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July 2012 Archives

Parloff on cy pres
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In a July 30 story that quotes and appears to rely heavily on my 2008 article on cy pres, Roger Parloff discusses the use of cy pres in tech-company class action settlements, noting the pre-existing relationship between Google and Facebook and many of its cy pres recipients. We previously discussed the Google Buzz cy pres last year, and have been covering the Fraley v. Facebook case.



Last week, George Will wrote about Marine biologist Nancy Black, who has been under criminal investigation for years in connection with a 2005 incident in which a crew member on her whale-watching ship whistled at a humpback whale. (Yes, you read that right.) The Wall Street Journal previously reported that Ms. Black was not charged with interfering with the whale, but with making a false statement to government investigators when she edited a videotape of the incident in order to highlight the whistling. Ms. Black is also under investigation for illegally "feeding" killer whales, when she cut a hole in a strip of blubber (which the orcas had torn off a gray whale they had killed, and on which they were already feeding) in order to photograph the whales. Ms. Black's home has been raided, her files and computers seized, her accountant subpoenaed, and her life savings depleted. George Will likens the situation to Kafka, but when examining whether this is how the criminal law should work, we might ask ourselves, as the Pequod's crew did, is this what we shipped for?


Professors Peter Rutledge and Christopher Drahozal in SSRN via Sovern:

This paper contributes to an ongoing debate, afoot in academic, legal and policy circles, over the future of consumer arbitration. Utilizing a newly available database of credit card agreements, the article offers an in-depth examination of dispute resolution practices within the credit card industry. In some respects, the data cast doubt on the conventional wisdom about the pervasiveness of arbitration clauses in consumer contracts and the presence of unfair terms. For example, the vast majority of credit card issuers do not utilize arbitration clauses, and by the end of 2010, the majority of credit card debt was not subject to such an agreement. Likewise, while the use of class waivers is widespread in arbitration clauses, most clauses lack the sorts of unfair procedural terms for which arbitration is often criticized. The upshot of these and other findings is that consumers, in some respects, have more choice in their contracts than the literature suggests. Our work also responds to the suggestions of some scholars that businesses favor arbitration clauses in their consumer contracts but not their business-to-business agreements. On the contrary, our research suggests that the difference may not be as dramatic as previous research suggests. These results hold important implications for ongoing policy debates, including the work of the newly minted and controversial Consumer Financial Protection Bureau ("CFPB"). The CFPB has been charged with studying and, if appropriate, regulating the use of arbitration clauses in credit card agreements. Our findings signal a note of caution and suggest that a blanket prohibition on the use of arbitration clauses would be difficult to defend under principles of administrative law.

Related. I'm somehow not surprised to learn that the Eisenberg/Miller/Sherwin paper on arbitration overstated its results. Remarkably, when Eisenberg errs, he consistently errs on the side of trial attorneys. But surely that's just a coincidence.



Vice President Biden raised [update: at least] hundreds of thousands of dollars at an event in conjunction with the American Association for Justice's annual convention in Chicago Monday.

"You're the ones who say -- for all the malarkey you get -- you're well remunerated for what you do," Biden said. "... But man, I don't know what we'd do without you. Who is going to step up and take the case of the little guy who's getting screwed?"

You know, like all those little guys who used to work for the nation's largest gas can manufacturer, now losing their jobs because of frivolous litigation? Blitz U.S.A. closes today, putting 117 employees out of work. (Daily Oklahoman, Wall Street Journal editorial, "The Tort Bar Burns On," WSJ letters in response.)

Interesting how little advance notice of Biden's appearance there was. In the past, AAJ's full agenda for its convention would sometimes list outside political events. This time? Nope. Its as if the association of plaintiffs' attorneys was understood to be a political negative for candidates.

We recently wrote on how the AAJ's membership had dropped by half over the past decade, but AAJ's influence come less from its membership than its political contributions. To wit:

Alison Frankel of Thomsons/Reuters followed up on our report and received this defense of membership numbers from AAJ. It's misleading, an AAJ spokesman (Christopher Scholl) said, because the association has redefined its membership rules and culled its lists.

I asked Scholl for hard numbers to back his assurances of AAJ's continued success. He said the group does not disclose membership revenue, but he did send me a spreadsheet of contributions to AAJ's Political Action Committee, which are publicly reported. According to the spreadsheet, which goes back to 1995, 2011 was a record year for the PAC, which took in more than $2.7 million. That followed a slight dip in 2009 and 2010, when receipts were around $2.4 million a year. This year, the PAC had taken in $1.3 million as of June.
Fighting for the little guy by making millions of dollars of campaign contributions..

Scholl also wrote a blog post at www.fightingforjustice.org, "Big Numbers Expected at AAJ Convention." We read the post as defensive.

More Biden in Chicago, City of Broad Shoulders, which makes for really twisted arms:

[UPDATE: 9:25 a.m.] Bork bashing!

"Imagine the Supreme Court after four years of Romney. This is not scare tactics, just what he said," Biden said. "If you're frightened, it's because you should be. You know who his adviser on constitutional issues is? Appointed officially? Robert Bork."

No surprise coming from Biden. George Will, 1987, "Biden v. Bork."


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

Last week we discussed the curious story of Gold Bar, Washington and its crushing legal bills. According to data from researchers at Rockefeller College, local governments dealing with soaring legal costs are not merely west coast phenomena:

Localities in the state [of New York] spend at least $1 billion a year on judgments and other costs of lawsuits, according to preliminary data from Rockefeller College.


Taxpayers in Albany, Schenectady and Troy have been stuck paying hefty settlements in cases ranging from a death during a police pursuit, criminal conduct by a school manager and violation of First Amendment rights. [Timesunion.com]

A full report on these findings has been commissioned by the Lawsuit Reform Alliance of NY and is scheduled to be released this fall. Until now, a state-wide report on the legal costs New York municipalities face has not been attempted given the difficulties in aggregating the relevant data. In a preliminary report, the researchers describe the adverse consequences unanticipated legal bills can have on small communities:

While judgment costs were generally low in proportion to total expenditures, in some cases individual municipalities and counties experienced higher costs on a sustained or intermittent basis. This can be quite a fiscal shock for a small local government. In 2007, the Town of Haverstraw in Rockland County incurred judgment costs of nearly $27 million, or 47% of the entire town budget that year. The town budget virtually doubled as a result of judgment and claims payments. The previous year (2006), the Village of Broadalbin in Fulton County incurred judgment costs equaling 17% of overall expenditures, approximately $175,000 in a village with a budget of just over $1 million.

The report clarifies that cases like Haverstraw and Broadalbin are "outliers," but goes on to note that "a number of other local governments" have faced more modest - yet still substantial - "spikes" in lawsuit costs (comprising around 5% to 6% of total expenditures).

Outsized legal costs are not unique to small municipalities, either. Earlier this year, Ted Frank discussed the $560 million New York City spent on lawsuit payouts in 2011.


