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April 2012 Archives

Overcriminalization annals

If you're putting your prescription medication in a seven-day pill box to ensure you don't forget to take your pills (or to make it easier to travel with a single container instead of bringing your whole medicine chest), you're breaking the law in many states. And remember to declare that original container to Customs when you cross the border.

The problems of product liability

Kip Viscusi in a must-read Regulation article (h/t OL):

The first class of problems stems from the judgment biases
of jurors. Because of loss aversion biases, jurors will impose
excessive penalties on novel risks. Because of hindsight biases,
jurors will believe incorrectly that the risk could have been

The second class of problems arises from excessive levels of
damages. Although jurors tend to agree about what behavior
is blameworthy, they are all over the map in assessing damages.
Compensatory damages for economic loss are reasonably well
defined. However, assessments of pain and suffering awards
and punitive damages awards are fraught with error, no doubt
in part because jurors are not given firm guidance with respect
to how they should go about setting the level of these damages.
The result is that there may be multi-billion-dollar blockbuster
punitive damages awards, but these awards do not enhance
safety because they are random, rare events. More generally, for
large levels of punitive damages costs, there is in fact a counterproductive
effect of punitive damages that discourages product
improvements and new product introductions. Exiting the market
altogether is often the desired course.

Third, firms are hampered in their efforts to reduce risks
in an efficient manner by juror aversion to the measurement
of risk. Companies that conduct risk analyses are vilified for
intentionally endangering the public. When confronted with
particular injury cases, the jury's balancing abstracts from the ex
ante expectations that necessarily guide corporate decisions and
instead compare the identifiable victim with the product-specific
cost of greater safety.

And don't miss the reading list at the end. The Regulation essay is a shorter version of one that will be in a collection called The American Illness, which looks to be a must-read. I discussed many of the same problems in my 2007 essay, "Rollover Economics."

LA Riots, 20 years later

The twentieth anniversary of the Los Angeles riots that killed 54 and devastated innocent Korean-Americans left unprotected by police is of more than trivial concern, given how history is repeating itself the inflammatory race-baiting by the media and the Sharptons of the world in the feeble case against George Zimmerman over the Trayvon Martin shooting. [Mac Donald; Hicks; Dunphy]

John Edwards certainly seems to be, as one major newspaper called him, a "cheating lowlife." With his wife of 30 years dying of cancer, he carried on an affair with a woman hired to film campaign documentaries, even, allegedly, having sex with her in his wife's bed. When his mistress became pregnant, Edwards convinced his closest aide (the married father of three) to claim paternity Then, he spent a million dollars given him by wealthy donors flying his aide and mistress on private jets to luxury resorts while he campaigned as a populist. At one point, the would-be leader of the free world cowered in a hotel bathroom when it appeared reporters would find him visiting his paramour and love child.

A cad, yes, but a criminal? Edwards is now on trial for violations of campaign finance laws, despite the fact that two former commissioners of the Federal Election Commission have been named as expert witnesses for the defense (to date, the government has succeeded in preventing their testimony). The government's theory, in a nutshell, is that because disclosure of the affair would "undermine Edwards' presentation of himself as a family man," the contributions used to hide his mistress advanced his candidacy. Thus, the government argues, they were "campaign contributions" that exceeded individual limits on such contributions. (One of the contributors, 99-year old "Bunny" Mellon, gave Edwards $900,000, far in excess of the $2300 individual limit). Under this theory, a supporter who had already donated the maximum and then gave a candidate a ride to a campaign event would break the law by contributing gas. As one campaign finance attorney put it, "Suppose that your wife gives you a nice shirt for Christmas. Is that a campaign contribution by the candidate's wife that counts towards her $2,500 per election limit? No."

The press uncovered John Edwards' boorish behavior, and his political career was destroyed. That may not be all he deserved, but it is what our political system can give him. Not all bad behavior, even by politicians, is criminal.

TK Kerstetter, president of Corporate Board Member, hosts our very own James Copland on This Week in the Boardroom to discuss shareholder proposals in the current proxy season. Jim offers insight on what to expect and provides an overview of this very important corporate governance issue.

Walter Olson tackles well the controversy over Wal-Mart's Mexico problem and the Washington Post's misguided coverage. [Daily Caller; Cato; OL]

Speaking of upside-down preemption, the United States faced a lot of skepticism from the Supreme Court yesterday over its aggressive attempt to strike down Arizona's anti-illegal-immigration law, SB 1070. As Michael Greve argues, "far from conflicting with federal law, S.B. 1070 complements it." More: Levey; Reason; WaPo; SCOTUSblog.

Earlier on POL: Shapiro podcast; Romney campaign; upside-down preemption; rule of law and the Obama administration.

Yesterday, the EEOC issued "guidance" (h/t P.T.) on the ability of employers to use conviction and arrest records in hiring. (We'd previously noted EEOC enforcement actions in that regard.) In another example of the Obama Administration's upside-down approach to preemption, the EEOC purports to preempt local laws and regulations forbidding the hiring of criminals if the EEOC believes they contradict Title VII's disparate impact rules; employers are thus in a damned-if-they-do, damned-if-they-don't situation if they follow or don't follow those state laws since they can get sued either way, including massive tort liability for the criminal acts of their employees. And that surely won't have any effect on employers willingness to create jobs, will it?

As Michael Greve notes (h/t OL), administrative agencies have taken advantage of the Chevron and Chevron II framework to evade judicial review of administrative law. This "guidance" outside of formal administrative rule-making is a prime example of that tactic, and validates Greve's argument that "increased judicial conflict over the administrative state" with more rights for the regulated against the regulator needs to be in the offing.

