Even if those uses are considered to be the standard of care for a given ailment. And even if a physician could be liable for malpractice for not administering a drug off-label.

He also examines the ban in a First Amendment context,

Few would argue that false or misleading claims in a commercial context should be protected by the First Amendment. However, a few decades worth of now-well established case law concludes that government may not categorically bar truthful and non-misleading speech simply because its purpose is to promote a commercial transaction. Instead, government must have a substantial interest in regulating the speech in question, and the regulation must directly advance that governmental interest and be no more extensive than necessary to do so.
Defensive customer service

Just as there is defensive medicine, there is defensive customer service: lawyers requiring service providers to do things that inconvenience customers, because the alternative is to expose the provider to huge liability.

Case study #1: Waldsachs v. Inland Transport, No. 5:10-cv-5 (W.D. Ky.) (via Oliver). A van service pulls over when its sole rider asks for the opportunity to urinate. That rider walks through an open field looking for a relatively private place to do so, and falls in a hole, injuring himself. The court refuses to grant summary judgment to the van service. Some might argue "Let the jury decide," but that's not what is going to happen here. The expense of litigation is such that it will be cheaper for the defendant to offer a nusiance settlement far greater than the expected value of a jury giving a jackpot for the plaintiff's own clumsiness. But the social costs of decisions like this need to be considered by judges. This customer may get a windfall for his own stupidity, but future customers will be punished, and not just through higher prices. We can now see how future van rides will play out:

"Please, pull over, I need to pee."
"No, the lawyers say I'll get fired if I make any stops."
"Really? I'm your only passenger!"
"Sorry, but the lawyers forbid my supervisor from having any discretion over whether to fire me for varying from the policy, because that might lead to an employment discrimination lawsuit."

Case study #2: As Hans Bader complains, Amtrak bars 12-year-olds from riding trains unaccompanied. That reflects an overabundance of caution, but I would've recommended the same thing if I were their in-house counsel. Amtrak can't charge enough for an 8-year-old's ticket if they got sued for something that happened to the 8-year-old on the train, and trains aren't the controlled environment that air travel is. Parents should be able to choose for themselves whether to subject their children to that tiny risk, but paternalistic courts have pretty much abolished the assumption of the risk doctrine as a useful defense. The solution here is statutory recognition of the defense creating immunity or capped damages low enough to create the proper incentives, but that's not politically feasible thanks to the likes of Andrew Cohen and the litigation lobby, which ask voters to only look at these issues in hindsight.

The Federalist Society's Litigation Practice Group hosted a panel on "Attorneys Fees in Class Actions" during the 2011 National Lawyers Convention. PointofLaw's own Ted Frank and Manhattan Institute Visiting Scholar Lester Brickman, both participated in the panel.

During his comments Ted Frank explained,

The adjudication of attorneys' fees in class action settlements is one that presents obvious conflicts of interest. The same attorneys that are negotiating benefits for the class are negotiating their own fees. One often suggested solution is a bifurcated settlement negotiation, but that does not solve this problem because attorneys on both sides are rational economic actors with rational expectations. Nobody is unaware in the first part of the negotiations that part two of the negotiations will discuss fees. So everyone knows that every dollar going to the class will be a dollar unavailable to the attorneys later and vice versa. And you can show with game theory that the class will end up getting less in a bifurcated negotiation. The defendants aren't looking after the interests of the class, they just want out as cheaply as possible and they're generally indifferent about who gets the money. So that leaves the courts to police attorneys' fees. Unfortunately, the incentives for the courts are perverse. Approving a settlement that shelters disproportionate attorneys' fees gets a complex time consuming case off of a crowded docket while insisting on fairness requires additional work up front and more work if the settlement gets rejected.

Brian Fitzpatrick of Vanderbilt University Law School responded by arguing a different perspective,

There are basically two reasons why there's a divergence between perception and reality. Reason number one is you know there are some people in society for whom the optimal number of class action cases is zero; businesses. ...But, I don't agree that the optimal number of class actions is zero. Just because it's good for business to get rid of the class action doesn't mean it's good for society. And I think the people with a vested interest in seeing zero class actions have made things sound a little bit worse than they really are when it comes to class action lawyers. ...Secondly, I think this divergence can be explained by the fact that a lot of class action settlements are small stakes settlements where each class member has been injured a small amount and each class member has very little at stake. So what happens, the class action settles, the lawyers get $120 million as they did in this Bank of America settlement that Ted Frank mentioned and each class member gets $30. So that looks bad, the class member gets $30, the lawyer gets $120 million. But the perception there, as bad is as it looks, is not really a substantive comment about whether the settlement is bad. The class members had very little injury to begin with, of course each of them is not going to have as substantial a sum as the class action lawyers are getting. ...In small stakes cases in any event, the purpose really is to deter the defendant. It really matters less who is paid in these small stakes cases. What really matters the most is that the defendant is paying someone.

November 23 roundup

We've been at the forefront of noting the problem of abusive cy pres; originally intended as a last resort "second-best" way to benefit the class after resolution of a case where there is leftover money, too many class actions use cy pres as a first resort to exaggerate the class benefits, or to siphon some of those benefits to the class attorneys or the defendants or, shockingly, the judge. A couple of recent decisions speak out against free-flowing cy pres. In Klier v. Elf Atochem, the Fifth Circuit struck down cy pres given to local charities instead of to undercompensated class members; Alison Frankel has good coverage.

