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March 2012 Archives

StlToday.com reports:

Judge Clarence Harrison dealt a swift blow to the Madison County asbestos litigation system by ordering all 2013 asbestos cases to be set on a "case-by-case basis." The order came just three days after Harrison heard arguments for and against a previous judge's order allowing certain law firms to reserve trial dates in 2013, even though many of the cases weren't on file with the court.

Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform (ILR), issued a statement applauding Madison County Circuit Judge Clarence Harrison's decision to end the pre-assignment of asbestos trials to plaintiffs' law firms. After recent controversy involving Judge Barbara Crowder, who was removed from the asbestos docket after her campaign committee received $30,000 from plaintiffs' lawyers shortly after she awarded their firms most of the court's 2013 trial times, asbestos trials will now be set on a case-by-case basis.

In the first finding of the 2012 proxy season, James Copland, director of Manhattan Institute's Center for Legal Policy, discovered quantitative evidence via the Proxy Monitor database that institutional shareholders appear to be relying heavily upon Institutional Shareholder Services (ISS), the institutional shareholder advisory firm, for decisions on executive compensation packages. Copland notes that most shareholder proposals thus far in 2012 are related to corporate governance, rather than executive compensation or social or political issues. Among the Fortune 200 companies to have held their annual meetings to date, the only shareholder proposals to gain majority support are those to declassify the board and to require majority voting for directors.

As evidenced by the recent Wall Street Journal article, The Corporate Disclosure Assault: Unions and liberal activists are using proxy rules to attack business political speech, the shareholder activism issue has generated widespread concern. Proxy Monitor plans to respond to that concern with up-to-date tracking and analysis of the 2012 proxy season.

In a recent op-ed, Copland expressed his concern for the increasing influence of ISS in the current season:

Since ISS's position almost certainly helped to influence the markedly different shareholder votes on pay packages, it would seem that an unintended side effect of Dodd-Frank-mandated say-on-pay votes is to give the proxy advisory firm a major "gatekeeper" role over executive pay. ISS's strengthened position might be enhanced further if institutional investors heed its newly promulgated advice to challenge management to respond whenever fewer than 70 percent of shareholders approve of board-proposed compensation packages--a position that would seem to be rather self-fulfilling given ISS's influence over the votes in the first place. Given that many of ISS's clients are labor-union pension funds and social-investing funds that may be motivated by issues other than maximizing shareholder value--and have respectively sponsored one-third and one-fifth of all shareholder proposals to date in 2012--I'll be watching the proxy advisory firm's role closely.

What else will I be watching in the upcoming annual meeting season? I'll be paying particular attention to certain classes of shareholder proposals in which union and social funds have taken a special interest:

Point of Law will be tracking the monthly Findings on ProxyMonitor.org to report on trends during this very important 2012 proxy season.

When there were reports that the Apple iPhone 4's sleek case, which contained the phone's antenna, caused reception problems if held in a particular way, Apple acted quickly: less than four weeks after the product's release, it announced a program that allowed customers to order a free bumper case that would prevent reception problems and created an app so that phone users could simply download the app and upload their requests without leaving their phone. But whenever there's a news story about a deep-pocketed company with temporarily unhappy customers, there's a class action—in this case over two dozen class actions all alleging that Apple had committed consumer fraud. Apple's executives time is valuable, it costs money to pay for lawyers and search everyone's email, so Apple has settled the cases.

At first, the settlement seems generous: "Apple iPhone owners can claim $15 says the LA Times, and several blogs, e.g., MacRumors, iPhone Hacks, TG Daily. But that's not so: only a tiny percentage of iPhone 4 customers are eligible for the $15. (iPhone JD got it correct.) Moreover, the claims process is insane: one must access the settlement website, perform data entry to request a claim form, and then fill out the claim form by hand. Wait a second: I could order the bumper with an app; I have to use the Internet to get a claim form; it costs more to process the claim forms by hand than to process electronic data. Why isn't there an app for that? The answer of course, is that Apple would rather spend an extra dollar in claims processing than $15 in claims. The settlement is designed so that Apple will not actually pay very many claims. Given the hoops and limited eligibility requirements, I will be surprised if there are 40,000 claims—worth about $590,000, $600,000 minus about $10,000 in postage paid by class members to submit claim forms.