On Tuesday, the First Circuit issued a landmark decision on cy pres, In re Lupron Marketing. Though odd litigation decisions by the objectors led to affirmance in that case, the First Circuit (quoting CCAF's victory in Nachshin v. AOL) made clear that it had "unease" with cy pres, and set a precedent generally requiring compliance with §3.07 of the ALI Principles of the Law of Aggregate Litigation. [Legal Newsline; FindLaw]

Coincidentally, the same day, the Center for Class Action Fairness filed its opening brief relating to the yet-to-be-proposed multi-million-dollar cy pres distribution in In re Baby Products, asking the Third Circuit to adopt §3.07; the district court held that the class wasn't even entitled to an opportunity to object to the as-yet-to-be-proposed recipients. Baby Products presents the additional problem of the sort of settlement where class members were artificially deterred from making claims to expand the amount available for cy pres; indeed, under the district court's order, the class counsel will walk away with over $14 million of the $35.5 million fund, and the class millions of dollars less, likely less than half of what the attorneys got. (Note that under the Brian Fitzpatrick methodology, this would count as a "33.3%" fee award, though that percentage in reality is off by at least a factor of two, and no one in the world will ever know how much the class actually receives; and under the district court's procedure, the class counsel might well be doubly compensated if the cy pres goes to a charity related to the class counsel.)

(CCAF is not affiliated with the Manhattan Institute.)

Yesterday morning, the Supreme Court heard oral arguments in Arizona v. United States on the issue of "whether federal immigration laws preclude Arizona's efforts at cooperative law enforcement and impliedly preempt four provisions of S.B. 1070 on their face." To get further insight on how the argument played out before the Court and how the justices may rule, we invited Ilya Shapiro, senior fellow in constitutional studies at the Cato Institute and editor-in-chief of the Cato Supreme Court Review, to discuss the case for our regular podcast series.

Shapiro opened the discussion by outlining the federal government's challenge to Arizona's immigration law:

The law is more than one basic provision and there has been a lot of misunderstanding in the media about what this involves. First of all, the case has nothing to do with racial profiling or discrimination, non-ethnicity or anything like that. It's actually, when you get down to it, a pretty boring and technical legal matter involving whether particular provisions of the state law conflict with the federal law. And most of the state law, the so-called S.B. 1070, has been in effect for almost two years now. There are other states who have passed copycat laws; some that go further than Arizona's, but Arizona kind of set the mark.

The only four provisions of it that were ever enjoined by the lower courts and that are now at issue before the Supreme Court are the following:

First, Section 2(B), which requires police to check the immigration status of anyone they have lawfully detained when they have reasonable suspicion to believe that person has been in the country illegally.

Second, Section 3, which makes it a state crime to violate federal alien registration laws.

[Third], Section 5(C), [which] makes it a state crime for illegal aliens to apply for work or work as independent contractors.

Finally, Section 6, which allows the warrantless arrests when the police have probable cause to believe that a person has committed a crime that makes them subject to deportation.

These are the only four provisions that the Supreme Court took up this morning.

After thorough analysis of the oral arguments, Ilya was asked how he thought the Court would rule, to which he replied:

I'm on the record, I've written before that I think probably three of the four will be upheld. Even the registration one looks to me like enough of a parallel without creating a new type of state law. But the one that is really in trouble is the creation of the new sanctions on employees. So I think if I had to put down what I think they should do, it's probably to uphold three of the four.

The final oral argument of the term capped what was a highly publicized year for the U.S. Supreme Court. Now for the eagerly awaited rulings which we at Point of Law plan to cover comprehensively during the next couple of months. Additionally, please check back for an upcoming podcast which further explores the critical and controversial Arizona v. U.S. case.

Paul Taylor, Chief Counsel to the Subcommittee on the Constitution for the House Judiciary Committee, lays out a comprehensive argument for federal tort reform in The Federalist Papers, the Commerce Clause, and Federal Tort Reform published in the Suffolk University Law Review.

In the modern era, Congress has enacted many federal "tort reform" statutes that supersede contrary state laws. However, some question the appropriate constitutional role of Congress in enacting federal tort reform. The Federalist Papers, the authoritative exposition on the Constitution written by James Madison and Alexander Hamilton, describe the need for a new federal Constitution that gave Congress the power to regulate "Commerce ... among the Several States." This Article explores in detail the extent to which the arguments presented in the Federalist Papers, many of them too often overlooked, support Congressional efforts to enact federal tort reform. Indeed, the authors of the Federalist Papers advocated for a Commerce Clause that Congress could use to remove state barriers to trade that weakened the national economy. The examples Madison and Hamilton gave illustrating the need for the Commerce Clause encompass by their logic many federal tort reforms regarding both state products and personal liability law, insofar as such reforms are required to counteract significant negative impacts on America's free enterprise system and thereby facilitate the free flow of voluntary commerce between willing buyers and willing sellers nationwide.
Chevron videos on Lago Agrio

Chevron tells its side of the story in a seven-part video series on the Lago Agrio litigation in Ecuador.

Hans Bader, senior attorney and counsel for special projects with the Competitive Enterprise Institute, comments on a recent New York Times story that sheds light on a phenomenon Walter Olson of the Cato Institute tags as the creation of "ADA filing mills."

Bader writes:

Thanks to generous attorney-fee provisions contained in federal civil-rights law, trial lawyers are feasting on Americans with Disabilities Act claims at the expense of small businesses, consumers, and indirectly the public. As I noted earlier, a trial lawyer can collect thousands of dollars in attorney fees for "winning" a discrimination or ADA lawsuit, even if his client collects only $1.

...When it comes to ADA compliance, small businesses are subjected to legal harassment no matter what they do. Many small businesses don't have the freedom to unilaterally modify their entrances or facilities to make them handicapped-accessible, due to municipal code compliance regulations. Instead, they have to submit costly, detailed applications to code enforcers first, and sometimes have to wait months or years for approval, during which time they are sitting ducks for greedy trial lawyers bringing ADA claims. If they make their facilities ADA compliant without receiving the required municipal permits, they get fined by municipal officials.