And yesterday, in a case I argued for the Center for Class Action Fairness LLC, Nachsin v. AOL, Inc., the Ninth Circuit adopted much of the reasoning of our briefs in striking down cy pres to local Los Angeles charities unrelated to the class or the claims of the lawsuit:

When selection of cy pres beneficiaries is not tethered to the nature of the lawsuit and the interests of the silent class members, the selection process may answer to the whims and self interests of the parties, their counsel, or the court. Moreover, the specter of judges and outside entities dealing in the distribution and solicitation of settlement money may create the appearance of impropriety.

Thanks to Darren McKinney for being willing to stand up to abusive class action settlements, even it meant admitting that he had an AOL account. Additional coverage at Forbes.com, Business Law Daily, and law.com.

The Center for Class Action Fairness LLC is not affiliated with the Manhattan Institute.

Two weeks ago, PointofLaw featured Assistant Attorney General Lanny Breuer's announcement that next year the Justice Department would release "detailed new guidance" on the Foreign Corrupt Practices Act. In his address however, Lanny Breuer did not specify in any detail the particular guidance to be offered. Therefore, there has been an active effort, like that made by Senator Charles Grassley (R-Iowa), ranking member on the Senate Committee on the Judiciary, to ensure that the Justice Department provide appropriate guidance which would sufficiently aid the business community.

Senator Grassley submitted questions to the Justice Department pressing for clarification among which were the following:

• Will the guidance include the Department's interpretations of ambiguous statutory terms such as "foreign official" and "government instrumentality"?

• Will the guidance clarify when a company may be held liable for the actions of an independent subsidiary?

• Will the guidance clarify the extent to which one company may be held liable for the pre-acquisition or pre-merger conduct of another?

• Will the guidance include an enforcement safe harbor for gifts and hospitality of a de minimis value provided to foreign officials?

Additionally, the Wall Street Journal reported yesterday that Pfizer is near an over $60 million dollar settlement to resolve investigations of FCPA violations by the company in its efforts to win business overseas. In response to these investigations, many major pharmaceutical companies are spending a great deal of time along with millions of dollars developing comprehensive compliance programs. It may be that effective FCPA guidance aimed to cure vagueness and ambiguities would be much needed relief for American businesses.

The Senate refused to approve most of Bush's nominees to the Fourth Circuit, and Barack Obama has dominated the appointments process: five of the fourteen sitting judges are Obama appointees. That makes the total nine Democrats to five Republicans—and one of the Republican appointees was originally a Clinton nomination renominated by Bush as part of a compromise. The Baltimore Sun notices that the jurisprudence of the court has changed.

Arafiles update

I'd previously complained that the Texas Medical Board only slapped Dr. Rolando Arafiles on the wrist with a $5000 fine after he brought false criminal charges against nurses that had dared to report on his questionable medical practices. AP is reporting that Arafiles will surrender his Texas license—but that is concurrent with his guilty plea to criminal charges stemming from the incident. Earlier.

Of course, effective discipline by medical licensing boards is a necessary prerequisite of effective medical-malpractice tort reform. If the medical boards aren't going to pull the plug on bad doctors, trial lawyers have a point that there needs to be a remedy in the civil tort system. Given that medical boards will do a much better job of sussing out bad medical behavior than the randomness of a civil justice system that judges largely on hindsight, that is certainly the preferable alternative.

What media bias? Occupy Wall Street edition

So an underworked lobbying firm sees Occupy Wall Street as a marketing opportunity, writes a report exaggerating the potential scope and power of the movement, and pitches it to the American Bankers Association: "Pay us $850,000 to counter this burgeoning threat!" The American Bankers Association doesn't fall for it, but MSNBC and a Washington Post reporter do and report the story as Wall Street being scared by the incoherent and unpopular Occupy movement, which therefore must not be incoherent and unpopular. (The WaPo headine "How Wall Street really views the protesters" is entirely false.)

On November 15th, the U.S. House of Representatives Judiciary Subcommittee on Courts, Commercial and Administrative Law held a hearing on "Recognition and Enforcement of Foreign Judgments." John B. Bellinger, III testified on behalf of the U.S. Chamber of Commerce and the U.S. Chamber Institute for Legal Reform.

As the Chamber's ILR report Confronting the New Breed Of Transnational Litigation: Abusive Foreign Judgments points out "in the last few decades, there has been a significant increase in the number of actions seeking recognition and enforcement of foreign judgments in the United States." Therefore, this hearing was an important forum to set out the concerns and fears of many in the business community who are at risk and could be subject to unfair legal practices abroad. These concerns are especially well founded in light of cases such as Chevron v. Mendoza where the Second Circuit recently vacated the preliminary injunction granted by the district court which blocked enforcement of the $18 billion judgment against Chevron.

John Bellinger explained that "the business community supports recognition and enforcement of appropriate foreign judgments in U.S. courts but wants to avoid abuse of the liberal U.S. legal framework for recognition and enforcement."

He identified what he believes are the "three main goals of the U.S. business community" which are summarized as follows:

First, U.S. businesses want to know that if they obtain a money judgment, whether inside or outside the United States, they will be able to enforce that judgment in jurisdictions where the judgment debtor has assets.