The lawyers, however, are asking for ten times that: $5.9 million. The settlement contains the Bluetooth indicia of fees disproportionate to class relief, a clear sailing clause (Apple agrees not to challenge the fees), and a "kicker" (even if fees are reduced, the reduction goes to Apple, not the class). The settlement is structured to hide the number of claims from the judge: the claims deadline is well after the fairness hearing. This is litigation and settlement designed to benefit attorneys, not class members, and an illegal abuse of the class action system. I am a class member and plan to object.

What media bias? - Romney's car elevator

The big news story is that Mitt Romney's home under construction in San Diego has all sorts of nice features (including a car elevator and a big basement) and a lobbyist to help the construction through the permitting process. It's an odd story of the politics of envy. We already know Mitt Romney is rich; rich people can buy nice things that you and I can't afford; that sort of advantage of being rich creates an incentive to create wealth that makes society better off.

An aside: while 2012 Romney can buy things I can't afford, it's also worth noting that you and I can walk to the Apple Store (watch out for the glass!), and pay cash for things someone ten times as wealthy as Romney couldn't have dreamed of buying in 1992.

Anyway, it's not like Romney is a John Edwards hypocrite lecturing about poverty and inequality while spending campaign money on a mistress or an Al Gore hypocrite lecturing about the environment while leaving a huge carbon footprint or a Barack Obama hypocrite taking advantage of a backscratching land deal with Tony Rezko to be able to live in his own big house. One wishes Romney would stop treating the wealth as an embarrassment, rather than a signal of his previous success.

The San Diego news story is a good example of the phenomenon. Why is the story "Romney is so rich, his home has a lobbyist" rather than "California makes it so hard to create jobs that actually make things, that Romney's home needs a lobbyist"? The latter tells us much more about California's unemployment rate: the political class is extracting wealth and wealth-creation for its own benefit at the expense of the larger economy. It's a large reason why California has a 10.9% unemployment rate: Romney is rich enough to pay the additional expense of a lobbyist to create a lot of construction jobs just for the unnecessary luxury of a big California house; many other people are just throwing up their hands and not creating the jobs. It seems to me the latter is a bigger problem than the former.

Prosecutors charged Dickie Scruggs and Zach Scruggs with multiple crimes, and as part of plea bargaining, they pled guilty to honest services fraud. Zach previously unsuccessfully used the Skilling decision in an attempt to undo his guilty plea, and Alan Lange predicts that Dickie Scruggs's similar effort will come to naught, but imagines that Scruggs is hoping for positive PR implications.

But under our legal system, there's no penalty for, and thus no downside to, wasting a court's time with a motion with a 0.1% chance of success.

Yesterday's oral argument in Dewey v. Volkswagen is now on-line, if you've already exhausted the interesting HHS v. Florida argument. Earlier.

James R. Copland

As the Supreme Court holds oral arguments to consider challenges to the 2010 Patient Protection and Affordable Care Act on constitutional grounds, Point of Law is hosting a featured discussion that we hope will help shed light on the legal issues involved, as well as those that seem to be of particular interest to the justices. We're delighted to welcome the following legal scholars and analysts--among the leaders in their fields--to Point of Law:

Erwin Chemerinsky, University of California, Irvine School of Law

Richard Epstein, New York University Law School

Orin Kerr, George Washington Law School

Gillian Metzger, Columbia University Law School

Michael Rosman, General Counsel of the Center for Individual Rights

Nadine Strossen, New York Law School, formerly president of the American Civil Liberties Union

On Tuesday, March 27, after one day's oral argument, we'll be kicking off with comments from Professor Chemerinsky, Professor Strossen, and Mr. Rosman. Our discussion will continue over the next two weeks--come back and visit what promises to be an exceptional conversation.

We wrote in May about what have since become called "legacy lawsuits":

A 2006 Louisiana law allows conventional tort litigation by landlords who leased to oil companies to supplant state regulatory efforts at remediation and cleanup. Oil companies express concern that they're now drawn into expensive litigation that delays the cleanup process for several years, but one suspects that they're even more concerned that entrepreneurial trial lawyers have figured out that impoverished remote-county juries and judges plus deep-pocketed defendants presents desirable rent-seeking. One verdict awarded $54 million for environmental damage to a piece of land that was never worth more than $108,000. Business is asking the legislature for relief, and there has since been a feeding frenzy of suits over decades-old leases; meanwhile, Louisiana's attempt to sue itself into prosperity has hurt job growth.