As the owner of the Cha Cha Chicken restaurant on Pico Boulevard in Santa Monica noted, "We wanted to renovate our bathroom areas to make it more handicap-accessible and it took us almost three years to get all the permits. . .We kept giving all the paperwork they need, but it took forever. We needed the Pico Improvement Organization to plead our case."

As alarming as this practice by trial lawyers sounds, the New York Times article did recognize a valid question generating a great deal of debate; whether the lawsuits are a laudable effort, because they force businesses to make physical improvements to comply with the disabilities act, or simply a form of ambulance-chasing, with no one actually having been injured?

Consumer Reports actually ran the numbers and calls the theory that gasoline is a better bargain in the early morning because of cooler temperatures a myth; underground tanks change temperature very very little over the course of a day. Nevertheless, trial lawyers have proceeded with a gigantic putative class action against virtually every fuel retailer in the United States on the theory that they have committed consumer fraud by failing to disclose to consumers the basic law of physics that liquid expands with temperature, and thus a higher-temperature gallon has slightly fewer molecules than a lower-temperature gallon. Costco was the first to settle: $0 for supposedly injured consumers, and up to $10 million for the attorneys. The Center for Class Action Fairness objected, and that settlement is under review in the district court, with the plaintiffs using junk economics to argue that the settlement is worth $100 million to the class. Meanwhile, with trial scheduled to start next month, Shell, BP, and ConocoPhillips have announced settlements, though details are not available. One suspects, however, that they will similarly unfairly award the attorneys far more than consumers.

Seventy percent of African-American children are born to single mothers. Moreover, children growing up in the African-American community face the peer pressure of gangsta culture: success in school results in ostracism for "acting white."

With such dysfunction in the African-American community one would expect African-American children to have more disciplinary problems than average. And indeed they do: "black students were three and a half times as likely to be suspended or expelled than their white peers".

These problems are certainly difficult: how do you change the culture? Unfortunately, the Obama administration is proposing counterproductive policies that would reduce personal responsibility.

According to the Obama administration, the disparity in discipline is a "civil rights" issue of "equity." The Department of Education is threatening "disparate impact" inquiries on school districts that discipline blacks more than whites or Asians. School districts could only comply by failing to discipline poorly-behaving African-American students; disciplining well-behaving whites to get the numbers up will just result in lawsuits. The consequences would be disastrous. Poorly-behaving African-Americans are most likely to be attending majority-minority schools. The ultimate effect is a wealth transfer from well-behaved African-American students trying to learn to thugs interfering with that process, only adding to the dysfunction of public schools and the African-American community.
[Via Sailer; related at Overlawyered, 2003.]

The Obama administration obsession with disparate impact has led to other counterproductive policy choices because of its unreasonable presumption that disparate impact can only result from illegal discrimination, as we've discussed elsewhere: Jan 2012; Nov 2011; Aug 2011; Jul 2011; Mar 2011.

Bobby Jindal and the trial bar

As complaints rise about Governor Bobby Jindal's failure to crack down on abusive "legacy" lawsuits that are killing jobs, questions are being raised about why the rising GOP star has such close ties to the litigation lobby. [Political Desk via LNL; earlier]

Missouri judicial appointments

The Missouri Plan seems on paper to be an epitome of good government: a "merit selection" process that supposedly takes politics out of the equation. In practice, it's dominated by the trial-lawyer lobby; as one study found, "far from taking judicial selection out of politics, the Missouri Plan actually tended to replace politics, wherein the judge faces popular election (or selection by a popularly elected official), with a somewhat subterranean process of bar and bench politics, in which there is little popular control." The result is a variety of judicial hellhole opinions.

There have been previous calls for reform, but they've gathered speed this year, with the Missouri Legislature considering a constitutional amendment to give the governor and legislature more say over nominations and the nominating committee. The trial bar is lobbying heavily to keep their control over the process. [Pero; Severino]

$7M for attorneys, $0.5M for class

As I note in our featured discussion, and Lester Brickman notes in Lawyer Barons, one of the popular ways to exaggerate the value of a settlement is through a claims-made process. The settling parties tell the court that all of the class members are eligible for relief, then create a claims process that is sufficiently burdensome that only 3% of the class actually recovers, but ask the court to evaluate the settlement on the fiction that the entire class collected. In the pending appeal of Brazil v. Dell, No. 11-17799, the Center for Class Action Fairness LLC is asking the Ninth Circuit to put a stop to this abuse of the class action process.

The case has an interesting twist. Three weeks after the CCAF brief was filed in March, but before the appellees' briefs have been filed, the district court issued a new opinion changing its reasoning and fact-finding from the oral and written opinions it had previously issued. As a friend clerking on a different circuit tells me, the technical term for that is "shenanigans." We've asked the Ninth Circuit to intercede.

(CCAF is not affiliated with the Manhattan Institute.)

In the fall of 2008, James Cromitie - a 45 year old Wal-Mart employee who had converted to Islam in prison on drug charges - met "Maqsood" at a Newburgh, New York mosque. Cromitie told his new friend that he felt sure he was "gonna run into something real big." Maqsood was just the person to help in this regard. As the Washington Post recently reported, and unbeknownst to Cromitie, "Maqsood" was actually Shahed Hussain, a native of Pakistan who had fled to the U.S. when he was arrested for murder in 1994. Hussain got a job as a translator for the DMV, and became an informant when he was arrested on fraud charges for helping applicants cheat on tests. By the fall of 2008, he was working for the FBI, hunting supposed "lone wolf" terrorists in the suburbs of New York. He visited the Newburgh mosque 12 times before he met Cromitie. Hussain told Cromitie that he was part of a Pakistani terrorist group, and when Cromitie told Hussain he'd "like to get a synagogue," Hussain was happy to help, even suggesting, when it appeared that Cromitie had lost interest, that Cromitie could make $250,000. Ultimately, Hussain put together a plot that resulted in the arrests of Cromitie and 3 others for planting fake bombs outside 2 synagogues.

