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February 2012 Archives


Stephen F. Smith, Professor of Law at the University of Notre Dame, authored an interesting piece published on The Online Library of Law and Liberty blog. In his commentary which reflected on Harvard Law School's Professor William J. Stuntz's criminal law scholarship, Professor Smith conveyed the growing concerns surrounding our ever-expanding criminal justice system.

The ever-growing body of criminal law that this political dynamic generates is more far-reaching in scope than most citizens comprehend. Many criminal laws are aimed at conduct that is not dangerous to others (such as "morals offenses" and other "victimless" crimes) or inherently wrongful (such as regulatory offenses that punish unintentional violations of technical, if not obscure, administrative regulations). Even when new criminal legislation is aimed at dangerous conduct, the legislative goal typically is not to define the precise conduct that threatens the public safety. Instead, the goal is to confer on law enforcement as much power as possible over the area in question and to make it easy for prosecutors to convict those few they select for prosecution from the considerably larger universe of offenders.


The result, as Stuntz famously put it elsewhere, is modern criminal codes that "cover everything and decide nothing." To put it differently, it is not the criminal law today that determines what conduct merits punishment. That all-important determination is punted to politically accountable prosecutors, who are unique in our system in having enormous, virtually unchecked power over the lives, liberty, and property of citizens. Once prosecutors have decided to pursue criminal charges, it is overwhelmingly likely that the accused will be convicted - so much so, in fact, that the vast majority of persons accused of crimes (well in excess of ninety percent) plead guilty rather than take their chances at trial. The small share who do insist on holding the state to its burden of proof almost always end up convicted anyway, receiving worse sentences than they would have had they waived their rights and pled guilty on the prosecutor's terms.

EPA carbon dioxide rules in DC Circuit

This very moment, lawyers are arguing (or preparing to argue)

a raft of cases challenging the Environmental Protection Agency's rules on the regulation of carbon dioxide (CO2) and other greenhouse gases (GHG). In its scope and consequences, the EPA's climate change program exceeds even ObamaCare and Dodd-Frank: it threatens to engulf any firm, facility, and product that emits CO2 above minimal threshold amounts. However, the EPA's program in this case does not rest on a 2,000-page enactment by a temporarily deranged Congress, nor even on a unilateral bureaucratic power grab. Rather, it proceeds, with seeming and depressing inexorability, from a series of crabbed and tendentious judicial and administrative interpretations of a few stray provisions in the Clean Air Act (CAA)--a statute that long pre-dates the climate change crisis or obsession (take your pick) and, by uniform consensus, is designed to tackle local air pollution, not a global calamity.

Must read posts from Michael Greve (also Part II) and Jonathan Adler.

$2.7 billion nanny-state regulation

Speaking of the auto industry, Amy Alkon points us to a proposed NHTSA rule that would add $2.7 billion to the price of automobiles to make it slightly less likely that careless parents will back over their children: mandatory rear-view cameras. Of course, even without the NHTSA regulation, it's only a matter of time before product liability lawyers allege that the failure to include such cameras is a defect and that auto manufacturers should be assessed punitive damages for failing to prevent a bad driver from backing over his or her child.

Romney is right about the auto bailout

Mitt Romney is fairly accused of clumsy pandering. But, as Michigan primary voters go to the polls today, it is worth noting that he is refusing to pander on the question of the propriety of the bailout of GM and Chrysler. Though the bailout is popular is Michigan, it will make auto workers worse off in the long-term (and unfairly affects Ford, which also employs lots of Michigan auto workers). Todd Zywicki's analysis is worth rereading. For more detail about the disingenuous bankruptcy court opinion permitting the unfair treatment of the Chrysler senior creditors, see Mark Roe and David Skeel in the Michigan Law Review:

Chrysler entered and exited bankruptcy in 42 days, making it one of the fastest major industrial bankruptcies in memory. It entered as a company widely thought to be ripe for liquidation if left on its own, obtained massive funding from the United States Treasury, and exited via a pseudo sale of its main assets to a new government-funded entity. The unevenness of the compensation to prior creditors raised considerable concerns in capital markets, which we evaluate here. We conclude that the Chrysler bankruptcy cannot be understood as complying with good bankruptcy practice, that it resurrected discredited practices long thought interred in the 19th and early 20th century equity receiverships, and that its potential, if followed, for disrupting financial markets surrounding troubled companies in difficult economic times is more than small.

Bad typography evidence of bad faith?