Nothing's gotten any better in the last year, says a recent LSU study on legacy lawsuits, which calculates the loss to the Louisiana economy at "1,200 new wells, translating into a total statewide reduction of about $6.7 billion dollars in lost Louisiana drilling investment. The estimate is likely conservative since it excludes the impacts these reduced drilling activities would have on oil and natural gas production, and the mineral revenues generated by this foregone production," as well as 30,000 jobs. But trial lawyers are making money, so who cares about the other 99%, or the skyrocketing price of gas? [ATRA; Fox News]

There's a much bigger oral argument in the news and being discussed on this site, but if you're in Philadelphia tomorrow with nothing to do, my Third Circuit oral argument in the Dewey v. Volkswagen class action settlement case is tomorrow at 10 am.

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

Despite the president's promise that "you can keep your own insurance," key PPACA provisions are calculated to undermine the long-term viability of the private insurance market, by making existing coverage unaffordable or unavailable at any price. Indeed, while individuals may technically be allowed to keep their plans, that protection exists in name only. Plan serial numbers may temporarily remain the same, but the PPACA's combination of high taxes, large subsidies, and extensive mandatory contractual terms seems likely to eventually drive most private insurance plans out of business.

So say Richard Epstein and David Hyman in a new report on the Patient Protection and Affordable Care Act for the Manhattan Institute, "Why Obamacare will End Health Insurance as We Know It." PPACA not only drastically changes the entire face of the health insurance market, but will eventually be the death knell of employer-based private insurance, the two argue.

Dahlia Lithwick does it again

It happens so often I should just create a keystroke macro to save time blogging about it, but, yes, once again, Dahlia Lithwick got something embarrassingly wrong when trying to criticize a right-winger, this time distorting a blog post by Randy Barnett about Justice Scalia to set up a future unfair attack on Scalia if he doesn't vote on the Obamacare litigation the way Lithwick wants him to. And Ed Whelan dismantles Lithwick's typically shallow analysis of the Obamacare litigation, where she, inter alia, misrepresents the arguments of lower-court judges on the litigation. Earlier.

83-year-old Evelyn Paswall was peacefully walking along in Manhasset, NY, in December 13, 2011, when she walked into the glass doors at the Apple Store Manhasset and broke her nose. For this, she wants $1 million in damages, from Apple, of course. Apple already puts warning strips on the glass in its stores, but that's not enough for Paswall's attorney, Derek Smith, who argues that Apple's "high-tech modern architecture" makes it liable. The case is 2:12-cv-01378-ADS-ARL (E.D.N.Y.). [MacRumors; NY Post via Apple Insider]

In the last 30 years, Congress has been feverishly adding new crimes to the federal criminal code. Now, it is criminalizing acts that are already criminal. State laws make it a crime to threaten, intimidate or kill witnesses in state criminal proceedings. However, the State Witness Protection Act, introduced by Pennsylvania Senator Robert Casey, would make these acts separate, federal crimes in cases where the defendant crosses state lines, or uses interstate commerce facilities (such as mail or phone) in furtherance of the crime. Why the need to make federal crimes of acts that are already state crimes? For one thing, the new bill would give federal prosecutors the authority, effectively, to intervene in state prosecutions. And the new bill would ratchet up the penalties - it imposes a minimum penalty of 20 years, and 30 years in cases of attempted murder. And while it is politically difficult to take issue with efforts to be "tough on crime," this law would impose significant costs, further blurring the line between state and federal responsibility, and by further taxing a prison system that already jails more people than any other country in the world. Absent a compelling federal interest in supervising state prosecutions in this way, Congress would be wiser to let the states protect their own witnesses.

Next week, the Supreme Court will be holding extended oral arguments on the constitutionality of the landmark 2010 health-care reform law, the Patient Protection and Affordable Care Act, known popularly--at least among the law's critics--as Obamacare. Beginning on Tuesday, Point of Law will be hosting an exceptional panel of legal scholars and analysts, across the political spectrum, to discuss the oral arguments and the rationales for and against the law's constitutionality:

We're thrilled to have such a distinguished group visiting Point of Law to shed light on this landmark constitutional case. Thanks to the Center for Legal Policy's Isaac Gorodetski for working hard to pull this together.

A small victory against the EPA

On Wednesday, the U.S. Supreme Court in the case Sackett v. EPA, held that property owners have a right to sue the EPA to make an immediate challenge to an EPA "compliance order." The recipients of such compliance orders from the EPA, as a result of the Court's 9-0 opinion written by Justice Scalia, no longer have to wait until the agency chooses to sue them to enforce the order. They have a right, under the Administrative Procedure Act, to sue as soon as they receive an order to which they object.