At trial, U.S. District Judge Colleen McMahon expressed concern with the FBI's tactics. "I believe beyond a shadow of a doubt," she said, "that there would have been no crime here except the government instigated it, planned it and brought it to fruition." However, she said, "[t]hat does not mean that there was no crime." She sentenced the 4 men to 25 years in prison.

If you've followed the news for the past decade, Cromitie's case may seem familiar -- "sting" operations involving FBI informants have resulted in arrests in supposed plots to bomb the U.S. Capitol, the Washington, D.C. metro, the Sears Tower and the Portland, Oregon Christmas tree, among others. These cases are part of the government's so-called "pre-emption" strategy against terrorism, in which government agents attempt to identify individuals who might commit an act of terrorism had they the means and opportunity, and to provide those means an opportunity, in order to "neutralize such threats before they come to fruition." This strategy has become so prevalent that the FBI's stable of informants has reportedly grown by a factor of 10 since 1975. In its 2008 budget, the FBI requested more than $12 million for software to track and manage all of its informants.

Government authorities often make deals with participants in crime in order to get information necessary to prove criminal cases. But when it recruits criminals and manufactures crimes, the government enters a whole new Orwellian landscape. There may be room for on honest debate over whether it is necessary to jail individuals for their thought and beliefs in order to combat terrorism. But the tactics that landed James Cromitie -- and dozens of others -- in prison have that result, without the debate.

James R. Copland
Director of Manhattan Institute's Center for Legal Policy

We're proud to have Ted Frank as a Manhattan Institute adjunct fellow and editor of Point of Law, but most of our readers also know that Ted's primary job these days is running the Center for Class Action Fairness, a non-profit entity Ted founded that challenges class action settlements that, in Ted's view, unfairly compensate plaintiffs' counsel at the expense of the class. Scholars at the Manhattan Institute's Center for Legal Policy (CLP) have long worried about abuses of the modern American class action, which have become ubiquitous since Rule 23 of the Federal Rules of Civil Procedure was changed in 1966 to treat all potential class members as class litigants unless they affirmatively opted out of litigation.

In 2002, CLP visiting scholar Richard Epstein, now of NYU law school, articulated the merits and pitfalls of class action practice in a Civil Justice Report and concluded that "we cannot make a uniform assessment of the overall effects of class action practices," since they are "benevolent in some cases and harmful in others." In his 2010 book Lawyer Barons, CLP visiting scholar Lester Brickman, of Cardozo Law School, discussed in depth the degree to which class counsel, operating without a true client, can collude with defendant companies to expropriate unjust fees in class action settlements, in many cases negotiating away plaintiffs' legitimate legal rights.

Like Professor Epstein, Ted is not opposed to all class actions, but he's particularly concerned about the fee abuses Professor Brickman highlights. Other legal scholars, however, have defended current class action practice, including fee awards, as essential to deterring corporate misconduct. Foremost among these academics is Brian Fitzpatrick of Vanderbilt Law School, who has argued that class counsel should receive as much as 100% of awards as fees in small stakes cases. Ted and Brian have been sparring about this issue recently in many live forums, and we are happy to welcome Professor Fitzpatrick to Point of Law to debate the issue here, with our editor.

James Copland, director of Manhattan Institute's Center for Legal Policy, participated in a webinar moderated by Paul Atkins, former SEC Commissioner, (2002-2008,) on shareholder activism concerning corporate spending disclosures.

Other participants included:

Brian Cartwright - Role of the SEC; 14a-8 process; Home Depot Letter; Academic rulemaking petition, counter letter.

Andrew Pincus - New ISS standard; Activist agenda.

William Walton - Management & Board perspective; Fiduciary responsibility of management.

Early this week, the WSJ published an article about Nancy Black, a marine biologist and operator of whale watching boats, who is facing multiple criminal charges that can land her in prison for up to twenty years. Her crime, while surely an oversimplified description, can be boiled down to allegedly lying to federal officials in violation of Title 18, Section 1001 of the U.S. Code.

The WSJ reports:

When one of her boat captains whistled at a humpback whale that approached the boat a few years ago, regulators investigated whether the incident constituted harassment of a whale, which is illegal.

This past January, Ms. Black was charged in the case -- not with whale harassment, but with lying about the incident. She also faces a charge of illegally altering a video of the whale encounter, as well as unrelated allegations involving whale blubber. Together, [all of] the charges carry up to 20 years in prison.

... on a morning in November 2006, more than a dozen federal agents, led by a NOAA inspector, entered her house with a search warrant and took away her files, photos and computers.

In the five years since the raid, Black says she has paid more than $100,000 in legal fees so far. Her lawyer notes that despite years of investigation, the government didn't find evidence to charge Black with wrongdoing.

But that's not all for maritime overcriminalization. A new bill has been introduced in the Senate sponsored by Senator John Kerry (D-MA). S. 2279: R.M.S. Titanic Maritime Memorial Preservation Act of 2012 "makes it a federal crime, punishable by up to five years imprisonment, to disturb, remove or injure Titanic property; engage in activities that threaten public safety; sell, purchase, barter, or import Titanic property, including human remains; or to enter the hull of the sunken vessel."

So if anyone had any plans to scour the Atlantic in search of the Heart of the Ocean, they may want to call off the exploration party. While the blue diamond is fictitious, the effort to institute serious criminal penalties in protecting an already legislatively protected historical site is peculiarly very real.