Second, and related to the first goal, U.S. businesses need to understand what exceptions to recognition and enforcement might be invoked by judgment debtors that could undermine the success of the U.S. businesses' pursuit of judgments in their favor, and they need to be able to invoke appropriate exceptions themselves as judgment debtors to ensure that unjust or inappropriate judgments by foreign tribunals are not enforced against them.

And third, U.S. businesses want a predictable international legal regime where courts are obligated to recognize judgments that have been reached in other courts selected by the parties themselves.

Dahlia Lithwick does it again

To repeat myself: Dahlia Lithwick got something embarrassingly wrong when trying to criticize a right-winger and defend a liberal? Quelle surprise! Jonathan Adler demolishes the claim that Justices Scalia and Thomas did something wrong by speaking to the Federalist Society; note also that we never see complaints when liberal justices speak to liberal organizations. Earlier.

The James Mintz Group has created a new database "Where The Bribes Are" to track the penalties in U.S. government Foreign Corrupt Practices Act cases since its enactment in 1977. The database is showcased in the form of an interactive international map where each country is shaded respective to the amount of penalties assessed for FCPA violations in that country. The search could be filtered by industry with information available on the particular cases which correspond to the FCPA penalties.

According to the database, FCPA penalties across all sectors total $4.04 billion and energy leads the other sectors with $2.03 billion in penalties. China's corruption risk is high across all sectors while Nigeria leads all nations in the aggregate dollar amount of FCPA penalties.

Take a look at this valuable and easy to use resource.

In a consolidated federal case, a class of Netflix subscribers initiated a lawsuit alleging a price agreement between Netflix and Wal-Mart which allowed Netflix to overcharge customers and manipulate subscription pricing. In a proposed settlement by Wal-Mart scheduled for a final hearing on the merits in March, Netflix subscribers have been offered $27.5 million.

The settlement, covering anyone who subscribed to Netflix at any time between May 19, 2005 and September 2, 2011, would leave $19 million left to pay the class if lawyers are granted their requested 25% (nearly $6.9 million) plus potentially $1.7 million to cover litigation costs. If everyone eligible in this action opts to participate in the settlement, each class member would recover less than $1.00 each.

The full AP report is available here.

Bankruptcy Judge George C. Paine remained a member of the Belle Meade Country Club, which effectively prohibits female and African-American members, even after they rebuffed his efforts to desegregate. The Sixth Circuit refused to hold this sanctionable in a 10-8 vote because of Judge Paine's efforts to desegregate, but the Committee on Judicial Conduct reversed, noting that under Canon 2C, "Membership of a judge in an organization that practices invidious discrimination gives rise to perceptions that the judge's impartiality is impaired." No sanctions will accrue against Judge Paine given his pending retirement, but other judges are on notice.

This is a much more far-ranging decision than people realize, because organizations that practice invidious discrimination—same-sex fraternities—are quite common. We know we can't always trust Wikipedia, so take this list with a grain of salt, but articles on that site (which are largely written by bragging fraternity members) Judge Harry Edwards (D.C. Circuit) is a member of the all-male Alpha Phi Alpha, Judge James Singleton (D. Alaska) is a member of the all-male Tau Kappa Epsilon, Roger Gregory (4th Circuit) is a member of the all-male Omega Psi Phi. Will they be required to renounce their memberships in organizations that practice invidious discrimination? (Fraternities have a greater effect on society than country clubs.)

NBA decertification and antitrust lawsuit

Even aside from the dumb economics of risking missing a season over a 10% pay-cut when the average career is less than ten years long, the NBA players are being poorly served by their lawyers and representatives in engaging in a decertification-and-sue-under-antitrust theory. None of the press coverage mentions the Norris-LaGuardia Act, 29 U.S.C. §§ 101 et seq., which prohibits injunctions "in a case involving or growing out of a labor dispute." The ploy of pretending not to be a union subject to the collective-bargaining exception while continuing to bargain collectively isn't going to fly unless courts in the Ninth Circuit refuse to follow the law. The Supreme Court already addressed this issue in Brown v. NFL, when it held that antitrust laws did not apply to suits over collective bargaining arrangements, and that those protections continued to apply immediately after the collective bargaining broke down. And it's ironic, because the players' attorney, David Boies knows this, having made precisely this argument on behalf of the NFL in their lockout labor dispute earlier this year. The NFL had a viable labor model, however, and the owners would lose a lot of money if the lockout continued; the parties were destined to settle. NBA players don't have a credible threat, because the NBA has over a dozen teams that would lose less money not playing than playing, even if that's largely because so many teams are poorly managed.

What media bias? Prakash on Penn State

If you had any doubt about NPR reporter Snigdha Prakash's bias against Merck when covering the Vioxx litigation, she completely dispelled it with a wrong-headed piece in Slate about Merck CEO (and former general counsel) Charles Frazier being appointed to head the investigation on the Sandusky scandal at Penn State. Prakash slanders Merck with a variety of false claims, referencing the bogus Lancet study claiming Vioxx caused an additional 140,000 heart attacks; claiming "most of the five-and-a-half years it sold Vioxx, Merck knew the drug doubled the risk of cardiovascular problems among users" (they didn't and it didn't); "withholding clinical trial results that would have definitively proven Vioxx's risks to federal regulators" (they didn't and they didn't). Even today, it is unclear whether Vioxx produced a net benefit, with its gastroprotective aspects outweighing the slight increase in cardiovascular risk. Prakash complains that Merck settled its cases for "only" $5 billion (plus another $2 billion in defense costs): why does she think that the lawyers left tens of billions of dollars on the table if Merck had actually done something wrong? She mentions the tens of thousands of suits, but not that thousands of those suits involved plaintiffs who hadn't even taken Vioxx—and that the lawyers who committed fraud on the court suffered no consequences (and in fact were rewarded handsomely). To top it all off, she ignorantly suggests that the appointment of Frazier suggests a scorched-earth litigation strategy by Penn State, though Frazier will have nothing to do with Penn State's legal strategy (and is likely to have little role beyond editing and delivering an investigative report generated by other attorneys that he supervises). Earlier.