Hans Bader, senior attorney and counsel for special projects with the Competitive Enterprise Institute, in a piece published on CEI's blog OpenMarket.org, discusses the opinion and the EPA's problematic regulatory policies.

The EPA has a practice of issuing "compliance orders" to property owners telling them to stop using their land and restore it to its prior condition, under penalty of $37,500 a day in fines, and declaring in such orders that such land is a federally protected wetland. It then waits months or years before actually suing the property owner for the fines, which accrue daily, potentially adding up to millions in fines. But in the meantime, it insists that the property owners can't challenge its claim that their property is a non-usable wetland in court. If they want to take issue with its claim that their property is a "wetland," they have to wait until the EPA sues them later on to collect those fines, after they've racked up potentially millions in fines under the compliance order....

There is no clear legal test for what a wetland is, since the last time the Supreme Court tried to come up with a definition in the Rapanos case, the judges split 4-1-4 on how to define it, splitting three ways in three different opinions each of which had a different test for what a wetland is. The EPA has seemingly flouted even the few principles shared among a majority of the Supreme Court justices (the four-justice plurality and Justice Kennedy's concurrence), in its vague and manipulable guidance as to what is a wetland. In light of the huge fines that can be imposed on property owners, and the breadth and ambiguity of the EPA's concept of "wetland," which includes much land that seems like dry land to a layman, denying property owners the right to immediately challenge an EPA "compliance order" effectively forces them to do whatever the EPA said, even if the EPA's position was arbitrary and capricious.

Justice Alito puts it best in his concurring opinion:

The Court's decision provides a modest measure of re-lief. At least, property owners like petitioners will have the right to challenge the EPA's jurisdictional determination under the Administrative Procedure Act. But the combination of the uncertain reach of the Clean Water Act and the draconian penalties imposed for the sort of violations alleged in this case still leaves most property ownerswith little practical alternative but to dance to the EPA's tune.

Real relief requires Congress to do what it should have done in the first place: provide a reasonably clear rule regarding the reach of the Clean Water Act.

It will be interesting to track whether Congress takes up Justice Alito's prescription.

A bearded visage of me is on the front page of law.com today.

As I wrote on this blog in August:

[Since 2009, attorneys with the Center for Class Action Fairness have been objecting on behalf of seven class members] to a $0 settlement in a ludicrous class action against Bluetooth headsets alleging consumer injury because of failure to (adequately) disclose risk of hearing loss from loud volume settings. Apple won a similar case over iPods, but the defendants here decided to pay the attorneys $850,000 to go away. The district court rubber-stamped the settlement and fee request, and CCAF appealed. [On August 19], the Ninth Circuit reversed and remanded, instructing the district court to apply more scrutiny to a settlement where the fees were so disproportionate to the class recovery. [654 F.3d 935]

On remand, the plaintiffs re-submitted the same settlement that the Ninth Circuit found so problematic, arguing that the injunctive relief—minor wording changes in product manual warnings—was worth, in conjunction with the costs of notice, $878 million. Since the attorneys were only seeking 0.1% of that amount, isn't that generous? They all but asked for a medal.

Needless to say, the objectors were not persuaded—especially after what a commenter calls a "Perry Mason moment" in the deposition of the plaintiffs' expert. Wednesday, I renewed my clients' objection to the self-serving settlement. [NLJ, earlier on NLJ] I hear a rumor that the Los Angeles Daily Journal is also covering the story today, but I haven't seen it.

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

Regulators at cross-purposes

PPACA demands that hospitals and other medical providers cut costs. An easy way to do that, especially in small markets, is to create economies of scale to provide services more efficiently. This, however, will upset the Obama Administration Federal Trade Commission, which is aggressively challenging hospital mergers. [WSJ ($)]

As I've previously said, "Judges should consider whether [derivative shareholder settlements] actually create value for shareholders or amount to a rearranging of the deck chairs to create the illusion of value to justify attorneys' fees." Monday, I filed an appellate brief in the Seventh Circuit arguing both for the right of shareholders to appeal settlement approvals without jumping through the procedural hoop of intervention, and for courts to give teeth to Rule 23.1(a)'s requirement that a plaintiff in a derivative action adequately represent the shareholders—which, in my mind, means that a suit is brought for the benefit of shareholders, rather than plaintiffs' attorneys. (This settlement: $0 for the shareholders, up to $850,000 for the attorneys.) The case is No. 10-3285, Robert F. Booth Trust v. Crowley (7th Cir.). Earlier; more.