In Dewey v. Volkswagen, the parties negotiated and the district court approved a settlement that gives wildly different relief to identically situated class members with the same injury in the same class. This violates Supreme Court and Third Circuit precedent, which makes reversal likely. What's a class counsel to do? Make up new precedent! After talking the clerk's office into letting them include a sur-reply to the lead appeal's reply brief in their cross-appeal's reply brief, class counsel invented a quote in a recent Third Circuit en banc decision that, if accurate, would have all but dictated affirmance in this case.

The Center for Class Action Fairness (not affiliated with the Manhattan Institute) noticed the fictional quote, which required literary creativity rather than mere mistyping, and invited class counsel to do the honorable thing and withdraw the brief. Remarkably, they refused, so we have moved for sanctions, given class counsel's previous misrepresentations in the case and the evidence of bad faith in this particular misquote. (I'd be curious to see what Matthew Butterick thinks of the typographical smoking gun, identified on page 5 of the brief seeking sanctions.)

Relatedly, a friend with a much better memory reminds me of the entertaining Judge Easterbrook opinion in Rumsavich v. Borislow, where bad typography doomed the plaintiff's attempt to use a forged document. Rumsavich himself eventually was sentenced to a jail term.



Professor Julian Ku of Hofstra Law School and Professor David Weissbrodt, the Regents Professor and Fredrikson & Byron Professor of Law at the University of Minnesota Law School, discuss the extent to which companies can be sued by foreigners in U.S. courts for alleged human rights abuses abroad, at issue in the Kiobel v. Royal Dutch Petroleum case currently before the Supreme Court with oral arguments scheduled to be heard tomorrow. This installment of Point of Law's monthly featured discussions was deliberately scheduled to generate quick-time analysis and reaction to the Kiobel case shortly after it is argued in the courtroom.


Professor Ku's opening comment neatly summarized the major arguments on both sides of the central issue in Kiobel. Professor Ku then discussed the "unattractive" argument against corporate liability, yet concluded that this argument, while unattractive and unpopular, is persuasive and probably correct, citing the strong presumption that "international law doesn't impose duties directly on corporate entities after all." The featured discussion promises to be lively and thoughtful; please check back throughout the week as the discussion continues.

Stella Liebeck anniversary

Twenty years ago today, Stella Liebeck spilled hot McDonald's coffee on herself, and trial lawyers and their allies are still defending the idiosyncratic and absurd multi-million verdict allowing her to collect for her own accident. Thankfully, that case remains an outlier, and Starbucks, Dunkin' Donuts, Burger King, Wendy's, home brewing systems, and, yes, McDonald's, have not let the risk of customers' clumsiness keep them from continuing to serve coffee at the same (or even higher) temperatures than they did twenty years ago, to the benefit of the billions of times consumers buy coffee at the temperatures they prefer. Here's a court that got it right.

Suffolk County DA slush fund?

As part of a settlement of a criminal investigation against questionable fund-raising where there were allegations that government contracts were traded for political contributions, Suffolk County Chief Executive Steve Levy resigned and turned over his more-than-$4 million campaign fund to the Suffolk County District Attorney's office. "Some Levy donors asked for their money back, but not all of his campaign cash has been claimed." The rest goes back to taxpayers, then, right? Not according to DA Thomas Spota, who has been using the proceeds as his own personal slush fund. It's not clear what legislative or constitutional authority permits that sort of spending. It may exist, but I couldn't find it: County Law ยง700(2) implies that the money is to be given to the county treasurer, and not kept within the DA's office to distribute. It's especially questionable if the DA is personally benefiting from a discretionary decision to settle the case given that there are those who believe that Levy escaped serious consequences. A left-wing blog gloats that the disgraced anti-immigration politician is now indirectly funding an immigration rights group, but doesn't raise questions why Spota is allowed to promote his own political career by giving government money to his political allies—isn't that pretty close to what Levy just got prosecuted for? I have an inquiry in to the Suffolk County's office asking for an explanation, and will update if they respond.

Update on California foreign policy efforts

In 2009, we noted that the Ninth Circuit rejected a California law that purported to permit lawsuits against insurers over the Ottoman genocide of Armenians. (That decision came too late for some insurers, who gave in to the legal extortion and funded cy pres slush funds that have since become the subject of collateral litigation.) Since then, California has renewed the law, permitting these suits to be brought until 2016, but last week, the Ninth Circuit, sitting en banc, unanimously reconfirmed its decision that the move was outside of appropriate insurance regulation.