There was a lot of publicity about the "$8.5 million" Groupon will pay to settle a class action over expiration dates; several class members complained about the settlement to me, mostly because they viewed the lawsuit as silly. (So did Groupon, before their lawyers made them take down the original blog post criticizing the first of the many class actions brought against them.)

But the settlement is even worse than it looks. Before the settlement, if a Groupon customer had a problem with a Groupon, they contacted customer service, indicated dissatisfaction, and got a full cash refund.

After the settlement, if a Groupon customer has a problem with a Groupon that they purchased during the class period, they contact customer service, and customer service refers them to the class action settlement website, where they can fill out a claim form; after several months (and perhaps years), the class action settlement administrator will give the class member a pro rata share of the settlement fund—which, though the publicity says is $8.5 million, less than $6 million of it will be likely available to the class.

In other words, the class action attorneys have negotiated a settlement that makes their clients—who had suffered no damages because of the availability of refunds—worse off, and are asking for millions of dollars for their efforts.

I discovered this the hard way: I purchased a Groupon Voucher for a restaurant that closed, and tried to get my money back from Groupon. They told me to file a claim form. Fortunately, when I suggested that this was subpar customer service, they gave me a credit—which goes to show further that this is not a marginal benefit to the class of $8.5 million, but a change in accounting entries to rationalize a $2.125 million request for attorneys' fees.

Today I filed an objection. The case is In re: Groupon, Inc., Marketing and Sales Practices Litigation, No. 3:11-md-2238-DMS-RBB (S.D. Cal.), and the fairness hearing is scheduled for September 7. Lead class counsel is Robbins Geller.


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

Controversy has re-ignited over a New York law that was enacted in 1882 and is commonly referred to as the "scaffold law." A New York Daily News Columnist penned a piece in which he projected that replacement of the Tappan Zee Bridge would "likely cost hundreds of millions more than necessary" because of various arcane state laws such as the scaffold law, earning him much criticism from the trial bar and labor unions.

Officially found in Labor Law Sec. 240(1) of the New York Code, the scaffold law (as its nickname suggests) was originally meant to protect workers against injuries that occurred in the course of dangerous construction projects taking place high in the air. The scaffold law makes employers absolutely liable for accidents that fall within the law's reach, even when the worker was partially at fault. Over time, courts have consistently broadened the types of injuries covered by the scaffold law:

Historically courts construed the scaffold law to apply only to those "special hazards" that arose from elevation-related risks such as falling from a height, known as the "falling man hazard," or suffering a strike by an improperly hoisted or inadequately secured object, known as the "falling object hazard." [Report by the Renzulli law firm].

The analysis changed dramatically, however, after the 2009 New York Court of Appeals case Runner v. New York Stock Exchange, in which a worker was injured while operating a pulley system that was lowering an object (the worker was not injured by the object itself). The defendants argued that since the worker was neither elevated at the time of injury nor injured by a falling object, the scaffold law should not apply. Amazingly, the court rejected this argument, ruling that the role gravity played in the injury was sufficient to extend the scaffold law's absolute liability protection to the worker. Dismissing the importance of elevation, the court wrote:

The relevant inquiry--one which may be answered in the affirmative even in situations where the object does not fall on the worker [and the worker is not elevated]--is rather whether the harm flows directly from the application of the force of gravity to the object.

A more recent court decision extended the scaffold law even to situations where an object on the same level as the worker injures the worker.

Despite various reform efforts over the years, New York remains the sole state in the country with an absolute liability scaffold law. The most recent reform attempt was introduced this past spring by Democratic Assemblyman Joseph Morelle and others and seeks to replace the law with a comparative negligence standard. Meanwhile, New Yorkers face higher construction costs as a result of the scaffold law:

"The problem with the law is it's so expansive that virtually every accident on the job site is going to result in civil liability," said defense attorney William Greagan of Goldberg Segalla in Albany. "I tell my contractors, if an ambulance comes to your site, you're going to get sued."


The result, according to Michael Elmendorf of the General Contractors Association, is that New York contractors have to pay an extra 30% for their liability insurance.

For the $5 billion Tappan Zee project, that senseless cost equates to a whopping $100 million.

Summers v. Tice revisited
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Kyle Graham looks at the historical record of the classic court case of Summers v. Tice, and, with his characteristic humor, finds the factual result to be the sort of travesty we've come to expect from the California state courts, with the evidence more than preponderantly pointing to Simonson, rather than Tice.

To which we can add my commentary. In the pre-jackpot-justice days of 1948 when damages for a lost eye and pain and suffering are $10,000 (about $95,000 in 2012 dollars), the sorts of errors that the justice system makes are a lot less important. But when the sums at stake in tort cases are so small, it's hard to justify today's attorney's fees and salaries on both the plaintiffs' and defense sides (not to mention the tuitions charged by the legal academy), so we can see why there's so much resistance to ending jackpot justice.

Around the web, July 27
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  • First lawsuit in the Colorado theater shooting wants to blame Warner Brothers for an event planned months before the movie came out. Somehow ten million other people saw the movie this weekend without shooting anyone. [Overlawyered]
  • I'm surprised a product-liability attorney hasn't independently heard of the overwarning phenomenon, but she deduces the hypothesis very well without using the technical term. And, yes, it's a real problem, recognized in the literature and by courts. [Abnormal Use; also earlier on PoL]
  • I am shocked, shocked, to learn that Media Matters is misrepresenting conservative writers instead of addressing their arguments honestly. [Bader; earlier on PoL]
  • Oral argument in Fisher v. University of Texas affirmative action case set for October 10. [Clegg via @FedSoc]
  • Shall we abandon "shall"? [Garner @ ABAJ via @andrewmgrossman, and don't miss Garner & Scalia & David Foster Wallace in the WSJ Speakeasy blog]
  • Political posturing against Chick-Fil-A could have bad long-term consequences for liberals; not that conservatives who demanded a shutdown of the Ground Zero mosque have the moral high ground. [OL roundup; Mandel @ Commentary; Serwer @ MoJo; Greenwald; see also Merritt]

  • In the cure-is-worse-than-the-disease category, see Holman Jenkins's proposal to have government preemptively prevent mass murders by monitoring everyone's communications. No concern for privacy, much less, say, false positives or the abuse from a government that has previously been more prone to classify right-wing movements as potentially violent than it has (more violent) left-wing movements. [WSJ]


The trial lawyers are jumping fully into the voter-identification conflict, with the American Association for Justice creating a Voter Protection Action Committee and offering training to its members.

AAJ recently added three training sessions to the agenda of its annual convention, which starts this weekend in Chicago. From the webpage promoting the training via hyperbole:

A coordinated effort to suppress the vote and skew the outcome of the 2012 elections is under way. More than 5 million voters could be affected--more votes than decided the 2000 and 2004 presidential elections. No surprise, the legislation heavily targets young, poor, and African American voters--who disproportionately support Democrats. Come hear about the effects these new laws could have on voters and how you can help!