Bader on the Theodore Urban case

Hans Bader discusses the seemingly incoherent approach of the Department of Justice to prosecuting financial abuses, though I suspect it's a little early to criticize the lack of prosecutions in the MF Global case. If there aren't indictments closer to the statute of limitations deadline, then we can raise an eyebrow.

§ 1920 and e-discovery costs

We had noted a trend of courts being willing to use 28 U.S.C. §1920, which permits cost-shifting of the expenses of "making copies," to the much greater costs of e-discovery by broadly construing the meaning of "making copies." In the first appellate decision on the topic, Race Tires America v. Hoosier Racing Tire Corp., the Third Circuit has rejected that broad interpretation, and held that only $30,000 of a $365,000 e-discovery expense fell within the parameters of §1920. The opinion has interesting language on the expense of e-discovery in the first footnote. More at WSJ Law Blog.

Relatedly: Professor William Hubbard testifies about the costs of discovery, with particular attention paid to the long tail.

Also relatedly: Steve Susman argues for "mutual disarmament" in the discovery game. Of course, that sort of voluntary agreement is only possible in the scenario where anticipated discovery costs are not asymmetric.

After oral arguments before the Supreme Court of the United States on February, 28 and our featured discussion analyzing those arguments, it was reported that the Court, in the Kiobel v. Royal Dutch Petroleum case, issued an order directing the lawyers to reargue the case in the next term with an expanded argument on the scope of the Alien Tort Statute which gives aliens a right to sue in U.S. courts.

The justices seek to examine a question broader than whether corporations can be held liable for allegedly facilitating human-rights abuses in foreign nations in violation of international law norms. Instead the Court wants to tackle the extraterritoriality issue head on in order to decide whether and under what circumstances the 223-year-old Alien Tort Statute allows U.S. courts to "recognize a cause of action for violations of the law of nations occurring within the territory of a sovereign other than the United States." In addition, it seems that the Court may also address whether a "party being sued can be challenged not for directly engaging in human rights abuses, but for 'aiding and abetting' someone else who did so."

To gain a better understanding of the Court's action, we invited Penny Venetis (amicus brief), clinical professor of law and co-director of the Constitutional Litigation Clinic at Rutgers School of Law in Newark, and Andrew Grossman (amicus brief), visiting legal fellow in The Heritage Foundation's Center for Legal and Judicial Studies and litigator at Baker & Hostetler, to discuss the recent order in the Kiobel case.

Grossman, in the podcast, comprehensively reviewed what led to the Court's order:

I think the theme, the mood of the Court at oral argument, was probably best summed up by a statement that Justice Kennedy made before the first advocate [arguing] before the Court even got out his second sentence which was that, expressing great wariness, "the ATS authorizes federal courts to exercise civil jurisdiction over alleged human rights abuses over which the nation has no connection." I think that Justice Alito put it even more clearly when he asked, "What business does a case like this have in the courts of the United States?"

...I think the court realized in considering this case, especially due to something that happened immediately after oral argument, that deciding the case on corporate liability wasn't going to get them where they wanted to go which was eliminating categorically this type of litigation.

In a separate podcast, Professor Venetis had this to say about the Court's order when asked about Justice Alito's questioning:

...I think that Justice Alito was trying to wrap his head around the notion of extraterritoriality which we've been talking about and that's why the court wants to hear additional arguments, but I don't necessarily think it is a bad thing. It certainly is unusual for the court, but I don't necessarily think it is a bad thing. I think there are a number of Alien Tort Statute cases [making] their way through the system, and they're all making their way one-by-one up to the U.S. Supreme Court. And to me, it seems that the Court really wants to take care of these unanswered questions once in for all. That it is going to consider these open questions that it never spoke about in Sosa or in any other case. It [the Court] really wants to address it all at once rather than by piecemeal every few years. I think that that's certainly one way to interpret the Court's actions. The other is that it truly is concerned about this issue of extraterritoriality.
Paul Larkin on the STOCK Act

In two issue briefs focused on the Stop Trading on Congressional Knowledge ("STOCK") Act of 2012, Paul Larkin, Senior Legal Research Fellow at The Heritage Foundation's Center for Legal and Judicial Studies, comprehensively compared the House and Senate versions of the Act. In his comparison, Larkin drilled down on the fraud and gratuities provisions concluding that the House version championed by Rep. Eric Cantor which excludes S.AMDT. 1483, the Leahy-Cornyn Amendment (also known as the "public corruption amendment"), is the better policy choice.