PR efforts in atrazine litigation

A year ago, a Madison County judge in the meritless atrazine litigation unsealed PR documents that showed, heaven forfend, that the defendants were exercising their First Amendment rights to defend themselves against false accusations. Now there's evidence that, surprise, surprise, the plaintiffs are doing the same thing they pearl-clutched about when the defendants did it, though one doubts the judge will let defendants conduct discovery on the Center for Media and Democracy or who leaked documents to them. But as Ed Murnane and Tiger Joyce ask, "why would Madison County judges ignore overwhelming science and favor the plaintiffs when so many of the county's tax-paying residents earn their livelihoods in conventional agriculture?"


"Xavier Alvarez lied." So begins Mr. Alvarez's own brief -- which also notes that he has been called a "phony," an "idiot," a "jerk" and the "ultimate slime" -- in a case being argued today before the United States Supreme Court. Fortunately for Mr. Alvarez, the question before the Court is not whether he lied, but the extent to which the federal government can criminalize lies. In 2007, Alvarez falsely introduced himself at a public meeting as a former Marine and recipient of the Medal of Honor. Alvarez's lies were quickly exposed, but federal prosecutors indicted him under the Stolen Valor Act of 2005, which provides criminal penalties for false claims of receipt of military medals, with an enhanced penalty (up to a year in prison) for falsely claiming to have received the Medal of Honor.

Alvarez was convicted, but the Ninth Circuit reversed, holding that the Act violates the First Amendment. The government claims that the Act serves an "important" interest: preserving the integrity and credibility of the military medals program. Critics of the Act, however, note its startling breadth -- it requires no showing that anyone was deceived or otherwise harmed by the misrepresentation, and makes no exception for satire, parody or other misrepresentations made in works of art. The Supreme Court has held that "there is no constitutional value in false statements of facts," but it did so in establishing the limits of civil tort liability for defamation. By contrast, criminalizing false statements like Alvarez's threatens to establish a federal "truth police" with the power to punish "idiots" and "jerks," simply for being so. The military's medal program has survived for more than 200 years without the protection of the Stolen Valor Act, and the Court should find the Act unconstitutional.

Apple class actions

Atlantic reporter Rebecca Greenfield complains about meaningless relief in Apple class actions, but fails to understand that these particular class actions are brought for the benefit of the attorneys rather than the clients. [via Overlawyered]

MI's own Marie Gryphon, represented by me and Dan Greenberg, has filed an objection to the Magsafe settlement. (This objection is not done on behalf of the Manhattan Institute.) In its opposition to the objections lawyers for defendant Apple falsely accuses me of being opposed to all class actions, and argues that the court should discount Marie's objection because she works for the Cato Institute [sic]. General counsels take note: add Morrison & Foerster to the list of law firms who make arguments (and pretty stupid arguments at that) against their clients' long-term interests in the hopes of momentary advantage.


In a successful federal class action against AT&T, the class was about six million members, but only 6,961 people filed claims on the $10.2 million fund after $500,000 in advertising. The lawyers have already been paid $6.2 million, or nearly 38% of the common fund. At least the settlement was structured so that it's the claimants who get most of the windfall rather than unrelated third-party charities. But heaven forfend they use actual AT&T customer lists. The attorneys say that doing so would have cost $2 million (an implausible claim), but even that would have resulted in more money in the class's pockets. And the attorneys didn't have any compunction in asking for an extra $2 million for themselves above the 25% benchmark at the class's expense. [SF Chronicle via @Russell_Jackson]

Around the web, February 21

  • Loser pays bills pending in New Hampshire and Tennessee. [Torts Prof]
  • Plaintiffs rely on fraud-on-the-market theory to get class certification in securities case, but, when it comes to avoiding summary judgment, rely on expert who contradicts the theory. Federal judge correctly doesn't buy it. [Roberts]

  • Richard Epstein on health-care markets. [Kirkendall]
  • Unseatbelted teenager dies when falling out of moving car while vomiting; mother and Maryland AG blame Four Loko; press uses photo of boy when he was eleven. [Baltimore Sun via WTOP]
  • Buried lede: federal government hounds 62-year-old to suicide for regulatory infractions. [NYT]
  • Don't try to open a business in San Francisco unless you're already rich. [Wright]
  • Accusation: paternalistic federal prosecutors lax in charging crimes on Indian reservations. Native Americans should be given more self-governance rights. [NYT]
  • A year after Tucson, real-world effects of Koch demonization by Left. Only coverage is local. [Wichita Eagle]
  • What media bias? Double-standards for Santorum. I'm not a Santorum fan (a big-government social conservative is the worst of all possible worlds to me), but I don't understand why he can't be treated fairly. [WSJ]
  • California's demographic revolution. [Mac Donald @ City Journal]


Teenager Donny Nuckel's parents were away for the weekend, and he decided to hold an unsupervised party for his Saddle River, New Jersey, friends. It wasn't at the level of Project X, but one of those party guests was a former employee of Harding Pharmacy: instead of chips, he brought along some Xanax he stole from his employer, which he passed along to another guest, then-17-year-old Scott Simon, who promptly overdosed and went into a coma. The other guests didn't bother to call an ambulance right away, and Simon suffered permanent nerve damage, which his lawyers allege would not have been permanent if he had been rushed to the hospital sooner.