Every first year law student knows the concept of mens rea, which requires proof of a "guilty mind" before a defendant may be convicted of a crime. Many criminal statutes require that a defendant "know" a particular fact before he may be convicted of a crime. For example, the federal counterfeiting statute requires that the defendant "knowingly" attempt to pass off a counterfeit bill -- i.e., that the defendant know not only that he is using a bill, but also that the bill he is using is bogus.

But what does it mean to "know" a fact? In Global-Tech Appliances, Inc. v. SEB, S.A., the Supreme Court held for the first time that "willful blindness" may satisfy a statute's knowledge requirement (most Circuit Courts had already accepted the doctrine). Under the "willful blindness" doctrine, a defendant may be convicted of violating a statute that requires knowledge of a fact, even if the defendant did not have actual knowledge of that fact, where the defendant's ignorance is deliberately contrived. The Gloal-Tech court went on to hold that recklessness is insufficient to prove "willful blindness;" it requires proof that an individual "subjectively believe[d]" that a "high probability" existed with regard to the fact in question, and took "deliberate actions to avoid learning of the fact."

To the extent it imposes these requirements on the "willful blindness" instruction, Global-Tech can be read as heightening the prosecution's burden. But it is worth taking a step back, and, rather than focusing on the requirements of the doctrine, questioning the validity of the doctrine at all. Justice Kennedy did just that in his dissent in Global-Tech. The majority in that case wrote that an individual who deliberately avoids learning a fact "can almost be said to have actually known" that fact (emphasis added), but as Justice Kennedy pointed out, the willful blindness doctrine is used "to bring those who lack knowledge within the ambit of a statute that requires knowledge" (emphasis added). The majority also wrote that willfully blind defendants "are just as culpable as those who have actual knowledge," but Justice Kennedy found this to be a "question of morality and of policy" that is "best left to the political branches."

The willful blindness doctrine has been created not by legislatures, but by, in Justice Kennedy's words, "judges . . . broadening a legislative proscription by analogy." Moreover, as Justice Kennedy also noted, Global-Tech involved the interpretation of a civil statute concerning patent infringement, and the Court's decision was made without briefing or argument from the criminal defense bar." In short, in Global-Tech, the Supreme Court put its imprimatur on a doctrine that substantially eases the burden of prosecutors in proving knowledge, and that may allow convictions for very serious crimes based on far less evidence of complicity than was contemplated by the legislature that created the crime requiring "knowledge." It did so in a case in which there was no briefing or argument concerning the effect of the decision on criminal proceedings. There can be little doubt that the decision will result in more findings of guilt, either by juries not required to find actual knowledge, or through plea agreements driven by defendants' fear that, even if they did not know a crime was being committed, a jury might find that they should have.

Feature, not a bug, department

The Atlantic bemoans (h/t A.I.) that the decline in law school applications is largest from those with the higher test scores. This is the wrong way to look at it: we as a society want people capable of scoring 170 on the LSAT to do something more socially productive than practicing law. Related.

California is one of the few states that impose financial penalties for failing to provide meal and rest breaks, but class action lawyers have gone further and argued that employers who fail to "ensure" that employees actually take the breaks (rather than just make the breaks available to employees) are liable. This is great for lawyers, but not so good for everyday California workers. Aside from the regulatory burden on employers who are thus disincentivized from hiring because of the increased marginal expected litigation expense of an additional employee, employers are forced into Draconian policies of firing workers who don't take their required breaks, lest they be sued for leniency. [AP via Bashman; CalChamber; Seyfarth Shaw]

It's far from clear that this is a preferred outcome for workers ex ante, especially when California class action law allows class action attorneys to collect a disproportionate share of any recovery. The result is not just increased unemployment and increased uncertainty for workers, but a wealth transfer from wage employees to wealthy attorneys.

Meanwhile, in Illinois, employers facing similar quandaries can face liability either way: an Illinois employee fired for refusing to take her lunch break successfully sued for unemployment insurance (h/t).

Before the Lilly Ledbetter Act was passed, there were already federal laws on the books prohibiting sex discrimination in pay. The only thing the Ledbetter Act does is make it easier for employees to bring bogus fair-pay claims accusing long-gone or dead managers of discrimination. (One such bogus fair-pay claim is Lilly Ledbetter's own lawsuit, yet the media regularly buys into the portrayal of her as a victim.) This raises the expected litigation expense of hiring or retaining employees—which in turn reduces hiring and wages, kills jobs, and transfers wealth from the middle class to the wealthy—and male-dominated—legal profession. The law is a golden example of President Obama and a Democratic Congress favoring a wealthy special interest at the expense of everyday Americans and the economy.

So when Mitt Romney's campaign is asked about the law, why can't they say that? Instead of making an argument against the Obama presidency, they let themselves be mau-maued into implausibly claiming support for a Democratic bill. It's hard to imagine the pander gaining them any votes; and it's hard to imagine how Romney is going to win in November if he can't or isn't willing to construct a coherent argument for how Obama is hurting the economy.

More: Stuart Taylor @ NJ; Bader @ Examiner; Overlawyered. Earlier.

Both the Center for Individual Rights and PLF have filed Second Circuit amicus briefs arguing against Judge Harold Baer's requirements that class counsel meet racial quotas in Blessing v. Sirius XM. (Oddly, neither brief was online; I was waiting for the organizations to publicize their January filings before posting. I've now uploaded them: PLF; CIR.