When discussing the fraud provisions specifically, Larkin cited the following problems with the Senate's version of the STOCK Act, which we outline in brief:

  • The term "undisclosed self-dealing" is new and lacks a widely accepted contemporary interpretation as well as any longstanding common law antecedent.

  • The term "financial interest" is vague and can conceivably be interpreted to embrace the very position for which a public official is seeking re-election.
  • Increasing the punishment for violating a state ethics law, the new, revised federal mail/wire fraud statute might impose a penalty that is out of proportion to the sanctions available under state law.
  • It is odd for the federal government to instruct states and localities about how serious they ought to treat potential infractions under their own ethics laws.

Larkin then pointed to other weaknesses in the Senate version, some of which are directed toward its gratuity provisions:

HR 5

HR 5, federal regulation of medical malpractice litigation, represents good public policy that would reduce abusive lawsuits and improve health outcomes. But since it would transfer wealth away from lawyers to patients and doctors, the litigation lobby has actively opposed it, and quoted me out of context in that regard. One would certainly prefer that HR 5 be tweaked to unambiguously comply with a vision of the Commerce Clause consistent with, say, the Randy Barnett view. It would be painless to do so. For example, one could structure the legislation to withhold 25% of Medicare funds from states that fail to meet certain medical malpractice litigation standards, rather than federalizing what is (unlike, say, product liability or consumer class actions) largely a local issue: the end result would be even better than this bill. And states that have already implemented reform might be legitimately offended that the benefits of their foresight will be blunted when Congress shunts competing states along; one solution to that might be to limit the reforms to patients who use federally-subsidized medicine, such as Medicare, Medicaid, or PPACA exchanges. But given trial lawyer support for an administration that has propounded PPACA, the trial lawyer opposition to this bill on Commerce Clause grounds is totally disingenuous. Let's see the trial bar lobby for repeal of PPACA, and then they can legitimately complain about HR 5's federalism issues. (Of course, as a political matter, this is largely counting angels on the heads of pins: Harry Reid will never permit this to come to a vote in the Senate, and even if it passed the Senate, Barack Obama would veto this on behalf of his trial-lawyer friends.)

Tomorrow is Poolmageddon

The Obama administration Department of Justice has issued ADA guidelines to hotels that state that it is insufficient to have portable lifts to assist disabled patrons from wheelchairs to pools and spas; rather, each individual "water element" must have a permanent lift installed in the facility at a cost between $8,000 to $20,000. The 300,000 or so hotel pools that have not installed such a lift (or shut down entirely) by tomorrow will be subject to private lawsuits by entrepreneurial lawyers who check in serial plaintiffs to bring drive-by suits. I suppose we should be thankful that all these law-school graduates complaining about lack of jobs on Above the Law are sufficiently ethical that they're passing up these opportunities to hang a shingle, make a friend in a wheelchair, and print money. [Washington Examiner; related; Overlawyered on ADA filing mills]

Around the web, March 13

  • Who says Wal-Mart v. Dukes ends class actions—or even employment class actions? Certainly not Richard Posner. [McReynolds v. Merrill Lynch; Trask; Karlsgodt; Seyfarth Shaw; Baker Hostetler; WSJ Law Blog; earlier at POL]

  • Richard Epstein on safety nets: "These can cushion individuals from shock in the short run, but the balance is not sustainable in the long run. Too many people climb into the nets, leaving too few productive individuals to support them." [Hoover]
  • Charity auction for Friars Club doesn't deliver on the promised goods of Oscar tickets, so not only refunds purchasers their $27,000 purchase price, but offered them first-class roundtrip airfare and a luxury hotel stay. Not good enough, say plaintiffs, who hire BigLaw firm to sue for $250,000 in damages including "intentional infliction of emotional distress." [Am Law Daily]
  • Mazie Slater attempt to free ride on class action ex-partners litigated doesn't fly with New Jersey federal judge. [Lawyers USA]
  • EDNY magistrate shoots down defendant's request for plaintiff's log-in information for Facebook and other social network sites. Such an overbroad request and intrusion on privacy can deter plaintiffs from bringing legitimate actions, so this is a good ruling. But let's see judges recognize the problems caused by overbreadth in the other direction. [Turkewitz]
  • Coverage of Chevron/Ecuador $18 billion Lago Agrio judgment. Theodore Boutros notes that the ability of Ecaudorian President Rafael Correa to silence a critical newspaper with a criminal libel prosecution demonstrates the corrupt judiciary of Ecuador. [Boutros @ Forbes; Mastro video interview @ WSJ; California Lawyer]
  • For all the complaints about working conditions at Foxconn (which do seem very unpleasant), Chinese workers prefer it to other alternatives. [Atlantic]
  • The Landlord's Tale. [CJ]