Overcriminalization, the comic
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Nathaniel Burney's comic about overcriminalization is a nice summary for those unfamiliar with the issue, but it actually understates the problem, because it doesn't even mention the "responsible corporate officer" doctrine, whereby an executive is not just responsible for knowing thousands of arbitrary laws, but ensuring that his employees aren't violating these thousands of arbitrary laws—with the concomitant cost to investment and job creation.


It's not clear why BAE Systems Tactical Vehicle Systems fired 680-pound $21/hour forklift operator Ronald Kratz II; the EEOC alleges that he was told he was too obese to perform his job, and was thus fired because of a "disability." BAE denies this, saying that Kratz "was not able to perform the functions of his job without posing a direct threat to his own health and safety or the health and safety of others," and that no accommodation was asked for or even possible. But the stakes were too small to litigate; the $55,000 BAE paid in settlement was less than it would have cost them to win the case on summary judgment, so future employers will not have a clear statement of the law, and the EEOC can continue to engage in ADA-creep at taxpayer expense. And employers have to account for that litigation risk when they hire, which deters job creation. [Houston Chronicle via ABAJ]

The case is EEOC v. BAE Sys., Inc., No. 4:11-cv-03497 (S.D. Tex.).


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

The high cost of litigation in America has been voluminously documented, but the situation facing the small town of Gold Bar, Washington warrants particular focus: The town may have to raise taxes to pay for its legal bills. City council members in the 2,000 person community will be proposing a one-time "levy" of $100 to $150 per home on the November ballot in order to offset the recent spike in the municipality's legal costs.

The town's legal bills are estimated at $90,000, which comprises nearly one sixth of the municipality's $550,000 general fund. The driver of these legal costs has been a series of lawsuits brought under the Public Records Act, resulting from allegations of misbehavior by a former mayor and other city officials. The primary progenitor of the suits has been an activist resident named Anne Block, an attorney by trade and the creator of a controversial "news" website about the town of Gold Bar (critics have claimed the website is mostly a forum for rumors and accusations). In addition to being responsible for five of the six public records lawsuits against Gold Bar, Block has also spearheaded four out of five recall efforts in the town.

The town not only has had to hire a private law firm, but also has spent thousands of dollars complying with the record requests - all of which has led to the sacrifice of other important government services:

The city has paid thousands of dollars to an Issaquah technology company to dissect [former mayor] Hill's personal Blackberry to ferret out her disclosable emails. Gold Bar hired a sixth employee and transferred one of its two maintenance workers into City Hall to help respond to requests, according to the mayor's court affidavit.


[City council member] Wright says they are spending so much on records requests, they can afford to snowplow only the major arterials.

Another option Gold Bar considered was disincorporation, which the city council rejected in favor of the proposed tax increase. If the tax increase is rejected by Gold Bar residents in November, bankruptcy is likely to follow. As for her part, Block appears unapologetic and defiant, saying: "It's safe to assume that I have no plans to throw in the towel." She has even compared her efforts to those of seminal activists of times past:

"What motivates us? Basically, in a nutshell, it's open government and the idea that a handful of people can effectively make change, just like Martin Luther King and Elizabeth Cady Stanton and Susan B. Anthony," Block said.

Activists complaining about credit card debt often singled out the shift in the credit card industry from 5% minimum payments to minimum payments of 2% a month. (See, e.g., this Frontline documentary.) The smaller minimum payments give customers more financial flexibility, but some small percentage of irresponsible spenders will find that they are in long-term debt to the credit card company because they're barely paying off any principal. So, in response to such complaints, and to reduce the risk it was facing during the credit crunch, JP Morgan (who issues Chase credit cards these days) raised the minimum monthly payment back to 5%.

This resulted in a class action. You see, lawyers said, it was unfair to credit-card customers who were planning on paying only 2% a month, and now faced higher fees and interest rates because they couldn't meet the higher minimum payment. After the district court certified a class, the case settled for $100 million, with the class attorneys—including the usual suspects of Lieff Cabraser and Milberg—seeking an oversized $27 million fee plus "expenses" that have not yet been disclosed; a preliminary approval hearing is scheduled for August 3. Press coverage doesn't mention that the class will end up with likely less than $70 million; existing court filings do not indicate the lodestar crosscheck or the approximate hourly rate the attorneys will receive for an MDL with only 337 docket entries and 14 depositions of defendants. Administration expenses will be artificially inflated because class members will be getting checks, when the ones with current Chase accounts could easily get an electronic credit.

The proposed cy pres recipient is "Consumer Action," which already receives funding from JP Morgan. One of the plaintiffs' firms is The Sturdevant Firm, based in San Francisco; the president of Consumer Action, with offices in San Francisco, is Patricia Sturdevant, but that could be a coincidence. Or perhaps not.

The case is In re: Chase Bank USA NA "Check Loan" Contract Litigation, No. 09-md-02032 (N.D. Cal.). [Reuters; class website]


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

Last August, federal agents descended upon the Gibson Guitar Co. factory in Tennessee. The agents reportedly seized 100 guitars and sent workers home for the day - costing the company an estimated $2-$3 million in products and lost productivity.

The justification for the invasion? The feds were acting under a law that many Americans likely have never heard of called the Lacey Act. Originally passed in 1900, the Lacey Act was intended to clamp down on illegal poaching of wildlife. The law has undergone several amendments and now is being used by the feds to target companies that import products made from trees harvested abroad (Gibson's guitar fingerboards are made from wood imported from India). The amendments also broadened the ranges of offenses under the act, making it a criminal offense to use any tree "taken, possessed, transported or sold in violation of any foreign law that protects or regulates plants."

In the Wall Street Journal, Gibson's CEO Henry Juszkiewicz uses his company's experience under the Lacey Act to argue against overcriminalization:

This is an overreach of government authority and indicative of the kinds of burdens the federal government routinely imposes on growing businesses. It also highlights a dangerous trend: an attempt to punish even paperwork errors with criminal charges and to regulate business activities through criminal law. Policy wonks call this "overcriminalization." I call it a job killer.

In America alone, there are over 4,000 federal criminal offenses. Under the Lacey Act, for instance, citizens and business owners also need to know--and predict how the U.S. federal government will interpret--the laws of nearly 200 other countries on the globe as well.

Many business owners have inadvertently broken obscure and highly technical foreign laws, landing them in prison for things like importing lobster tails in plastic rather than cardboard packaging (the violation of that Honduran law earned one man an eight-year prison sentence). Cases like this make it clear that the justice system has strayed from its constitutional purpose: stopping the real bad guys from bringing harm.

Juszkiewicz concludes by noting the destabilizing effect that overcriminalization can have on businesses, particularly in a tough economic environment:

Policy makers must stop criminalizing capitalism. This begins by stopping the practice of creating new criminal offenses, or wielding obscure foreign laws, as a method of regulating businesses.


Especially in a bearish economy, entrepreneurs need to be able to operate without the fear that inadvertently breaking an obscure regulation or unknowingly violating a foreign statute could shut down their company and land them or their employees in jail.

For more on the Lacey Act and overcriminalization, see these earlier Point of Law pieces.