Meanwhile, Judge Baer is still demanding racial quotas in class certification orders. [PERS of Mississippi v. Goldman Sachs; earlier and also]

Around the web, April 11

  • Epstein on DOJ lawsuit against Apple. [Epstein @ Ricochet]
  • Replaying the Duke Lacrosse case at the New York Times with Patrick Witt's reputation; and why isn't there more of a scandal with Yale's abuse of an already abusive process? [KC Johnson @ MTC]
  • The federal prosecutorial overuse of §1001 charges, turning minor civil regulatory violations into federal felonies. [WSJ]
  • PLF speaks out against the ridiculous Toyota sudden acceleration class action litigation in the Ninth Circuit. [PLF]
  • Lawsuit against Iowa government alleges subconscious discrimination based on disparate impact, using theory rejected in Wal-Mart v. Dukes. [Overlawyered; Sailer]

  • Ohio Supreme Court urged to review abusive certification of class action in Cullen v. State Farm, where, speaking of Wal-Mart v. Dukes, lower courts disregarded individualized defenses. [WLF; ATRA; WLF brief]
  • Why the Supreme Court should curb the Alien Tort Statute. [Bellinger @ WaPo; Overlawyered; related @ Volokh]
  • New Hampshire "early offer" statute proposed. [TortsProf; SeaCoast Online]
  • Nearly half of the Warren Court justices were infrequent questioners (and Ruth Bader Ginsburg has fallen asleep during oral argument), but that Clarence Thomas is uniquely quiet among the historically unusually hot bench of the current Supreme Court is somehow evidence that he's a bad justice. [Drumm via Alkon]
  • Remember Obama Girl? She's shilling for a Kentucky Social Security disability lawyer now. [YouTube (h/t R.U.)]

Last week, Point of Law wrapped up a featured discussion that we hope helped shed a light on the legal issues involved in the health care cases argued before the U.S. Supreme Court. We were grateful for the participation of some of the most prominent legal scholars and analysts. Two of those distinguished participants returned to discuss the many relevant legal issues and to expand on their commentary in the discussion.

In a podcast recording, former president of the ACLU and current professor of law at New York Law School, Nadine Strossen, analyzed the arguments of those challenging the individual mandate, saying:

There was so much emphasis in the briefs and the oral arguments challenging the law that this kind of regulation is different, 'never before.' That's why using words carefully, as all advocates do, the opponents and critics of the central minimum coverage provision refer to it as an individual mandate. Because they are trying to stress the notion that this is actual government compulsion to individuals to obtain some services that they otherwise would not; to obtain some product that they otherwise would not. Arguably, that's something that has never been done before. I disagree with that characterization, but I think that's really where the fight is going to come down.

Michael Rosman, general counsel of the Center for Individual Rights, in his podcast, articulated his argument by analyzing instead the arguments in support of the individual mandate:

[You've identified two different arguments] One is you cannot self-insure, which is basically the same thing as saying you can't just sit there and do nothing. In which case the question is, is it a regulation to force someone to purchase a product in a market, is that a regulation? The other thing they say is, well everybody, as you say, is going to buy health care at some point or another and we're simply regulating how they're going to pay for it. The problem with that of course is that; well it doesn't. It doesn't regulate how people pay for health care. You don't have to use your insurance in order to pay for health care.

In the context of the health care market, it's like asking whether subsidized student loans regulate the market for higher education services. Well, they certainly give people an incentive to use loans to pay for higher education services, but you can reasonably question whether that constitutes a regulation of the higher education services market. They certainly have given people an incentive to use their insurance to pay for health care, but they haven't said you have to. And they haven't otherwise regulated how you go about paying for health care. So arguably, and I think this is not a bad argument at all, the statute doesn't really regulate the market for health care in that way.

We hope to bring all of our distinguished discussants back to comment post-ruling to get their thoughts on the decision in light of their commentary. For our most recent Obamacare coverage, listen to the full versions of the podcasts and review the results of our online poll.

The Baylor Law admissions office had a bit of an oopsy recently: they sent an email to every incoming student disclosing all of their admissions data: name, address, phone number, GPA, LSAT, admissions acceptance date, race, and scholarship money, a treasure trove of data rarely available to researchers. If you believe Elie Mystal at Above the Law, the data shows that affirmative action isn't such a big deal:

Eyeballing the numbers (and I haven't done a full statistical analysis on this data because I think it's kind of missing the point), I see about a three to four point bump for African-American or Hispanic students. By "bump," I mean to say that if you were a white student, you had a fighting chance to get into Baylor with a 161 or 162 LSAT score. If you were black or Latino, you were in the running with a 159 or 158. There are some outliers, of course -- a black kid with a 156, a white kid with a 158 -- but, in general, I'm eyeballing the mode for white students at 162, and the mode for blacks and Hispanics at 159 or 158.

This is wrong for a couple of reasons. First, there's an iceberg effect; the spreadsheet doesn't have the data of the people who were rejected for admission. If a 3.7 GPA/162 LSAT gets a white a 30% chance of admission, but an African-American a 90% chance of admission (or vice versa), then there's racial bias with real adverse effects on the disfavored race, even if the averages in the admitted student body doesn't show a lot of disparity. But it's wrong because there's no reason to "eyeball." It's already in a spreadsheet; do an hour of work and run the real numbers. David Lat was kind enough to forward the spreadsheet to me; I deleted the names and addresses and phone numbers, and went to work with the quantitative information.

At a first superficial glance, the data suggests no real affirmative action bump. (NB that the ATL post is incomplete, because it doesn't account for students who identified as multi-racial: thus, some students identified in the ATL post as Caucasian were counted as ethnic minorities in my analysis. See the footnote below for more information.) The sixty non-Asian minorities averaged 3.58 GPA and 162.9 LSAT; the 42 Asians averaged 3.44 GPA and 164.4 LSAT; the 329 whites and did-not-identifies averaged a 3.54 GPA and 164.5 LSAT. As Elie eyeballed, there's only a point or so LSAT difference on average. (But see the April 10 update, as this may be an artifact of the sample that is hiding a larger affirmative action bump.) Note that even these averages hide some shocking disparities in the admissions data.