So: to be straight, Simon took and overdosed on illegal drugs, given to him by someone who stole them and then failed to help him. Those are the two most culpable people, right?

Not in the New Jersey justice system, which rewards seeking out peripherally involved deep pockets and threatening them with the risk of jackpot justice. The Nuckel home is, according to Zillow, a 7000-square-foot affair worth over $2 million, so the Nuckels were sued, Donny for throwing the party, mom Linda for letting the party happen (presumably she was supposed to hire a babysitter or chain Donny up in a kennel). But Simon didn't stop there: he sued the other party guests; he sued Harding Pharmacy for letting the drugs be stolen; I'm told by a reporter that he even sued the maker of Xanax. (The last, again according to the reporter, has been dismissed, with the case on appeal.)

The others have settled. Simon gets $4.1 million, the lion's share from the deep pockets who at best have tertiary responsibility: $1.9 million from victim Harding Pharmacy, who surely didn't want its former employees to be stealing drugs, and $1.2 million from the Nuckels. I'm quoted in the FoxNews.com coverage, which emphasizes the unrelated Whitney Houston investigation into her pharmacies for hit-trolling reasons. More at NorthJersey.com.


Yesterday I argued the Cobell v. Salazar case in the DC Circuit. The Seventh and Ninth Circuits make their oral arguments available over the web, so I was surprised and disappointed to find that the DC Circuit does not. You'll have to settle for coverage from Indian Country Today and BLT. The case is under submission.


Resuming Point of Law blogging after a hiatus*, we return to reporting on the most under-covered lobbying outfit in D.C. and the nation, the American Association for Justice, i.e., the trial lawyers.

The AAJ concludes its winter convention in Phoenix at the Biltmore Report and Spa today, a four-day event held under the Orwellian-sounding theme, "Strength in Knowledge, Power from Networking, United for Justice." The choice of Arizona - with its retrograde immigration policies - obviously gave some members heartburn, but it's OK, they were assured:

The state law has been eviscerated in court decisions. Rather than continue to punish Arizona citizens, including the many Latino low-wage workers who depend upon tourist business for their livelihoods, Latino leaders in Arizona are uniformly asking for meetings to resume and people to visit Arizona. We at AAJ are locked into a hotel contract that requires a major penalty for canceling the convention. While we considered doing so, the penalty we face and subsequent actions by Latino leaders asking that we not boycott Arizona resulted in AAJ's decision to go forward with the convention in Arizona and to have a major focus on immigration as a part of the convention.

(Speaking of boycotts and "eviscerated laws": In 2009, the AAJ relocated its summer convention from the Manchester Grand Hyatt in San Diego because the owner, Doug Manchester, had donated $125,000 to Proposition 8, the constitutional amendment to prohibit same-sex marriage, prompting a boycott of the hotel.) 

Erwin Chemerinsky, founding dean of the University of California, Irvine School of Law, did give a talk on how to overturn state immigration laws like Arizona's SB 1070, and there was a "Hot Topics" set of presentations on "Fighting for Justice in the Courts and in the Courtroom,  with class action lawsuits and immigration among the issues. (Full conference agenda, .pdf'ed.)


Given the tenor of the debate surrounding the recently introduced Stop Trading on Congressional Knowledge ("STOCK") Act of 2012, it seems to be logical to assume that opponents of the "public corruption amendment" to the STOCK Act either support public corruption or do not view it as an insidious crime that warrants vigorous enforcement. It is perhaps the contemplation of that intuitively erroneous assumption that triggers the recognition of a noticeable pattern with regard to the manner in which House Majority Leader Eric Cantor's recent attempt to remedy the STOCK Act, by removing S.AMDT. 1483, the Leahy-Cornyn Amendment (also known as the "public corruption amendment") has been portrayed by proponents of that amendment and in the media. The reasoning for the resistance against the inclusion of the "public corruption amendment" as expressed by Rep. Cantor and others in opposition has been given short shrift if addressed at all.