WSJ on Blitz USA
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Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

Manhattan Institute's Center for Legal Policy Director James Copland discussed trends from his recent Proxy Monitor season-end report in a Washington Examiner Op-Ed last week. In the article, Copland highlights labor union's increased shareholder activism, which potentially favors union interests over the goal of increasing value for all shareholders:

Stymied by marketplace pressures and government constraints, labor unions are turning to the corporate ballot box, attempting to exercise the shareholder voting power of employee pension funds to muscle American corporations in their preferred direction. In a recent column in the Washington Post, Harold Meyerson praised unions for "using the voting power of their pension funds" to organize "shareholder opposition to excessive executive pay and corporate political donations."


Aside from the underlying merits of Meyerson's beef with American corporations, the problem with his mechanism is that employee pension funds, under the federal Employee Retirement Income Security Act, or ERISA, are supposed to focus solely on increasing shareholder returns and safeguarding workers' financial interests. Even if a company's actions are damaging to organized labor, labor pension funds shouldn't be advancing union interests at the cost of jeopardizing their beneficiaries' retirements by undercutting the profitability of the companies in which the funds invest.

For more analysis of the 2012 Proxy Monitor season-end report, see Point of Law's podcast featuring Copland discussing his latest research.


20-year-old Lauren Gray plans to self-deport because her E-2 visa status expires on her 21st birthday, and the US, nine years after her grandparents submitted an application, still hasn't given her a green card. But if she had come to the country illegally instead of following the rules, she'd be eligible for the Obama administration's June 15 "deferred action request" amnesty.

Related: Heather Mac Donald on United States v. Arizona.


The GQ story on vice-presidential vetting has a sidebar where I'm quoted about various hypothetical 2012 vice presidential candidates. What was published was a much shorter version of what I submitted to the magazine. As speculation increases (including my speaking on KPCC about the issue yesterday), I thought I might as well make the whole memo to GQ public, after the jump:


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

With the presidential election season officially underway, focus has increasingly turned to each candidate's respective financial backers. Who are among the leading donors thus far? Lawyers.

As reported in the Washington Post, lawyers and law firms are among the top donors by industry to both the Obama and Romney campaigns:

Lawyers and law firms are one of the top donors by industry for both candidates, raking in nearly $5.2 million for Romney's campaign and $12.4 million for Obama's campaign as of June 21, according to the Center for Responsive Politics. Lawyers and law firms rank third among Romney's top donors by industry, and second among Obama's top donors by industry.

When donations are sorted by organization, law firms are also among the top contributors to the respective candidates - particularly so for President Obama:

Kirkland & Ellis is the only law firm with a spot among Romney's top 20 contributors by organization, with $264,302 coming from the firm's PAC and individual employees and their families.


Law firms played a more prominent fundraising role for Obama: six of the president's top 20 contributors by organization are major law firms.

The law industry's involvement in campaign funding is not a recent phenomenon, of course. As highlighted in Manhattan Institute's 2010 Trial Lawyers, Inc.: K Street report, non-lobbyist lawyers have contributed upwards of $1 billion to federal election campaigns since 1990 according to data from the Center for Responsive Politics.

Speaking of vetting
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Don't miss Kyle Graham's post about A.B. Culvahouse's vetting of Justice Kennedy's Supreme Court nomination for the Reagan administration. Earlier.

I will be on KPCC's "Airtalk" (Los Angeles, 89.3 FM) today at about 10:40 am Pacific, talking about vice presidential vetting.

Expert standards in Nevada
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Judicial hellhole Nevada has no Daubert standard for experts, or, indeed, any standards restricting the use of expert testimony whatsoever. This is especially problematic in criminal prosecutions, where prosecutors have been happy to use junk science such as blood-spatter and bite-mark analysis, with questionable results. A man convicted of sexual assault is complaining about the use of unmoored testimony about "grooming" in his trial, which will give the Nevada Supreme Court an opportunity to review the standard; this is unfortunate, as the other evidence for his conviction seems to have been overwhelming, and bad facts can make bad law. The legislature likely needs to step in. [LVRJ via Bashman]


As Popehat demonstrates, there are better ways to protect your legal rights without resorting to intimidation or risking backlash.


For Ted Frank completists, the latest GQ has a fun lengthy story profiling my short stint working for the McCain campaign assisting in vice-presidential vetting. The gimmick is that the reporter, Jason Zengerle, submitted himself to a vetting process so he could write about what it felt like to be vetted, and I agreed to engage in that live-action role-playing game; there's a sidebar that has me talk about likely vetting going on of supposed 2012 short-listers. (But just because the press is reporting that someone is on a short-list doesn't mean that someone is on a short-list. In 2008, the press consistently reported false positives and false negatives as fact, rather than speculation.)

I should note that the story exaggerates my importance for dramatic effect. I had no role in the development of the written questionnaire, and didn't send it to any 2008 short-listers; while I was the principal drafter and compiler of the Palin vetting memo, several other lawyers wrote first drafts of sections, and lawyers above me had final cut; and it was the pure happenstance that I was able to drop everything one August weekend that I had the role that I did have. And, while other campaign's vetting processes were also selection processes, in McCain's 2008 campaign, the vetters were independent from the political people selecting the candidate; they played the role of content aggregators, identifying pros and cons, and letting the political people make their own selection. So the "vetters" in McCain 2008 are not the "vetters" of 2000 or 2012, with the same word being used to describe differing concepts.

I'm also amused by the game of telephone that went on with respect to this story: questions about sex are a very small part of vetting, but because they're embarrassing and intrusive, they loom disproportionately large in the GQ story; because they're titillating, they loom even larger in coverage about the GQ story (USA Today; ABC News; MSNBC (which calls me a "Capitol Hill attorney"—again, the facts of the narrative are changed to make a more dramatic story)). And I learned that I look "altogether like a member of the Federalist Society."


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

The Supreme Court's 2010 decision in Citizens United v. Federal Election Commission, which prevented the government from restricting political expenditures by corporations, caused much Sturm und Drang among some politicos who predicted the decision would allow corporations to disproportionately influence the outcomes of elections.

Lost in the resulting firestorm was analysis of labor union's electoral influence through their political activity and spending, which was also uncapped as a result of the Citizens United decision. Labor unions have long been required to disclose their expenditures on federal elections to the FEC; data disclosing union spending on local elections, however, is not required by the FEC. To unearth local union political expenditures, the Wall Street Journal analyzed data from the Labor Department that includes information on unions' participation in local elections. The result is that total labor union spending on politics is four times as high as previously estimated:

The usual measure of unions' clout encompasses chiefly what they spend supporting federal candidates through their political-action committees, which are funded with voluntary contributions, and lobbying Washington, which is a cost borne by the unions' own coffers. These kinds of spending, which unions report to the Federal Election Commission and to Congress, totaled $1.1 billion from 2005 through 2011, according to the nonpartisan Center for Responsive Politics.


The unions' reports to the Labor Department capture an additional $3.3 billion that unions spent over the same period on political activity.