The most obvious one is that only 14 students in the entire class of 441 (again, see the footnote after the jump) identify as African, African-American, or multi-racial with African ancestry. Baylor may not be giving much of an admissions bump to African-Americans, but the consequence of not reducing admissions standards for African-Americans is that the class is only 3% black. A different university trying to up that number is likely to see a larger disparity in GPA/LSAT scores. (See, however, the April 10 update, as a data sample artifact may be influencing this particular result.)

But Baylor itself does see a big disparity in another metric. I sorted the 431 students with "LSAT Index" scores. (An LSAT Index adds the LSAT to 10 times the GPA.) The top quartile is above 202 (e.g., 3.9/163 or 3.5/167); the median in 199 (e.g., 3.3/166 or 3.8/161), the bottom quartile is below 197 (e.g. 3.6/161 or 3.3/164). Baylor did not vary from the LSAT index often, only 2% of the class was below 193 and the lowest index was 189. (Again, see, the April 10 update.)

In the top quartile (and stretching down to the top 128 admittees), there was a single African-American. So it's not accurate to say affirmative action makes little difference. The 4.0/170 white with a 210 Index gets a full scholarship to Baylor Law. The 4.0/170 black with a 210 Index might get the same offer, but doesn't accept the full scholarship to Baylor Law: she presumably has better options available to her. One would expect a 4.0/170 African-American to end up at a top-14 law school. Moreover, the 3.7/167 African-American generally isn't accepting the offers to attend Baylor Law, either. If we expect the top 10% of the class and the editorial board of the Baylor Law Review to be much more likely to come from the top quartile of applicants, African-Americans are going to be even more underrepresented than that 3%. If nothing else, larger bumps of affirmative action are having an effect on Baylor Law's diversity.

But the real difference was in the scholarship money. Though non-Asian minorities had slightly lower Index scores on average, they averaged $24,231 in scholarship money; whites and Asians averaged under $20,000. It's unclear to what extent Baylor Law considers financial need in scholarship money, but it's clear that merit makes a big difference. Over 90% of students with Index scores above 206 got full scholarships (the three who didn't were white); less than 3% of students with Index scores below 202 got full scholarships, and all seven were African-American or Hispanic.

Again, we don't have to eyeball; we can perform a basic regression on GPA, high LSAT score, and race.

Variable Coefficient Std. Error t Stat
Intercept -435088 24570 -17.7
GPA 26794 1456 18.4
High LSAT 2190 140 15.6
African-American? 9575 2615 3.66
Hispanic? 7023 1577 4.45

Adjusted R-square = 53.7%. N = 431.

To translate into English, a bump of GPA of 0.1 is worth, on average, $2679 in scholarship money; a single LSAT point is worth $2190. But that does not compare to the scholarship money awarded for being a Star-Bellied Sneech with the power to Bestow The Experience Of Diversity upon Lithuanians and Macedonians and Jews who would otherwise be deprived. Checking the African-American box on your Baylor Law application is worth $9575/year, all else being equal; Hispanic heritage is worth $7023. In other words, if you were a white with your heart set on a scholarship to Baylor Law, and a magical genie offered you the choice of increasing your LSAT score by 4 points or changing your skin color, you'd be better off financially with the latter option. (Perhaps the disparity can be explained by financial-aid factors, if African-Americans are more likely to apply from families without household assets; if so, that data is absent from the spreadsheet. I strongly suspect these are just merit scholarships, as the only financial data reported in the spreadsheet is the scholarship amount.) All four variables are statistically significant well above the 99% level. Corporations have paid millions of dollars in disparate impact litigation settlements on far flimsier evidence. And hundreds of law students short-changed tens of thousands of dollars of scholarship money each over three years because of their skin color? Sounds like a multi-million dollar class action to me.

I don't mean to single out Baylor; it's undoubtably the case that virtually every other top-sixty school is engaging in the same shenanigans in competing for a limited pool of qualified African-Americans. (NB that I am not claiming that the pool is limited because African-Americans are not smart enough to go to law school; miserable urban public school systems and the disproportionate number of single-mother families surely do a lot to depress the number of African-Americans who get the education to do well at college and apply to law school.) As Richard Sander has noted, Baylor's plight is created by the better-ranked schools above it poaching the African-American students who would otherwise be at the top of the Baylor Law class; Baylor has to pony up extra scholarship money just to attract the handful of African-Americans it does have. But it really surprises me that a group as litigious as white law students hasn't done more to ask for the law to be evenly applied; this is a much easier case for plaintiffs than complaining about alleged consumer fraud in employment statistics.

Related. Discussion of statistical methodology (and an important update) after the jump.

H.R. 5 passes the House on a largely partisan vote. Since the bill will die in the Senate, and would not have survived an inevitable Obama veto, it's hard to imagine why people have been so worked up about it. [Overlawyered; House Rules Committee]

Case in point: Patricia Moore of the Civ Procedure Prof Blog and St. Thomas Law School, not only has to use scare quotes in discussing tort reform, but makes the astonishing claim "And if you keep repeating over and over that damages caps lower malpractice premiums, maybe it will someday be true despite all empirical evidence to the contrary." Moore is entitled to her own opinion, but not to her own facts. It's unquestionable that damages caps reduce malpractice premiums. It's beyond silly to claim otherwise: If caps don't reduce the amount insurers pay out for malpractice, why does the litigation lobby spend so much time and money opposing them?