Prescription drug maker Merck Sharp & Dohme Corp. filed an action against Kentucky Attorney General Jack Conway challenging the legality and fairness of the arrangement in which a state attorney general hires private attorneys on a contingency fee basis to handle suits on behalf of the state.

Merck's attorneys argue,

Such suits can only be prosecuted by the Kentucky Attorney General and only when penalties would be in the public interest. Nonetheless, Conway has effectively transferred his enforcement authority to private outside counsel. And unlike the Kentucky AG, whose compensation is fixed and independent of success or failure in litigation, the arrangement with the private outside counsel in this case gives them a significant stake in the outcome: the more penalties they pursue, the bigger their potential take.

Conway filed a motion to dismiss responding,

Merck has offered no case law that supports the notion that litigation by outside counsel, directed by a state attorney general, violates a civil defendant's constitutional rights. In fact, such a finding would upend centuries of precedent permitting such arrangements between states and outside counsel.

Unfortunately, as John O'Brien of LegalNewsline.com points out, other companies have unsuccessfully made similar arguments across a wide range of jurisdictions.

In some states however, there has been significant progress made in instituting reform legislatively as Jim Copland of PointofLaw and head of Manhattan Institute's Center for Legal Policy cites in Trial Lawyers Inc.: Attorneys General, a report focused on this very topic.

Assistant Attorney General Lanny Breuer, head of the Criminal Division of the U.S. Department of Justice, at the American Lawyer/National Law Journal Summit said, "One area - though by no means the only one - in which we have seen significant disparities in sentencing in the last several years is financial fraud. With increasing frequency, federal judges have been sentencing fraud offenders - especially offenders involved in high-loss fraud cases - inconsistently."

Joe Palazzolo of the Wall Street Journal highlighted the sentencing disparity by citing U.S. Sentencing Commission data to show the following:

...between October 2010 and June 2011, judges in the Northern District of Illinois (Chicago) sentenced defendants to prison terms within guidelines ranges 45.7% of the time.

Judges in the Southern District of New York, by comparison, sentenced defendants to prison terms within guidelines ranges 36.2% of the time. And judges in the Southern District of Texas (Houston), meanwhile, sentenced within the guidelines ranges 66.7% of the time.

Federal district courts nationwide sentenced fraud defendants within the guidelines 52.6% of the time, for an average of 23.2 months in prison.

The U.S. Sentencing Commission Preliminary Quarterly Data Report for the 3rd quarter of the 2011 fiscal year is available here.

Obamacare oops

Even if PPACA survives Supreme Court scrutiny, the poorly-drafted statute will require a legislative fix or be unworkable, according to an analysis in the WSJ by Jonathan Adler and Michael Cannon. More detail: Forbes, Adler @ Volokh.


Today's xkcd discusses the problem of "citogenesis," the problem where bogus information is inserted into Wikipedia, sloppy writers copy their information from Wikipedia, and then a cite to the sloppy writer is added to Wikipedia, making the bogus information "true." I've seen this first-hand.

Inspired by Amity Shlaes's The Forgotten Man, I was reading up on the American Liberty League, a bipartisan organization opposed to the New Deal's infringements on economic liberty; interested in conspiracy theories, I wrote in 2009 about the so-called Business Plot, an alleged planned coup in 1934.

I was curious whether there was any basis for the 21st-century riff on the 1930s conspiracy theory that Prescott Bush, the father and grandfather of presidents, was a part of the American Liberty League and the Business Plot. (The claim was that FDR cut a secret deal, undocumented by any history books, to avoid prosecuting the conspirators in exchange for their support of the New Deal; the claim is plainly bogus, as the American Liberty League continued to oppose the New Deal and went on to successfully strike down the National Industrial Recovery Act a year later.)

The only academic source for Bush's role in the American Liberty League I could find was in a Charles Beard book, with a 2008 introduction written by University of Massachusetts history professor Clyde Barrow. This introduction was almost word-for-word taken from an inaccurate 2007 version of a Wikipedia article written by a conspiracy theorist. I asked Professor Barrow where he got the source for his claims, and why the Wikipedia article was so similar to his later-written introduction, and got no response.

Moral is: don't trust Wikipedia. Or liberal history professors.

In a proposed rule in today's Federal Register, the Department of Housing and Urban Development seeks to hold "disparate impact" practices illegal under the Fair Housing Act, even when there is no intent to discriminate. If a disparate impact is shown, a defendant would have the burden of proof of justifying its actions. This rule would give the federal government (as well as private litigants) the authority to sue landlords and cities over any number of common practices that could be argued to have a disparate impact: credit and criminal-history checks of renters, zoning laws against multifamily housing, public-housing decisions, even, as the rule suggests, local-and-state-government tax credit policy. Indeed, any practice has a "discriminatory effect," as defined by the statute, unless by coincidence it affects all races and protected classes equally, the odds of which would be astronomical.