The costs reported to the Labor Department range from polling fees, to money spent persuading union members to vote a certain way, to bratwursts to feed Wisconsin workers protesting at the state capitol last year. Much of this kind of spending comes not from members' contributions to a PAC but directly from unions' dues-funded coffers. There is no requirement that unions report all of this kind of spending to the Federal Election Commission, or FEC.

The Journal report also discusses the different ways in which corporations and unions spend on the political process:

[C]ompanies use their political money differently than unions do, spending a far larger share of it on lobbying, while not undertaking anything equivalent to unions' drives to persuade members to vote as the leadership dictates.


Corporations and their employees also tend to spread their donations fairly evenly between the two major parties, unlike unions, which overwhelmingly assist Democrats. In 2008, Democrats received 55% of the $2 billion contributed by corporate PACs and company employees, according to the Center for Responsive Politics. Labor unions were responsible for $75 million in political donations, with 92% going to Democrats.

For perspective, less than 1 percent of Super PAC money that has been spent thus far during the Republican nominating campaign has come from publicly traded companies.


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

When ATM users withdraw cash from an ATM that is not owned by their bank, they can often expect to be subjected to a fee that can range from $1-$5 for the transaction. Before administering the fee, an on-screen warning pops up and informs the ATM user of the impending charge if they choose to go through with the transaction. According to a rule that is a part of the Electronic Fund Transfer Act, ATMs must also have an external sign attached to the outside of the ATM that warns of fees. Although such a requirement may sound innocuous, it has led to a rash of costly lawsuits:

[I]n recent years, banks say, the requirement of a physical, external notice has made them vulnerable to so-called "A.T.M. vigilantes," who use A.T.M.'s that are missing the placards and file lawsuits against the institutions. The notices are typically affixed on or near the A.T.M. with adhesive. (A Michigan couple has filed dozens of suits, which were settled for thousands of dollars, according to news reports.) The Credit Union National Association says at least 110 class-action lawsuits have been filed against credit unions over the last two years, at least 20 of which were filed in the first four months of this year.

The banking industry is fighting back by pushing legislation in Washington that would eliminate the requirement for the duplicative external fee-warning signs:

The goal is to stop nuisance lawsuits. Rep. Blaine Luetkemeyer, R-Mo., said that in his home state one man visited five ATMs, threatened to sue over missing fee-disclosure signs, and settled the case for more than $100,000. 'And apparently it's been going on throughout the county,' said Luetkemeyer, who is sponsoring the House legislation. 'Everybody realizes this is a situation that's got to be fixed.'"

The bill, known as H.R. 4367, unanimously passed the House (by a vote of 371-0), and is now heading to the Senate.


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

In addition to the recent release of his season-end finding for the 2012 proxy season, Manhattan Institute's Center for Legal Policy Director James Copland also participated in a podcast discussing the report. Center for Legal Policy project manager Isaac Gorodetski serves as interlocutor for the podcast, asking Copland to comment specifically on the focus of his new report: whether labor unions are using the proxy process to advance goals unrelated to increasing shareholder value.

For more Point of Law podcasts, see the "Podcast" tab or click here.


Membership in the nation's largest trial lawyers' association has fallen by half over the past decade, a candidate for a top office in the American Association for Justice says.

"[Instead] of increasing our numbers, AAJ continues to shed members at an alarming rate. Ten years ago, AAJ claims 50,000 members. Today AAJ member numbers are less than half that -- a time when our fight requires that our numbers multiply," wrote Los Angeles attorney Simona Farrise in her candidate's statement for the office of AAJ vice president.

Farrise, founder of the Farrise Law Firm, is challenging noted trial lawyer Lisa Baron Blue of the Baron & Blue Law Firm in Dallas, who currently serves as AAJ's secretary. Both firms specialize in asbestos litigation. (Baron Blue's statement of candidacy)


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

Activist investors pushing political or idiosyncratic agendas, such as Catholic orders of nuns and individual "corporate gadflies," have existed in one form or another for many years. Traditionally, more value-oriented investors like Carl Icahn and private equity funds exerted influence through proxy fights, hostile takeovers and the like--jump-started in the 1980s and popularized through books and movies like Barbarians at the Gate. Recently, however, procedural shifts in corporate governance won by activists in the shareholder proposal process have enabled professional investors to gain new influence as well. As noted in a recent Wall Street Journal article, gradual changes in corporate governance rules have made it easier for activist investors to gain more leverage in getting their own candidates placed on company boards:

[N]ew corporate-governance rules are shifting that balance, making companies more vulnerable to contests for board seats, while mediocre stock returns are leaving mainstream mutual-fund investors dissatisfied. At the same time, many activists have recruited more-experienced executives to serve on boards, diminishing their image as corporate raiders out solely to make quick buck.

Although shareholder activism is not always aligned with increasing shareholder value, it is important to note that some forms of shareholder activism can be beneficial for shareholders. As Manhattan Institute's Center for Legal Policy Director Jim Copland notes:

Investors like Icahn are unambiguously trying to drive up share value (and have a strong record of doing so), which helps all shareholders. That's why I haven't generally opposed board declassification and majority election of directors; although it facilitates shareholder activism that may be more about extracting corporate value from all shareholders for special interests, it facilitates this "good" shareholder activism, too.

Nowadays more companies hold annual board elections, which give activists more influence than they would have if board terms were staggered and only part of the board could be contested at any one time. Also, large companies often require directors to win a majority of shareholder votes, rather than a mere plurality.


As I wrote yesterday, the outcome of the 2012 election is likely to set the future course of the Supreme Court for a decade or more. A second-term Obama will have the opportunity to turn the Court decisively to the left. But there's more to the judiciary than the Supreme Court. Most cases don't make it to the high court. As a result the lower federal courts, especially the appellate ("circuit") courts end up making much of the law that we live with.

There are 874 federal judgeships in total. So far, Obama has appointed 126 judges, but given a second term the number will no doubt be closer to W's total of 328 judges or even Clinton's 379 (good statistics at the US Courts website).

On inauguration day 2013, the next president will start out with 92 judicial vacancies to fill (assuming that nobody else gets confirmed between now and election day). This includes three, count 'em, three, vacancies on the all-important DC Circuit: the court that hears most appeals from the decisions of federal agencies and which is very often the warm-up bench for future SCOTUS justices. The ability to appoint three new judges to the DC Circuit will help determine whether the so-called "independent agencies" will continue to operate as a rogue fourth branch of government without judicial check.

Incidentally, the high number of judicial vacancies is not necessarily due to Republican "obstructionism" (contrary to the mainstream media), but is at least partly due to the administration's incompetence. As Ed Whelan of NRO Bench Memos has pointed out, Obama let two years go by without nominating anyone to the then-existing two open slots on the DC Circuit. And now there are three open slots. Moreover, there have been a "significant number" of Obama's potential judicial nominees who couldn't even get a thumbs-up from the strongly liberal American Bar Association. But given four more years, Obama will eventually get his way.


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

The Manhattan Institute's Center for Legal Policy has been monitoring the interplay between shareholder activism and executive compensation in its Proxy Monitor reports. Currently, under the 2010 Dodd-Frank law, companies must submit their executive compensation packages to their shareholders for an advisory "say on pay" vote.