I've questioned the utility of federalizing medical malpractice: if Republicans want to claim that PPACA is unconstitutional, it makes sense to leave medical malpractice, a local market and a local issue unlike the national problem of product liability, to the states. If Pennsylvania wants to drive all of its doctors to Texas because it would rather make its lawyers rich, that's what competitive federalism is all about. (In contrast, if West Virginia wants to expropriate the gains of interstate commerce through product liability laws that punish out-of-state defendants, Congress and the courts should be stepping in: such state abuse is exactly why we don't have an Articles of Confederation any more.) Rep. Broun proposed an unsuccessful amendment to the bill that would have adopted one of my suggestions: reduce federal expenditures by creating caps on medical procedures reimbursed with federal money, limiting the bill that way.

Reversing the mistake of Wyeth v. Levine would have far more beneficial effects on medical expenses and the economy, and be more consistent with federalism, even correcting a federalism mistake of the Supreme Court. But that probably wouldn't pass the Senate, either.

"Attorney fee-only" bankruptcy plans

Attorneys' fees in bankruptcy are generally not available from Chapter 7 estates, so attorneys found a way to abuse the system and put their interests first: a Chapter 13 filing where virtually the only thing the debtor pays is the fees, even if the debtor would be better off with a Chapter 7 filing. Some bankruptcy courts recognize this for what it is and reject it entirely. The First Circuit now begs to differ, and, rather than holding them per se unlawful, calls for bankruptcy courts to perform a balancing test in case there is a special circumstance where such a plan would be appropriate. [WSJ Law Blog; Reuters; In re Puffer]

The ruling's punting seems a mistake. It's hard to imagine that any injustice from a per se rule will outweigh the cost to society of litigating the parameters of whether a fee-only plan is abusive or not. Of course, lawyers benefit from a more complex system that requires more litigation: paging Benjamin Barton and Judge Jacobs.

Richard Epstein podcast

Richard Epstein discusses his new book Design for Liberty at LLL.

The trial-lawyer funded "Center for Constitutional Litigation" challenged the power of the Texas legislature to create malpractice limits to prevent runaway juries under the Seventh, Fifth, Fourteenth, and First Amendments. No dice, said a magistrate judge in Marshall, Texas. [Legal Newsline; TLR]

On Tuesday, March 27, Point of Law launched a featured discussion to run concurrent to the oral arguments in the health care cases before the U.S. Supreme Court. Participating the discussion were some of the nation's leading legal scholars and analysts. We are really grateful for their participation in what was an engaging, thought-provoking and comprehensive discussion which while not "unprecedented" on Point of Law was of the highest caliber.

Now we would like to know what our readers thought of the discussion. We want to know which discussant you believed had the most compelling arguments and how you think the court will rule on the challenged portions of the health care legislation. All of the comments are available under our featured discussions tab and sorted from oldest to newest post. We look forward to your feedback!

Additionally, two new podcast interviews will be uploaded on PoL next week featuring discussants Nadine Strossen and Michael Rosman as they react to the oral arguments and expand on the arguments they articulated in their comments.

Please take a second to participate in our poll!

Sackett v. EPA

PLF wins the important Supreme Court case of Sackett v. EPA, reaffirming the right of landowners to challenge agency compliance orders under the Administrative Procedure Act. Justice Alito's concurrence goes even farther, citing CEI's amicus brief, the only amicus brief cited in the case. Congratulations to all. More at ABAJ.

Many of the abuses in the class action system come when courts forget that class actions involve clients rather than attorneys acting as free-roaming consumer-protection vigilantes. The Third Circuit did not make this mistake in McNair v. Synapse Group, decided March 6.

Charles McNair bought a magazine subscription through Synapse Group, which uses the business model of a low introductory rate and an automatic renewal. He alleged that the defendant used sneaky mechanisms to hide the automatic renewals and that this violated consumer fraud laws, and asked for class certification for prospective injunctive relief to change Synapse's business practices. Synapse argued that the plaintiffs did not have standing to seek prospective injunctive relief, because they had no risk of future injury, as they were already aware of the alleged "fraudulent" practices. The Third Circuit agreed:

Perhaps [plaintiffs] may accept a Synapse offer in the future, but, speaking generally, the law accords people the dignity of assuming that they act rationally, in light of the information they possess. ... If Appellants' suggestion is that they may not be able to help themselves when confronted with a really good subscription offer, they have still not provided a basis for standing. Pleading a lack of self-restraint may elicit sympathy but it will not typically invoke the jurisdiction of a federal court.

All too often, I see class actions alleging harms for past injury settled for future injunctive relief that does class members no good unless they do repeat business with the defendant. These settlements are effectively zero-dollar coupons: class members are no better or worse off than non-class members, and have not been compensated for their past injury. Courts need to reject the idea that future injunctive relief is compensation for past injury, and McNair reminds us that class representatives are not situated to bring claims seeking future injunctive relief as protection against consumer fraud. Andrew Trask has good coverage and commentary.

Disclosure: I have a case pending before a panel including Judge Jordan, who decided McNair.

Anonymous speech is an important element of the First Amendment right to free speech. Publius, of the Federalist Papers, is the most famous pseudonym, but the ability to speak anonymously can be of great importance beyond that. Relatively few people with Internet sites can assume the risk of responsibility of their anonymous commenters' speech. It is this reason that Section 230 of the Communications Decency Act is so important. Liability for anonymous commenters would require screening of comments, making forum discussions on Internet sites prohibitively expensive.

For this reason, I am concerned about the report from the McIntyre v. Ohio blog about a proposed law to eviscerate Section 230 and potentially hold web site administrators liable for the speech of their commenters. One would hope that Congress sees through the anti-terrorism veneer and rejects this law as the attack on the First Amendment it would be. On the other hand, the bill's sponsor, Senator Joe Lieberman, has previously called for Twitter to censor accounts he did not like. Lieberman should know better; the senator I so much expressed admiration for would never do such a thing.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.