We have already seen the perverse effects of disparate-impact litigation on housing lenders. One would hope Congress would want to act to push back on this proposed expansion of HUD authority.

Comments are due January 17, 2012.

Judge Michael Stallman of the Supreme Court of New York County, denied the petition of Occupy Wall Street Protestors to extend a temporary restraining order barring New York City and property owners Brookfield Properties from enforcing new park rules. These new rules prohibit "Camping and/or the erection of tents or other structures. Lying down on the ground, or lying down on benches ...The placement of tarps or sleeping bags or other covering on the property. Storage of placement of personal property on the ground, benches, sitting areas or
walkways which unreasonably interferes with the use of such areas by others."

In response to First Amendment arguments raised by the protestors, Judge Stallman concluded,

The movants have not demonstrated that they have a First Amendment right to remain in Zuccotti Park, along with their tents, structures, generators, and other installations to the exclusion of the owner's reasonable rights and duties to maintain Zuccotti Park, or to the rights to public access of others who might wish to use the space safely. Neither have the applicants shown a right to a temporary restraining order that would restrict the City's enforcement of law so as to promote public health and safety.

The New York Lawyers Guild, representing the protestors, contended that the 24-hour occupation itself-tents and all-is integral to the movement's message. Notwithstanding, Mayor Bloomberg has pledged to enforce the new rules when Zuccotti Park is reopened after its cleaning.

James Copland of PointofLaw and Director of the Center for Legal Policy at the Manhattan Institute discussed the ruling on PBS NewsHour.

The U.S. Court of Appeals for the Second Circuit affirmed a district court decision ruling that the Prison Litigation Reform Act, 42 U.S.C. § 1997e(d)(2), capped the maximum award of attorney's fees at 150 percent of plaintiff's $1.00 monetary judgment in a case where a New York State prisoner sued New York Department of Corrections officials alleging that they infringed his rights under the Free Exercise Clause of the First Amendment and sought $99,485.25 in attorney's fees.

The Second Circuit Ruled:

(1) Because the only relief prisoner Shepherd secured on his Free Exercise Clause claim against the defendant prison officials was a monetary judgment, his request for attorney's fees pursuant to 42 U.S.C. § 1988(b) was limited by the PLRA, specifically § 1997e(d)(2), which plainly caps the attorney's fees that must be paid by a losing defendant at 150 percent of the monetary damages.

(2) Shepherd having been awarded a monetary judgment of $1.00, the district court correctly construed § 1997e(d)(2) to cap the fees that could be awarded against defendants at $1.50, against which it had to apply some amount not to exceed 25 percent--in this case, 10 percent, or $0.10--of the monetary judgment, for a total fee award of $1.40.

The case is Shepherd v. Goord, No. 10-4821-pr, slip op. (2d Cir.)

Paul Howard on the PPACA

My colleague Paul Howard, who heads the Manhattan Institute's Center for Medical Progress, discusses the constitutional challenge to the Patient Protection and Affordable Care Act with a focus on the policy problems with the new legislation. See his thoughts here at our sister blog, Medical Progress Today.

Epstein and Tribe debate PPACA

As the Supreme Court has now granted cert to hear the constitutional challenges to the Patient Protection and Affordable Care Act, a/k/a "Obamacare," our readers might be interested in watching this video of a September 15 event we hosted at the Manhattan Institute in which professors Richard Epstein and Larry Tribe debated the subject, moderated by yours truly:

In October, PointofLaw asked whether the Patient Protection and Affordable Care Act was SCOTUS-bound. Yesterday, the Supreme Court of the United States granted certiorari to examine the various major issues raised with regard to the federal healthcare legislation.

According to Lyle Denniston of Scotusblog, the oral argument will be argued over two days and structured in the following manner:

The Court will hold two hours of argument on the constitutionality of the requirement that virtually every American obtain health insurance by 2014, 90 minutes on whether some or all of the overall law must fail if the mandate is struck down, one hour on whether the Anti-Injunction Act bars some or all of the challenges to the insurance mandate, and one hour on the constitutionality of the expansion of the Medicaid program for the poor and disabled.

Ashby Jones of the Wall Street Journal provides a more detailed overview of the issues to be argued and examines the district court and appellate level rulings on those issues.

Despite the many predictions on the outcome of Supreme Court review, the question is a close one and there are many strong arguments on both sides as evidenced by the dynamic debate between former solicitor general Paul Clement and Harvard Law School professor Laurence Tribe hosted by the Federalist Society at their Fourth Annual Rosenkranz Debate and Luncheon.

However, what is now certain is that PPACA is indeed SCOTUS-bound.

A breakdown of the Court's orders can be found here.

On May 23rd of this year in Brown v. Plata, the U.S. Supreme Court in a 5-4 decision written by Justice Kennedy upheld an order to release thousands of California prisoners. "The Supreme Court reasoned that since prisons had failed to provide adequate healthcare to some prisoners, and overcrowding in some prisons contributed to prison doctors' failure to provide adequate healthcare, the state prison system as a whole should be ordered to radically reduce its population of inmates."