In addition to say on pay votes, Dodd-Frank also empowers the SEC to require companies to report the gap between their CEO's salary and the median salary of their other employees:

The Dodd-Frank Act will require proxy statements for annual meetings to include new disclosure regarding (i) the relationship between executive compensation and the company's financial performance; (ii) the median of total annual compensation of all employees, excluding the CEO; and (iii) the ratio of the median employee annual total compensation to the CEO's annual total compensation. [Via fredlaw.com].

This new rule, termed the "Internal Pay Equity" provision, has yet to be promulgated by the SEC, but is expected to be issued by the end of the month and adopted by the end of this year. While "say on pay" votes appear to have had little effect on executive compensation levels, supporters of the forthcoming internal pay equity provision hope it will be more successful at stemming the rising tide of CEO pay:

The rule's supporters--a group that includes labor unions, institutional shareholders and left-leaning activists--say it would force companies to consider rank-and-file workers during boardroom discussions over CEO pay and could put the brakes on executive compensation, which has been rising faster than inflation and the average worker's pay.


The so-called internal pay equity provision, passed as part of the July 2010 Dodd-Frank package of financial reforms, is intended to expose the income disparity within public companies and help investors better evaluate the firms.

A potential side-effect of the internal pay equity provision is the cost to companies of having to calculate median employee pay levels.

Companies say they have a rough sense of their internal pay ratios, but they argue that their global workforces and varied payroll systems make calculating the median cumbersome, if not virtually impossible. What's more, they say, disclosing pay ratios would make them easy targets for CEO-pay critics.

If the SEC enacts the internal pay equity rule by the end of this year as planned, starting next year it will be possible to determine the rule's effect - if any - on CEO pay as well as the costs companies incur complying with it.


If President Obama gets re-elected, he'll control the White House for the next four years - and the Supreme Court for the next twenty-five. The average tenure of a Supreme Court Justice today is 25 years, as Clint Bolick recently pointed out in the WSJ. Obama has already nominated two relatively young knee-jerk liberals to the Court (Kagan and Sotomayor for those keeping score at home). How many more justices will Obama get to nominate? Look at it this way: three justices - Scalia, Kennedy, and Ginsburg - will reach their 80s during the next presidential administration. And Stephen Breyer will be in his late 70s.

Bolick is right to remind us of the many 5-4 decisions in recent Supreme Court jurisprudence. Just one more liberal vote could undo any or all of these: campaign finance (Citizens United), gun rights (Heller and McDonald), school choice (Zelman). Even in the recent healthcare case, the positive aspects of the decision, setting limits on the Commerce Clause and on Congress's power to coerce states , attracted only five votes.

Now that John Roberts is officially a "swing vote," the need to get conservatives on the Court is more pressing than ever. A Romney presidency does not guarantee conservative justices, but another Obama term absolutely guarantees more liberal justices. For the left, it will be a gift that keeps on giving.


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

The Consumer Financial Protection Bureau (CFPB) was instituted by the Dodd-Frank Act in 2010 and has engendered concerns about whether it will be able to maintain its independence as a regulatory agency. As Manhattan Institute's director of the Center for Legal Policy Jim Copland has described previously, the CFPB - unlike most federal agencies - lacks Congressional oversight and is only accountable to the President. The CFPB faced further scrutiny after President Obama's controversial recess appointment of Richard Cordray to be its head.

Concerns about the CFPB's independence have increased in recent days after Patrick McHenry, a North Carolina Republican member of the House of Representatives, sent a letter to Cordray inquiring about the relationship between CFPB officials and the White House:

In a letter sent to consumer chief Richard Cordray Monday, Rep. McHenry asked for details on how the agency's top staffers interact with the White House, and why. "Although employees of other independent agencies meet with White House staff members and such meetings are not per se inappropriate, the frequency of the CFPB's visits and the CFPB's coordinated public events with the White House could suggest that the Bureau's regulatory actions are indirectly shaped by these interactions," the Congressman wrote.


A few examples, though circumstantial, raise eyebrows. In June Mr. Cordray briefed reporters in the White House--alongside presidential spokesman Jay Carney and Secretary of Education Arne Duncan--on student loans and rising tuition. President Obama has made his attempts to ease student debt burdens a centerpiece of his campaign. Public records show Mr. Cordray has also held calls with White House Deputy Chief of Staff for Policy, Nancy-Ann DeParle, and attended a "White House Cabinet Affairs Chief of Staff Lunch," though it's unclear why.

McHenry's letter itself may not lead to any disclosure regarding the CFPB's independence, but the relationship between the administration and the CFPB will be likely to face continued scrutiny.


You might recall the Rice Krispies class action settlement, Weeks v. Kellogg that the Center for Class Action Fairness successfully objected to, resulting in a modification of cy pres and a reduction of attorneys' fees.

Dennis v. Kellogg was a similar case in the Southern District of California, except over Frosted Mini-Wheats cereal, and Kellogg agreed to an even worse settlement: millions of dollars for the attorneys, less than a million dollars for the class, and cy pres to undisclosed charities indistinguishable from those Kellogg was already giving tens of millions of dollars to. CCAF didn't have a client in that case, so didn't object, and the judge rubber-stamped. But Friday, the Ninth Circuit, citing CCAF victories in Bluetooth and Nachshin v. AOL, reversed on two independent grounds.

First, the failure to identify cy pres recipients precluded appellate review: "trust me" is not an appropriate limiting principle. "To approve this settlement despite its opacity would be to abdicate our responsibility to be 'particularly vigilant' of pre-certification class action settlements." Second, even if the cy pres had been acceptable, the attorneys' fees, reflecting both a gigantic multiplier of lodestar and more than twice the class recovery, were excessive. [LA Times via Bashman; Dennis v. Kellogg (9th Cir. Jul. 13, 2012)]

CCAF has some Rule 28(j) letters to write.


It is unconstitutional to imprison an individual for inability to pay a fine. Yet across the United States, men and women are serving jail time for failure to pay criminal fines and "user fees" imposed by cash-strapped jurisdictions. These fines and fees are often collected by private companies, which impose their own fees. For example, the New York Times recently reported on the case of Gina Ray, who lost her driver's license when she failed to appear in court for a speeding ticket. When she was later arrested for driving with an invalid license, she was handed over to private probation company, imprisoned, and charged an additional fee for each day behind bars. In all, she spent 40 days in jail, and still owes more than $3000, much of it to the private probation company. The ABA Journal reported on the case of Ameen Muqtadir, who was released from a Pennsylvania prison in 2002 after serving time for robbery, but years later billed more than $40,000 for bail allegedly forfeited when he failed to appear in court in connection with that crime. (Muqtadir was in prison at the time of the court appearances.) States and localities have increasingly looked to the criminal justice system as a means of generating revenue, imposing fees for everything from being arrested to obtaining parole, and for the costs of incarceration. Both the ACLU and NYU's Brennan Center for Justice have published reports detailing the "devastating impact" that incarcerating individuals unable to pay these fees can have on individuals attempting to reenter society after serving criminal sentences, and the "severe -- and often hidden -- costs" on communities and taxpayers, as these fees make it harder for individuals to find employment and housing, and to meet obligations like child support. But the practice -- which is being challenged in several lawsuits -- continues.