There has been no mention of the troubling phenomenon collectively dubbed by many public officials and policy organizations on both sides of the aisle as overcriminalization, in which "regulatory transgressions and other conduct is transformed into criminal offenses by legislators eager to prove they are 'tough on crime,' abetted by courts that fail to enforce necessary limits on prosecutors' efforts to expand the scope of 'criminal' conduct. It is in fact the concern for this alarming trend, in light of the 4,450 federal crimes enumerated across 50 titles of the U.S. Code and estimated 10,000-300,000 regulations that authorize criminal enforcement, that has driven staunch opposition against the inclusion of the "public corruption amendment" to the STOCK Act.


The Lacey Act, enacted in 1900, prohibits the interstate transportation of wildlife or plants obtained in violation of federal, state or foreign laws. The statute received attention recently when Gibson Guitars was raided by federal agents for allegedly importing ebony and rosewood in violation of the laws of India and Madagascar. In 2001, several Alabama fishermen were sentenced to eight years in prison for importing lobster in violation of Honduran regulations, even though the Honduran Attorney General stated that the regulations were invalid. Last week, Kentucky Senator Rand Paul introduced S. 2062, the Freedom from Over-Criminalization and Unjust Seizures ("FOCUS") Act of 2012, to address the Lacey Act's "broad overcriminalization." The FOCUS Act would replace the Lacey Act's criminal penalties with a civil penalty system. It would also strike from the Act all references to "foreign law."

Sioux sue

The Oglala Sioux tribe in the Pine Ridge Indian Reservation in the southwest corner of South Dakota say they have an alcoholism problem; one out of four infants born suffer from fetal alcohol syndrome. So they've attempted regulations to keep the reservation dry, but that just creates an alcohol smuggling problem in addition to the alcoholism problem; in any event, any Indians wanting to drink can just go across the border to Nebraska. (Just as there are fireworks stores lying on the other side of state lines, and many casinos on the California-Nevada border, a small town of twelve on the Nebraska-South Dakota border is home to four beer stores.) This is, the tribe says in a $500 million lawsuit, not the fault of the Indians who keep drinking, or the Indians who smuggle alcohol into the reservation, but the fault of the major beer manufacturers and the Nebraska beer stores. How it is these companies' responsibility to prevent the legal sale of beer is beyond me; are they supposed to engage in racial profiling at the checkout counter? Refuse to sell to vendors near dry areas?

The case is Oglala Sioux Tribe v. Schwarting, No. 4:12-cv-03027-JMG-CRZ (D. Neb.). The attorneys are the named partners of the White, Jorgenson firm in Omaha, who are doing their clients a disservice if they are not taking this case on a contingent basis (and merely doing themselves and society a disservice if they are). I've posted the complaint online.

Hot coffee can cause burns at home, too

1.7 million Tassimo coffee brewers are being recalled after several dozen incidents where the "T-cups" burst open and caused second-degree burns. Note the distinction between a product-liability case like Tassimo (where the allegation would be that a design defect causes hot coffee to spill on people) and one like Stella Liebeck's (where she alleged that any coffee that could potentially cause burns was defective because she spilled it on herself). Note also that the existence of the Tassimo burn cases refutes the very notion in the McDonald's case that it is unusual for coffee to be hot enough to cause hospitalizations.

Global warming lawsuits and insurance

There have been a variety of meritless lawsuits against power companies on a theory that power companies contributed to global warming, global warming contributes to property damage, therefore power companies are liable. Randy Maniloff discusses the case of AES Corp. v. Steadfast Ins. Co., 715 S.E.2d 28 (Va. 2011), where a power company (now joined by a state trial lawyers association on a motion for rehearing) unsuccessfully argued that these lawsuits created a duty to defend from its liability insurer.


In a 2-1 split decision, a panel of the U.S. Court of Appeals for the Ninth Circuit found that California's 2008 law known as Proposition 8, a voter-determined ban on same-sex marriage in California, violated the equal protection clause of the Fourteenth Amendment. Judge Stephen Reinhardt's 89-page opinion is almost certain to be challenged via either an appeal for en-banc review or a petition for a writ of certiorari.

Do you think the 9th Circuit got it right? Let us know on Twitter @pointoflaw.


Kenneth R. Feinberg, partner and founder of Feinberg Rozen and administrator of the government's two outside-the-courts victims' compensation funds for September 11 and the BP Deepwater spill discusses mass injuries and alternative dispute resolution in the American legal system. Manhattan Institute's Center for Legal Policy also hosted an event featuring Mr. Feinberg which allowed for a more extended and comprehensive discussion of ADR and modern mass litigation.

In a new podcast, Steven Malanga, Manhattan Institute senior fellow and City Journal's senior editor, discusses his recent City Journal article "The Court That Broke Jersey" which argues among other things that "the state's activist judiciary has forced taxpayers to finance unprecedented educational and housing regimes."