To comply with the ruling in Brown, California has established a practice known as realignment, which is expected to send as many as 8,000 offenders who would normally go to state prisons into the L.A. County Jail system in the next year. As a result, Los Angeles County's jails could run out of space as early as next month, prompting officials to consider releasing potentially thousands of inmates awaiting trial.

In a post immediately after the ruling in Brown, PointofLaw.com featured a prediction by criminal justice expert Kent Scheidegger that "vast numbers of people who commit property crimes, such as car thieves, will no longer be imprisoned--so if you live in California, 'don't bother investing much in a car. It will be open season on cars given that car thieves ("nonviolent offenders") will never go to prison no matter how many times they are caught." Unfortunately, this latest news from Los Angeles confirms the consequences of the decision that Scheidegger anticipated .

The SEC has announced a record of 735 enforcement actions filed in fiscal year 2011 in total. In addition, since the formation of its Foreign Corrupt Practices Act Unit in 2009 to enforce the law which prohibits bribing foreign officials for business purposes, the SEC recorded its first 20 FCPA enforcement actions in the fiscal year.

These enforcement statistics come in light of Assistant Attorney General Lanny Breuer's announcement that DOJ's criminal division will "release detailed new guidance on the Act's criminal and civil enforcement provisions." There are many however, like Cato Institute's Walter Olson, who make the case that "clarification is not enough" advocating wider reform or even repeal.

Year-by-year SEC enforcement action statistics can be found here.

The National Association of Criminal Defense Lawyers released its new report Evaluating Grand Jury Reform in Two States: The Case for Reform featuring an in-depth analysis of grand jury reform in New York and Colorado. The podcast message from NACDL Executive Director Norman L. Reimer and the report are available on NACDL's website.

The key reform recommendations include:

(i) defense representation in the grand jury room, (ii) production of witness transcripts for the defense, (iii) advance notice for witnesses to appear, and (iv) the presentation of exculpatory evidence to the grand jury.
Copland on AGs

At a hearing in New York City on Wednesday, U.S. District Court Judge Jed S. Rakoff, the same judge who on Tuesday gave Raj Rajaratnam a record $92.8 million penalty in a civil insider-trading case, questioned the proposed $285 million settlement between the SEC and Citigroup for Citi's $1 billion mortgage-bond deal called Class V Funding III. During the hearing, Judge Rakoff was critical of the proposed settlement amount and an agreement where Citigroup does not deny or admit wrongdoing.

The case is SEC v. Citigroup Global Markets Inc, No. 11-07387 (S.D.N.Y).

In an opinion written by Judge Laurence Silberman, a Ronald Reagan appointee, a three-judge panel of the D.C. Circuit found the "individual mandate" of the Patient Protection and Affordable Care Act constitutional. While some view this opinion as an affirmation of the constitutionality of the President's health care legislation, others like Ashby Jones of the Wall Street Journal argue that impending Supreme Court review makes this decision less significant though potentially influential.

Judge Silberman wrote in the opinion:

We acknowledge some discomfort with the Government's failure to advance any clear doctrinal principles limiting congressional mandates that any American purchase any product or service in interstate commerce. But to tell the truth, those limits are not apparent to us, either because the power to require the entry into commerce is symmetrical with the power to prohibit or condition commercial behavior, or because we have not yet perceived a qualitative limitation. That difficulty is troubling, but not fatal, not least because we are interpreting the scope of a long-established constitutional power, not recognizing a new constitutional right. It suffices for this case to recognize, as noted earlier, that the health insurance market is a rather unique one, both because virtually everyone will enter or affect it, and because the uninsured inflict a disproportionate harm on the rest of the market as a result of their later consumption of health care services.

Judge Brett Kavanaugh, a George W. Bush appointee, dissented, but not on the merits, he wrote:

Between now and 2015, Congress might keep the mandate as is and the President may enforce it as is. If that happens, the federal courts would resolve the resulting constitutional case by our best lights and would not shy away from a necessary constitutional decision. But history tells us to cross that bridge only if and when we need to. Unlike the majority opinion, I would adhere to the text of the Anti-Injunction Act and leave these momentous constitutional issues for another day - a day that may never come.

The case is Susan Seven-Sky v. Holder, No. 11-5047, slip op. (D.C. Cir. Nov. 8, 2011).

"The Public-Union Albatross"

Jim Hood reelected

Mississippi attorney general Jim Hood won reelection in a landslide. Radley Balko tweets: "Mass corruption of state's justice system never an issue. Race was about $400 dinner at a steakhouse." And Balko is surely talking only about the criminal justice system there, not Hood's cozy relationship with trial lawyers where he delegates litigation to them that helps out the trial bar far more than taxpayers, or his carrying water for the now-convicted Dickie Scruggs's illegitimate litigation against insurance companies over Hurricane Katrina. [LNL]

The Hood reelection shows the problem of many states' constitutional structure. Mississippi voters have elected a governor, legislature, and high-court judiciary willing to restore the rule of law to the state and attempt to end its reputation as a judicial hellhole, but because trial lawyers control the office of a down-ballot executive branch race, the voters' will and true justice reform is hindered. Reform is needed.

Cain and sexual harassment charges II

Day 1: complain that accuser hired Gloria Allred. Day 2: hire Gary Condit's and Kobe Bryant's lawyer. Even if Herman Cain is in the right, this is not how you manage a crisis. Related. Earlier.