Over in the POL Columns section, Manhattan Institute Visiting Scholar Richard Epstein weighs in on a proposal to allow local governments to use their power of eminent domain to address the problem of underwater mortgages. Epstein describes the shortcomings of the proposal and why it should be resisted.


In In re EasySaver Rewards Litig., No. 09-cv-2094 (S.D. Cal.), the attorneys (including Point of Law favorites Baron & Budd) and the class representatives have proposed a settlement agreement where they will collect $8.93 million, while the class will get less than $3 million in cash. The attorneys justify this because they're giving out about $40 million face value in coupons. Instead of complying with the Class Action Fairness Act's requirement that coupons be valued at redemption value, the trial lawyers claim that they're "conservatively discount[ing]" the coupons to 85% of their face value—though limited-use coupons like these more typically have a redemption rate of about 1 to 3%. (Who is going to use a $20 coupon for Internet flower delivery that can't be used on Valentine's Day or combined with any other coupon?) Defendants are barred by the settlement from taking a position on the value of the coupons. Even if one assumes a generous 10% redemption rate, the attorneys come out ahead of their putative clients. To top it all off, the settlement violates Nachshin v. AOL's restrictions on cy pres awards: local charities get the money, including an alma mater of one of the lead attorneys.

Today is the preliminary hearing on the question whether the Southern District of California judge will permit the settlement to go forward. One hopes that the judge unilaterally recognizes his duty to protect class members from violations of the Class Action Fairness Act, since the parties' briefing doesn't mention the applicable law.

And if the class does get notice, one hopes that a class member recognizes the ripoff and considers contacting a non-profit attorney willing to vindicate the class's interests. First the class is ripped off with $15/month loyalty programs, and then their own attorneys aggregate the majority of the value of the settlement for themselves.

The proposed class definition is "All persons who, between August 19, 2005 and the date of entry of the Preliminary Approval order, placed an order with a website operated by Provide Commerce, Inc. and were subsequently enrolled by Regent Group Inc. dba Encore Marketing International, Inc. in one or more of the following membership programs: EasySaver Rewards, RedEnvelope Rewards, or Preferred Buyers Pass." There are apparently about two million class members.

Fraley v. Facebook update
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We previously discussed the settlement in Fraley v. Facebook, and my skepticism of it. It seems to be worse than originally thought, and there have been some interesting developments:

  • The lawyers will be collecting $10 million for generating $10 million in cy pres. They seek to rationalize this by claiming over $100 million in "benefits" from injunctive relief—but of course, they represent a class seeking compensation for past injury, so prospective injunctive relief doesn't solve that issue. Even assuming that the nine-digit figure had any bearing on reality, when it doesn't: it's based on purported cost to Facebook, but cost to Facebook is not "benefit" to the class, any more than it would be if Facebook set $100 million ablaze in a bonfire.
  • I was much amused to see which plaintiffs' firm intervened to complain about the size of the settlement: the one and only Korein Tillery, who doesn't have such a great track record of treating its putative class clients fairly in the course of their Madison County dealings. The court should require the attorneys to put their money where their mouth is, and use an auction mechanism to see which class counsel will promise the best deal for the class for the least amount of attorneys' fees. Some disclosure about previous results in class-action settlements would be of interest, too. Korein cited to Bluetooth, which makes my heart proud.
  • Daniel Fisher reports that the cy pres recipients are suspiciously tied to Facebook. I'm quoted: "If Facebook is already giving money to these charities, then this isn't a '$10 million settlement,' it's just a change in accounting entries." Moreover, "It's surprising that, in a settlement involving Facebook users, i.e., people who are actively on the Internet, that objecting and opting out are only possible by jumping through hoops involving paper and the Post Office."
  • It turns out that Judge Koh has a series of affiliations (some more strained than others) with some of the proposed cy pres recipients; this is perhaps why she recused herself. (I previously argued that similar ties required recusal, but, if this is why Koh recused, it is the first time I've seen a judge do so. The chief judge of the same district was happy to reallocate cy pres money to his favorite charity.) This suggests a possible problem with cy pres: not just the conflict of interest with a judge, but the fact that parties can effectively judge-shop by selecting cy pres recipients that would force recusal. Judges can prevent this by issuing a standing order forbidding proposing cy pres settlements that provide money to charities affiliated with the judge. But now Judge Koh will not be deciding whether the settlement is fair, and it's far from clear her replacement will be as conscientious of the class's interests.


Stuart Mauney laughs at the "CONTAINS PEANUTS" and "Manufactured on shared equipment in a facility that processes peanuts" warnings on a package of "Hand-Cooked Virginia Peanuts" (presumably manufactured by Jumbo Virginia Peanuts, by Mauney's description). This offends Max Kennerly, who calls it a "harmless warning," and correctly notes that this particular wacky warning is mandated by the Food Allergen Labeling and Consumer Protection Act (FALCPA), rather than by in-house counsel responding to the threat of suit.

But one should note that it's not a harmless warning. As I blogged on Overlawyered in 2007,

David Rossmiller blogs:
My experiences growing up in NoDak and later working as a crime reporter may not be typical, and perhaps the people I came to know were by some measures outside, shall we say, the social mainstream, but my first thought when I saw these purportedly wacky, useless warning labels was this: "I can see someone doing that!" Personally I've seen folks do much more ridiculous things many times.
The issue is whether people doing "ridiculous things" should have a cause of action for their own failure of common sense, or whether we require manufacturers to treat all of their adult customers like infants on pain of liability.

Such overwarnings have real social costs: as numerous studies have documented, if one's personal watercraft manual says "Never use a lit match or open flame to check fuel level," one's going to be less likely to slog through the whole thing and find the warnings that aren't so obvious. In many cases, the "failure-to-warn" is really just a Trojan horse to force the deep pocket to become a social insurer. In the Vioxx litigation, Mark Lanier has accused Merck of making too many warnings, and thus "hiding" its warning of VIGOR cardiovascular data. This effectively holds a manufacturer strictly liable for failing to anticipate with perfect foresight what risks will accompany which consumers, and tailoring its warnings on that micro-level--and if anyone regrets taking the risk later, they can always complain that the warning was legally insufficient for failing to be scary enough.

The wacky warning awards are often entertaining fluff, to be sure; the marginal harm from a "Do not iron" warning on a lottery ticket is infinitesimal, and is probably there as an anti-fraud device rather than as a product-safety mechanism. But ATLA, abetted by sympathetic law professors and credulous or disingenuous journalists, has engaged in a mass campaign to make equally silly warning cases--such as the McDonald's coffee case, where Stella Liebeck complained that the warning on her cup of coffee wasn't "big enough" to adequately warn her not to spill her coffee in her lap and sit in the puddle for ninety seconds--aspirational, rather than outliers. The wacky warnings are the canaries in that coal mine.