A website owner plans to make a lot of money by renting out its well-situated domain names to asbestos plaintiffs' firms. The existence of the market demonstrates the effective cartelization of asbestos plaintiffs' practice: if asbestos firms competed on price, instead of consistently overcharging clients with riskless "contingency" fees, there would be no incentive for third parties to try to grab a share of the rent-seeking through the race to elbow one's way to the top of the search results for asbestos litigation websites. (See also the phenomenon of "chicken catchers" and "chicken pluckers.") Money that should end up in injured plaintiffs' pockets is instead finding its way into website-owners' pockets, via lawyers' excessive fees. I'm quoted in the LNL coverage. Earlier on POL.


I've noted before that one of the things that's surprised me most about my practice with the Center for Class Action Fairness (which, as always, is not affiliated with the Manhattan Institute) is how often law firms representing defendants will seek to lose the war to win exceedingly tiny battles at the long-term disadvantage of all of their corporate clients, including the one in the case.

Herzfeld & Rubin represents a number of Fortune 500 clients, including Volkswagen. For reasons that remain utterly inexplicable to me, they negotiated a settlement that arbitrarily excluded a million vehicles in the settlement class from receiving any pecuniary relief, while other class members were entitled to reimbursements of over $1000. My clients objected to the illegal intra-class disparities in the distribution, and, though VW should hypothetically be economically indifferent as to which class members receive which relief from a settlement fund they've already committed to pay, they've spent a lot of VW's money defending that distribution tooth and nail. We've argued that it made no sense to treat identically situated vehicles in a single settlement class differently: if a 1997 Audi and a 2009 Touareg are in the same class with the same claim and the same damages, there's no reason that the owner of the older Audi should get full reimbursement while the Touareg owner gets nothing. This isn't some odd right-wing ideological view of class actions; Public Citizen takes the same position about the same settlement. And if the argument is that it's okay to treat the uncertified "subclasses" differently because they're differently situated and have different individualized chances of success at trial, then there is obviously a Rule 23(a)(2) commonality problem that should preclude certification of the single settlement class.

This week, Herzfeld & Rubin has filed a brief defending the settlement by asking the Third Circuit to essentially eviscerate the Wal-Mart v. Dukes commonality requirements. Why would a defense law firm ask a court to take such a position ultimately so harmful to defendants' rights? Set aside an abusive personal attack that they made on me by name in an earlier appellate brief. Set aside that Sullivan v. DB Investments questionably narrowed Wal-Mart and other Supreme Court precedent: Herzfeld & Rubin is asking the court to make a questionable extension of Sullivan, a case that actually supports reversal. It would be one thing if this was just myopia of seeking a short-term result against long-term interests, but CCAF's argument against the settlement is largely irrelevant to VW's bottom line in this one case. It's a question of whether class members will get reimbursed or whether there will be leftover money in the settlement fund that will go to an unrelated charity some time in 2015; at worst to Volkswagen, a reversal will result in a wealth transfer from 1997 Audi owners to 2009 Touareg owners, and VW will, for interests of customer relations, make up the difference to Audi owners out of its own pocket. This is just seeking Pyrrhic victory for the sake of Pyrrhic victory: a notch in defense counsel's belt at the expense of their clients. And, of course, elimination of the commonality requirement is good for class-action defense firms, if not their clients.

Perhaps the fault is that of a general counsel who doesn't want to have to explain to his boss that a settlement needs to be renegotiated. But corporations are ill-served if their general counsels are not doing long-term strategic thinking. And they're worse served if their defense counsel is looking out for its own mercenary interests rather than the long-term interests of its clients.

Recess appointments debate complete

On January 23, Jason Mazzone, Gerald Baylin Professor of Law at Brooklyn Law School and Andrew M. Grossman, visiting legal fellow in The Heritage Foundation's Center for Legal and Judicial Studies and litigator at Baker & Hostetler, debated the constitutionality of President Obama's invocation of executive recess appointment authority to appoint the first director of the new Consumer Financial Protection Bureau and three new members of the National Labor Relations Board.