FCPA progress

In a Tuesday speech, Assistant Attorney General Lanny Breuer spoke against "weakening" the Foreign Corrupt Practices Act, but promised to release "detailed new guidance" in 2012. Lisa Rickard responded to welcome the potential clarification, but reiterated ILR's desire to see legislative modifications. [Reuters; earlier]

The Consumer Financial Protection Bureau, the highly controversial centerpiece of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is still struggling to assume its full regulatory authority. Without a confirmed director, the CFPB cannot extend its oversight to non-bank consumer lenders.

In response to criticism for withholding their confirmation, Republicans insist that "...the objection isn't to any particular nominee. Rather, the concern is with the lack of transparency and accountability at the CFPB."

In this case however, an objection to the particular nominee Richard Cordray may be warranted. Trial Lawyers Inc.: Attorneys General, a new report released by Manhattan Institute's Center for Legal Policy, identifies Cordray among the greatest allies to the plaintiffs' bar while serving as Ohio's Attorney General. In a separate article, James Copland, the author of this report and director of the Center for Legal Policy, cites $830,000 that Cordray received from out-of-state plaintiffs' firms while during his term parceling out at least six lawsuits on a contingency-fee basis.

Those Senate Republicans critical of the potentially broad and vague authority of the CFPB as evidenced by its 802 page regulatory manual would be justified in objecting to the appointment of a nominee with Cordray's record. The CFPB might very well be in need of reforms to its leadership structure, transparency and general authority, but, the unsuitability of a nominee for the director position is at the very least relevant to making the case for withholding a confirmation to that nominee.

In the meantime, the CFPB has certainly ramped up its efforts to convince the public and legislators of the severity of the gridlock in the Senate. Political opponents and critics however, seem to be unwilling to comply with the administration until their concerns are addressed.

U.S. District Judge Richard Leon stayed the implementation of a Federal requirement effective next year which mandates tobacco companies to put graphic images on their cigarette packages. Judge Leon blocked the requirement in order "to evaluate on merits the constitutionality of the commercial speech that these graphic images compel. "

"Although it is true that Congress mandated the new images to occupy the top 50% of the front and back panels of all cigarette packages and the top 20% of printed advertising, Act § 201(a) (amending 15 U.S.C. § 1333(a)(2),(b)(2)), and charged the FDA with implementing a final rule consistent with its mandate doing so does not enable this requirement to somehow automatically pass constitutional muster. Appropriating the top 50% of the front and back of all cigarette packages manufactured and distributed in the United States is hardly a directive narrowly designed to achieve the Government's purpose (whatever it might be). To the contrary, the dimensions alone strongly suggest that the Rule was designed to achieve the very objective articulated by the Secretary of Health and Human Services: to "rebrand[ ] our cigarette packs," treating (as the FDA Commissioner announced last year) "every single pack of cigarettes in our country" as a "mini-billboard. A "mini-billboard," indeed, for its obvious anti-smoking agenda!"

The case is R.J. Reynolds Tobacco Co. v. FDA, No. 11-1482 (RJL), slip op. (D.D.C. Nov. 7, 2011).

Ohio union vote

As Walter Olson notes, Ohio is likely today to overturn the public-sector-union reforms the Kasich administration achieved. But I'm similarly pessimistic about the persistence of what Governor Walker has achieved in Wisconsin.

The union special interests have a structural advantage that good-government types don't: the possibility of retroactively undoing the other's accomplishments. For all the political capital expended by Governor Walker in constraining union power over taxpayers, its effects are only prospective. But when the pendulum swings and union-beholden politicians are in the legislature and governor's seat, they can simply repeal these reforms—and worse, provide "makeup" benefits for those "lost" in the interregnum. This is not merely hypothetical: as Michael Greve notes, when Orange County (Orange County!) was able to use bankruptcy to reform its union pension problem in the 1990s, it took just seven years for politicians to agree to retroactively restore the lost benefits.

Unfortunately, the grass-roots movements on both sides of the political aisle—the Tea Party on the right, Occupy Wall Street on the left—are both asking for free ponies and show no inclination to make it easier for politicians to make the tough choices that could fix these problems. One worries that the problem will have to get much worse before it gets better; if so, it will be much more expensive to fix when a sudden run on T-bill interest rates spirals out of control.

Barber Auto Sales v. UPS

What's the class action attorney to do when they want to recover $4 million in fees, but the defendant is only willing to put up a settlement worth $6 million? Well, it's time to get creative: if you've brought a lawsuit alleging overcharges, construct an entirely imaginary $10 million fund to cover "future overcharges" and call that a $10-million class benefit—though it obviously costs the defendant nothing, since they only have to pay the money if they continue the allegedly wrongful overcharges in the first place, creating a new cause of action. Then shield the fee request by putting it in a separate fund that reverts to the defendant. Then ensure that you don't get any objections by making it inordinately expensive for any member of the national class who isn't local to the courthouse to participate in the fairness hearing. All of this is quite objectionable, and the Center for Class Action Fairness has objected on behalf of two clients. The case is Barber Auto Sales, Inc. v. United Parcel Service Co., Inc., No. 5:06-cv-04686-IPJ (N.D. Ala.).

An employee's revenge

Speaking of how easy it is for employees to bring profitable meritless claims against employers, the case of William Burch and Champion is fascinating. Champion, which makes air filters, fired Burch. Burch decided to sue for wrongful termination, and tried to make his case better by faking evidence of criminal price-fixing by backdating price-increase sheets. The falsified evidence has led to criminal investigations and class-action suits; Burch himself was able to settle his employment suit for $450,000.