In a class action pending in federal court in Manhattan, plaintiffs' attorneys say that the fact that a Citibank lawyer attended a 2001 meeting "whose topics allegedly included strategies to reduce 'class action abuse'" is evidence of conspiracy with other credit card companies to impose arbitration clauses on consumers. Judge William Pauley has been unwilling to grant summary judgment, even though Citibank decided to include the clauses in 2000. The lawsuit isn't seeking damages (implicitly demonstrating that even plaintiffs' attorneys recognize that arbitration clauses ultimately benefit consumers, rather than harm them), but just an injunction against the clauses. Bank of America, Capital One, and Chase, among others, have already shown their belly and agreed to remove their arbitration clauses for three and a half years in settlement; Citigroup and Discover have not yet settled, though the denial of the summary judgment motion may change that. (Of course, there's little reason to spend a great deal in litigation defending arbitration clauses that are likely to be stricken by the trial-lawyer-lovers at the Consumer Financial Protection Bureau.) It's unclear from the order how much the plaintiffs' attorneys have collected from the banks in the earlier settlements protecting their dispute-resolution cartel. Consumers are, of course, made worse off by the lack of arbitration; ironically, if Citibank and Discover cave, the lawsuit will have the effect of immunizing a tacit agreement by credit-card companies not to compete by offering consumers arbitration clauses that could reduce credit-card expenses. [Reuters]

Day v. Persels & Associates

The proposed class-action settlement against Persels & Associates, law firm that allegedly ripped off consumer debt clients: $0 for the class, $305,000 for the lawyers and their lead plaintiff client, and $100,000 of cy pres to a charity of dubious relationship to the lawsuit. [Tampa Bay Times via ABAJ]

One looks forward to the lawsuit against the law firm that proposes such a settlement, thus ripping off these people a second time. Public Citizen objected, but mysteriously failed to cite to Bluetooth; I'm hurt. Yesterday, Magistrate Judge Thomas Wilson approved the settlement and fee request in full in an error-ridden decision. The case is Day v. Persels & Associates, No. 8:10-cv-02463-TGW (M.D. Fla.).

The problem of the special master

Fed. R. Civ. Proc. 53 permits a judge to appoint a "special master" to resolve complicated pretrial matters that the judge does not have time to do; most state courts have similar procedures. Such special masters are typically experienced attorneys who charge the full billing rate of experienced attorneys; rather than being put out for competitive bid, judges often pick a friend for the lucrative assignment. The existence of a rule as a safety valve allows courts to handle heavier dockets, but that in itself has its own distorting effects. A judge has reduced incentive to narrow the scope of discovery; heck, the privilege log disputes alone can generate hundreds of thousands of dollars, and create unreasonable standards that add tremendous expense to litigation beyond what is paid to the special master.

A recent scandal in New York reported by the Daily News suggests other possible problems: in 1999, Manhattan Supreme Court Justice Sherry Klein Heitler appointed Laraine Pacheco special master in a series of asbestos cases, and in 2005, Pacheco was making $368,000 a year overseeing settlement discussions. Pacheco lost her lucrative position last week when it was learned that she had overbilled parties—including city and state taxpayers—$400,000. Pacheco had previously come under fire for wanting to hold these settlement discussions near her vacation home in Tucson, Arizona, inviting lawyers to do so as a junket (and suggesting they shop at her daughter's jewelry store).

This is an area that merits much more study by the legal reform community.

Warren Buffett and taxes III

It's easy to magnanimously ask for a tax increase when you can get 25000% returns on hiring lobbyists to offset that with even larger tax breaks. [Stoll]

Josh Barro calls the Buffett Rule "a political gimmick, not a serious policy proposal," and notes that it will exacerbate existing distortions in the tax code.

In a new report, James Copland, director of the Manhattan Institute's Center for Legal Policy, highlights what to watch for in 2012 in the world of shareholder activism. Drawing upon new data from the Proxy Monitor database, Copland identifies alarming trends in shareholder proposals, predominantly sought by labor-union pension funds. As the proxy season kicks off this month, Copland suggests that those interested in corporate governance should particularly follow shareholder proposals related to shareholder advisory votes on executive compensation, shareholder proposals involving corporate political spending, shareholder proposals calling for independent board chairmen, and shareholder proposals seeking proxy ballot access for director nominees. (Boardmember.com article)

ProxyMonitor.org is a project of the Manhattan Institute's Center for Legal Policy and is designed to shed light on shareholder activity. Central to ProxyMonitor.org is the Proxy Monitor public web database which has been updated to include shareholder proposal information for the Fortune 200 companies from January 2006 to August 2011. Proposals are searchable by company, year, proposal type, sub-proposal type, proponents, proponent type and industry. Searches are exportable to Excel and can be graphed to reveal trends in shareholder activity.