Professor Mazzone articulated a unique national-security argument in defense of the President's recent use of the Recess Appointments Clause, stating:

The Constitution is a document for times of war as well as times of peace. Many of the Constitution's provisions are explicitly directed at matters of national security; many other provisions serve a security function. The President's "Power to fill up all Vacancies that may happen during the Recess of the Senate" is a power that plays an important national security role by ensuring that even in times of war or other national crises high-level governmental offices remain staffed and functional. The power is located in section 2 of Article II of the Constitution, along with other presidential powers (to act as Commander in Chief, to make Treaties, to appoint Ambassadors, public Ministers and Consuls) that secure the nation. Early interpreters of the power emphasized its security role. For example, in 1823, Attorney General William Wirt, invoking military analogies, explained that were the President dependent upon the resumption of the Senate, a vacancy could "paralyze a whole line of action in some essential branch of our internal police."


Allowing the Senate to block presidential use of the appointment power with pro-forma sessions (the equivalent of an "In Session" sign on the door of a vacant chamber) would have grave security implications. In assessing President Obama's recent use of the power, we should ask about the scenario that is at the heart of the Recess Appointments Clause.

The Carlyle IPO

Years ago, Harvard Law professor Hal Scott suggested that New York financial markets could regain competitiveness by permitting securities issuers to opt out of the enormously wasteful securities litigation scam, whereby, on average, diversified shareholders had money transferred from the left-hand pocket to the right-hand pocket with enormous commissions taken by plaintiffs' and defense attorneys.

This year, privately-held Carlyle suggested it might make good on the idea with its IPO, which had a mandatory arbitration clause for such disputes. The SEC had previously, without much legal authority, blocked a less-restrictive arbitration clause in an IPO in the 1980s by Franklin First Financial, but Carlyle is deep-pocketed enough to have defended itself against the now Democratic-dominated regulators, which, indeed apparently opposed.

Shareholders who think class actions are good things can invest in one of the thousands of other securities out there; those who think class actions divert shareholder resources to attorneys now have a new, improved, investment option. Let the market decide which type of stock should trade at a premium and which at a discount. Even if trial-lawyer-controlled unions and pension funds boycotted the IPO, it shouldn't be enough by itself to depress the stock price, and would have had the side benefit of fewer frivolous proxy fights. (Moreover, Carlyle was to be a limited partnership, rather than a corporation, even further reducing the issue of fiduciary duties.)

Given that the DOJ's and SEC's criminal and civil penalties still applied, and such penalties are sufficiently draconian as to already create principal-agent problems between officers, directors, and shareholders, and given that well over 90% of meritorious civil securities litigation is simply piling on existing public disclosures, it's hard to say what permitting parasitical—or worse, meritless—civil litigation adds to investor benefit. One would thus expect Carlyle stock to trade at a premium: the boom in the Rule 144A private market suggests how beneficial it is for business entities to avoid the additional marginal litigation and regulation expense. See also Susan Beck.

But the litigation lobby was not satisfied with the simple possibility of letting investors have choice: only through monopoly power would investors willingly continue to let billions of dollars a year be unfairly siphoned into trial lawyers' pockets. Their water-carriers in Congress and the press spoke out loudly against the offering, and Carlyle has since backed down. AAJ declared victory, and Professor Stephen Bainbridge is understandably upset at being misquoted: but given that the trial-lawyer lobby was dishonest in getting the arbitration clause struck down, one can hardly be surprised that they continue to be dishonest afterwards.

Separately, strike another nail in the coffin for Professor Fitzpatrick's theory that the Supreme Court's recent jurisprudence will lead to the death of class actions.

It would be interesting to see which pension fund decision-makers with both ties to trial lawyers and fiduciary duties to fund participants lobbied against the clause; it would be entertaining if a fundholder brought a derivative suit on the issue. After all, such litigation is always a good, right?


Paul R. Enzinna, partner at Brown Rudnick, lends his extensive expertise in white collar criminal defense to discuss, in a new PoL column, the federal court's expansive interpretation of "honest services" fraud in the Kevin Ring trial and most importantly, the potential implications such expansive interpretation may have in relation to traditional American business relationships.

Mr. Enzinna writes:

Jim invites Pam, an employee of a potential customer, to lunch. Over the next several years, during which Jim and Pam enjoy dozens of lunches and dinners, and Jim treats Pam to many rounds of golf, Pam's company becomes one of Jim's biggest customers. None of this is extraordinary -- most, if not all, businesses, entertain customers in the hope of developing business. However, a recent decision by the U.S. District Court for the District of Columbia threatens to criminalize this practice. In United States v. Ring, the court held that an individual who provides a "thing of value" to another, with the "corrupt intent to influence" her, may face up to 20 years in prison for violating the federal "honest services fraud" statute.
Mr. Enzinna anticipates regular contribution to PoL's commentary on the topic collectively dubbed "overcriminalization," so we can look forward to additional thought-provoking and important input in the near future.