Burch has since pled guilty, and was sentenced to two years for misleading prosecutors. But the lawyers who brought the bogus suit are still proceeding as if nothing has changed and are resisting motions to throw out the civil litigation. Nothing in Burch's sentence requires him to repay Champion. [Bloomberg via Schachter @ NY Post, who has nice things to say about me.]

Kentucky fen-phen scandal update

Corporate Counsel runs a thumb-sucker on the Stanley Chesley disbarring; his appeal is pending in the Kentucky Supreme Court. Meanwhile, the Kentucky Supreme Court has got around to permanently disbarring ex-Judge Joseph Bamberger and David Helmers, a junior attorney on the case, for their roles in the scandal. Earlier.

The featured discussion on the latest MI Trial Lawyers Inc. report has wrapped up: John Beisner, Amy Kjose, Victor Schwartz, Lisa Rickard, and Tiger Joyce participated.

Cain and sexual harassment charges

I wasn't a huge fan of Herman Cain last week: as the last three years have shown us, the presidency requires more than a lightly-experienced charming guy who can turn a pretty phrase. The sexual harassment allegations have lowered my opinion of Cain, though not so much because I think Cain engaged in flirting, but because someone running on his business experience is demonstrating that he isn't very good at crisis-management either.

I don't have the faintest idea whether Cain is guilty of sexual harassment two decades ago. As Curt Levey notes, the complaints that have been aired to date rise to the level of Clintonian flirting rather than something actionable, though that doesn't mean that there wasn't more to it than that. More importantly, the fact of a five-digit settlement (the story of this changes, but now it appears that it was a year's pay to a $35,000/year employee) indicates absolutely nothing. Kurt Schlichter has a good piece in the New York Post:

When you consider that, more than a decade ago, Herman Cain settled some unspecified sexual-harassment claims, you also need to consider that the only things you need to file a lawsuit are the filing fee and a printer. Facts are optional.

Maybe Cain did harass some employees. But the dirty little secret among lawyers that defend business people from lawsuits -- and among those lawyers who bring them -- is that an enormous percentage of such claims are frivolous, if not flat-out lies. ...

Lawsuits are so expensive to defend that it makes good business sense to settle even the most frivolous cases. And businesses do. ...

In the world of sexual-harassment law, the accusations are bad enough. You're guilty until proven innocent. The law is skewed toward the plaintiffs -- it's hard to get even the silliest charges tossed out, and even then it often costs upward of six figures to do so.

Businesses almost never collect their legal fees back after defeating frivolous claims, but a winning plaintiff usually does. And when the lawyer is working on a contingency, taking 40 percent or more of the haul and fronting the costs of the suit, there's little incentive not to march down to the courthouse and file even the flimsiest case.

Indeed, it is so easy to bring a profitable sexual harassment claim that it's frankly a testament to the sturdiness of our civil society that we don't see much more of them, true and false. That said, just as a payoff doesn't indicate a true sexual harassment claim, it doesn't indicate a false one, either.

I'll be debating Tom Geoghegan November 3 on this topic at Loyola University Chicago School of Law.

In the HP Inkjet Printer litigation, the plaintiffs negotiated $1.5 million in coupons and perfunctory injunctive relief. The attorneys asked for $2.9 million, as the settlement agreement allowed, and received $2.1 million, with the remainder reverting to the defendant. The Center for Class Action Fairness objects all around to this on appeal. Is it appropriate to negotiate a settlement that benefits the attorneys more than the class, while attempting to shield the fees with a clear-sailing clause? Can settling parties bait-and-switch class members with class notice that tricks them into misfiling their objections and then hiding those objections from the judge? How should a court evaluate prospective injunctive relief that benefits only future customers and has no provision forbidding the defendant from raising prices to offset the cost of the changed business practices?

This coupon settlement was particularly pernicious, because of the restrictions on the low-dollar coupons, which were only usable at HP.com. Any class member using a coupon would not only increase HP's profits (because they'd be selling goods with the retail markup instead of at wholesale), but cost themselves money (because HP's list prices are substantially higher than other Internet vendors, or even brick-and-mortar vendors).

Lobbying expenditures

OpenSecrets.org released its list of third-quarter lobbying expenditures, noting which industries spent the most on lobbying.

Unfortunately, a critical variable is missing that makes the list largely meaningless.

Lobbying expenditures may reflect a special interest's wish for special treatment. But it frequently, and perhaps at least as often, reflects an attempt to avoid being on the agenda. Congressmen know this, and call for lawmaking affecting industries that spend on lobbying. There's a lot of churn in Washington that reflects politician rent-seeking rather than corporate rent-seeking. One cannot tell from a list of lobbying expenditures who's victimizing with manipulative legislative favors or being victimized by being forced to pay protection money to avoid unfair government regulation.

Relatedly, Tyler Cowen notes a pharmaceutical industry agreement to pay $300 million to the FDA to bolster inspections and speed drug applications. The New York Times views this as industry wanting more regulation and "an extraordinary vote of confidence in the government's ability to improve the situation" when it really reflects the disastrous effect of government regulation that forces the industry to spend more to avoid even greater costs of delay. That's a wealth transfer from productive sectors of the economy to government bureaucrats, at the expense of patients.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.