For the 2012 proxy season, Proxy Monitor will again feature its scorecard which will include, company names and meeting dates, proposal title and type (general and specific), proponent title and type (general and specific), and votes for each proposal in real time. Point of Law will feature commentary and links to newly discovered trends and findings as the proxy season gets into full swing.

Kiobel debate complete

On Tuesday February 28, the Supreme Court heard oral arguments in Kiobel v. Royal Dutch Petroleum, a case testing the extent to which U.S. law enables litigation in American courts against multinational corporations for allegedly facilitating human-rights abuses in foreign nations in violation of international law norms.

In Kiobel, Nigerian nationals are attempting to invoke the Alien Tort Statute to sue oil companies that the plaintiffs allege worked with the Nigerian military to suppress local opposition to oil exploration. A divided panel of the Second Circuit rejected the Kiobel claim by reasoning that corporate liability was not customary international law, such that the claim lay outside the Alien Tort Statute's jurisdiction.

To discuss these issues, we were lucky to have two distinguished international law professors who each signed amicus briefs in the case, on either side. Julian Ku of Hofstra Law School signed a brief for professors of international law, foreign relations law and federal jurisdiction (PDF) that argued both that the original meaning of the Alien Tort Statute was far narrower than its current application and that the Kiobel suit was unwarranted based on Supreme Court precedent. David Weissbrodt, the Regents Professor and Fredrikson & Byron Professor of Law at the University of Minnesota Law School, signed a brief for international law scholars (PDF) that argued, conversely, that the suit was a legitimate application of international law through the Alien Tort Statute, and that the Second Circuit had misconstrued the international law in this case.

In recent commentary, senior attorney and counsel for special projects with the Competitive Enterprise Institute, Hans Bader, articulated a compelling argument against the European Union's push for gender quotas for corporate boards. Several European nations including Spain and France already impose 40-percent quotas for corporate boards and EU officials are moving toward implementing a mandate on all member nations even those that have resisted interfering with corporate governance.

In his entry, Hans recognizes the potential disaster in widespread implementation of a discriminatory gender quota:

Gender quotas could provide a big boost for nepotism on corporate boards in some fields. In sectors like metallurgical engineering, there are just not very many women with the required knowledge and expertise to sit on a corporate board. So a company in such a sector, confronted with a gender quota, will probably pick female relatives of existing corporate insiders to sit on the board. If you have to put someone who is largely ignorant of your business on your board, it might as well be someone who will do what others on the board with more knowledge advise them to do -- and they are more likely to take your advice if they are your relative than if they are not related to you.
RIP James Q. Wilson

Professor Richard Epstein, Laurence A. Tisch Professor of Law at the New York University School of Law, visiting scholar at the Manhattan Institute, and senior fellow at the Hoover Institution, addresses takings law and jurisprudence in an article published in Stanford Law Review Online titled Physical and Regulatory Takings: One Distinction Too Many.

Professor Epstein discusses how the Supreme Court's takings decisions deal with divided interests in land and the default distinction between physical and regulatory takings.

The judicial application of takings law to these four different partial interests in land thus destroys the social value created by private transactions that create multiple interests in land. The unprincipled line between occupation and regulation is then quickly manipulated to put rent control, mineral rights, and air rights in the wrong category, where the weak level of protection against regulatory takings encourages excessive government activity. The entire package lets complex legal rules generate the high administrative costs needed to run an indefensible and wasteful system. There are no partial measures that can fix this level of disarray. There is no intellectual warrant for making the categorical distinction between physical and regulatory takings, so that distinction should be abolished. A unified framework should be applied to both cases, where in each case the key question is whether the compensation afforded equals or exceeds the value of the property interest taken. The greatest virtue of this distinction lies not in how it resolves individual cases before the courts. Rather, it lies in blocking the adoption of multiple, mischievous initiatives that should not have been enacted into law in the first place. But in the interim, much work remains to be done. A much-needed first step down that road depends on the Supreme Court granting certiorari in Harmon v. Kimmel.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.