So, the attorneys got $2.7 million; as-yet-unidentified charities will get $0.4 million; and the class will get a money-back guarantee useful only to those class members who happen to save two-year-old diaper packaging and receipts and didn't previously request refunds. (Leave aside that the money-back guarantee is indistinguishable from the marketing campaigns P&G uses to sell Swiffer and Fixodent without the requirement of an injunction.) Can such a settlement be approved as fair? Moreover, can this lawsuit brought for monetary damages it be approved as a Rule 23(b)(2) mandatory class action settlement? And can the class sweep in people who happened to purchase diapers for the first time after the objection deadline? The appellate brief filed by the Center for Class Action Fairness yesterday says "No" to all three questions.

Behind the paywall

A couple of recent media appearances behind the paywall:


You may recall that Brian Fitzpatrick had argued that AT&T Mobility v. Concepcion augured the death of class actions, and I disagreed. (Our October 26 Federalist Society debate, where I noted that Concepcion was predicated on the unique features of the Nagareda-designed arbitration clause, does not seem to be online.)

Wednesday, the Second Circuit, in a 2-0 decision (the case was so old that Justice Sotomayor was on the panel that heard oral argument), held that Concepcion did not require them to enforce Amex's arbitration agreement with its merchants given that agreement's class action waiver, because the underlying dispute was a matter of federal antitrust law, which, the court held, would be impossible to vindicate on an individual basis in this particular instance. The result, the Second Circuit said, was unconscionable. [In re Amex Merchants' Litigation]


Employees at the private Children's Manor Montessori School use latex gloves to change diapers. This dissatisfied Lisa Meade, who suffers from a latex allergy that she thought would prevent her from visiting a room where the latex gloves had been used. (In fact, she never even had an allergic reaction that so much as required her to use her inhaler at the school.) The school agreed to use different gloves to change her son's diaper, and to let Meade pick up her son without visiting the main classroom, but Meade wanted the school to change its glove supplier and buy more expensive gloves. The school kicked her son out because of the dispute, and Meade sued under local disability laws. She won a judgment of about $30 thousand (most of which was attorneys' fees) from a jury; an intermediate court reversed in 2008, and, last week, in a 4-3 decision, the Court of Appeals of Maryland reinstated the decision on the theory that "remedial statutes" deserve "liberal interpretation," and the allergy constituted a "handicap," notwithstanding federal precedent to the contrary. In other words, once a legislature acts, a court may expand the rights created. Judge Easterbrook has correctly criticized that approach. As the dissent notes, if the decision is taken literally, a person with perfume allergies can bar a department store from giving out samples. And one wonders what accommodations a person with a fear of flying could require. [Meade v. Shangri-La Partnership (Md. 2012); Legal Newsline]

What media bias? Freddie Mac edition

To its credit, Southern California Public Radio rounds up the blog criticism of a shoddy ProPublica report on Freddie Mac investments that I also critiqued in my KPCC appearance. One argument neither I nor the roundup mentions: selling off the less-risky elements of the mortgage derivatives and keeping the riskier elements for itself, Freddie Mac is (for better or worse) promoting homeownership by absorbing some of the risk of investing in mortgages, thus propping up housing prices by making more money available for lending. Of course, we'd be better off without this distorting intervention in the housing market: the ProPublica report is not wrong for criticizing Freddie Mac, but is criticizing Freddie Mac for the wrong reason. And its call for taxpayer subsidies to homeowners with bad credit would just make things worse.

"Porsche girl" lawsuit update

In 2010, we reported:

Within fifteen minutes of 18-year-old Nikki Catsouras stealing her father's Porsche, she (perhaps under the influence of cocaine) decapitated herself when she smashed into a California State Route 241 tollbooth at 100 mph. Two California Highway Patrol officers released some of the accident photos (as they often do to emphasize the horrific consequences of unsafe driving), some Internet ghouls were less than polite about them, and now Catsouras's wealthy family wants $20 million from California taxpayers for the release of the public records—and a California appellate court has permitted the case to proceed. The Catsourases apparently have excellent public relations, because the media is unceasingly sympathetic to their suit (failing to distinguish between California's actions and the anonymous Internet abusers' actions), even as the Streisand effect has resulted in far more dissemination of the gruesome photos (NSFW).

Now, the California Highway Patrol has settled with the Catsouras family for $2.37 million, a pretty wealth transfer from middle-class taxpayers to a family that could afford multiple Porsches. And again, the media makes no mention of the free-speech implications of citizens being able to sue taxpayers over the release of public records. [LA Times] The huge sum is about what the family could have recovered if CHP was actually responsible for Catsouras's death.

 

 


Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.