See also. The silly warning cases aren't just hypothetical, either. As we discussed just a few days ago, a warning of "KEEP AWAY FROM FLAMES, PILOT LIGHTS, STOVES, HEATERS, ELECTRIC MOTORS, AND OTHER SOURCES OF IGNITION" was insufficient to protect Blitz USA from liquidation in bankruptcy after David Calder inserted the nozzle of a $3.99 gas can into his wood-burning stove and successfully sued Blitz for the resulting catastrophe. And 117 people lost their jobs, and an untold number of people will be injured because they will be using substitutes for gas cans that are less safe.

Now, perhaps the benefits of having a simple-to-apply regulation that successfully protects people against allergens outweighs the marginal overwarning cost of this particular "contains peanuts" warning. But it's far from clear, and the reformers who warn of the problems of overwarning caused by our jackpot-justice product-liability regime are identifying a real public-policy problem that on balance makes us less safe.

Some Supreme Court roundups
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Since July 2008, we've been warning about dangerous proposals from the Financial Accounting Standards Board to change its Standard No. 5, and require financial disclosures about litigation that (1) would provide roadmaps to plaintiffs' lawyers already suing publicly-traded defendants; (2) create collateral opportunities for litigation for alleged failure to meet the standard; and (3) to avoid such collateral litigation, force defensive disclosures that would depress the stock price while litigation was pending and deter meritorious defenses against litigation. Alison Frankel informs us that FASB has finally dropped the proposal. [Reuters]


I've repeatedly noted on this site the costs to employees of increasing litigation rights; any expected increase in the cost of defending against employee lawsuits is going to come at the expense of wages and perhaps jobs. E.g., Jan. 12; June 6.

The economics bloggers are currently discussing the same principle, and the empirical evidence for it: Tabarrok; Yglesias. This continues an earlier discussion where Cowen and Tabarrok (and Gordon via Cowen) had useful thoughts on "coercion" in the workplace.


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

As part of its Proxy Monitor project, the Manhattan Institute's Center for Legal Policy has released its 2012 Proxy Season: Season-End Report. The report, authored by CLP Director James Copland, spotlights union-backed shareholder proposals in the 2012 proxy season. Copland notes that labor union pension fund proposals increased in 2012, and that unions are among the most frequent proponents of proposals that would require companies to disclose their political spending. Furthermore, Copland analyzes the extent to which unions might be using the proxy process to pursue goals unrelated to increasing shareholder value:

Labor investors were also more likely than others to sponsor proposals related to political spending; such proposals are less likely designed to gain leverage over management in union negotiations but may be designed to squelch corporate political spending and lobbying that would generally be adverse to the interests of organized labor.


As in previous years, labor unions' shareholder proposals in 2012 have been unequally distributed across sectors. Companies in financial services and retail -- lightly unionized sectors that are significant public targets of union-organizing campaigns -- remain significantly more likely to be targeted by labor-backed proposals. Among companies receiving multiple proposals in these sectors this year that are also the publicly announced union targets are Bank of America, Citigroup, Rite Aid, Safeway, Wal-Mart, and Wells Fargo.

Copland has focused on labor union proxy activities in previous Proxy Monitor reports as well. Manhattan Institute's Proxy Monitor site also contains a database of shareholder proposals at Fortune 200 companies from 2006-2012.


A horrifying attack on a drunken tourist in Baltimore—harassed, punched, beaten, stripped, and robbed—was videotaped, and went viral. The perpetrators were identified and arrested. But, with videotaped evidence of beating and robbery in hand, prosecutors agreed to plea bargains that gave at least three of the four criminals a slap on the wrist: one year for Aaron Jacob Parsons, who pickpocketed and punched the victim; "time served," about three months, for DeAngelo Carter and Shayona Mikia Davis, the latter of whom bashed the prone victim with a high-heeled shoe and then stripped him. Shatia Baldwin will be sentenced in December.

According to his attorney, Parsons "offered an apology to both the victim and the city, interestingly because he knows he brought disrepute to the city, considering this went viral and cast a negative image of the city." [CBS Baltimore; Baltimore Sun]

This apology is ironic. Plea bargains with dramatically reduced charges and punishments are what prosecutors agree to when they are afraid to take a case to trial. If this is the best Baltimore prosecutors can do when guilt is indisputable, how safe are Baltimore tourists when the thugs aren't videotaping their thuggery? I was plenty disgusted that such open lawlessness could take place outside a courthouse. I'm even more so now that I know that it's also all but tolerated by the local authorities (not to mention the local citizenry), and the people who did it will all be back on the streets in April. The disrepute has increased, rather than decreased.

This is before we get to the double-standard in application of hate-crime laws (even with the possible additional evidence of tweets indicating a racial motive), but we've sadly come to expect such disparate application of the law.


Judge Joan Gottschall (N.D. Ill.) balked at the proposal when she learned how few claims were made, and refused final approval of a class action settlement over American Express gift cards. [Courthouse News; related (h/t A.S.)]


On December 28, 2005, David Calder tried to start a fire in his wood-burning stove in his trailer home—by inserting the nozzle of a $3.99 gas can into the stove to pour gas onto the fire, which Calder admitted was "stupid." (The container itself had "KEEP AWAY FROM FLAMES, PILOT LIGHTS, STOVES, HEATERS, ELECTRIC MOTORS, AND OTHER SOURCES OF IGNITION." impressed into the plastic; nevertheless, Calder included a failure-to-warn claim in his suit.) The resulting catastrophe killed his two-year-old daughter and severely burned Calder. This was, Calder argued, the fault of Blitz USA, the manufacturer of the gas can, for not including more idiot-proofing, though no gas container could reasonably protect against the idiocy of Calder's actions. A Clinton-appointed federal district judge refused to throw the case out, and refused to let Blitz USA argue the "state-of-the-art" product liability defense or argue that it complied with government regulations for the manufacture of gas cans. A sympathetic jury found millions of dollars of damages, and blamed Blitz USA to the tune of 70% of the damages. So Blitz USA, which used to employ 117 people at a factory in Oklahoma to manufacture about 75% of the gas cans sold in the US, is liquidating in bankruptcy, and Americans will have to get their gas cans from Chinese manufacturers—or resort to even more unsafe containers like milk jugs if there is a gas-can shortage during this year's hurricane season. So trial lawyer greed and a trial-lawyer-friendly judicial appointment has cost jobs, made Americans less safe, and increased carbon emissions from the need to import bulky gas cans from overseas. [Tulsa World via @billchilds; Calder v. Blitz USA 10th Circuit brief]

Kidd on litigation financing
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Jeremy Kidd @ SSRN:

Litigation financing promises to promote greater justice and efficiency in tort law by reducing financial barriers to litigation and changing the allocation of litigation risks. In the case of personal injury cases, however, broad litigation financing also has the potential to diminish justice and efficiency by increasing the total amount of litigation, increasing the frequency of frivolous litigation, and distorting the incentives for bringing and maintaining lawsuits generally. This article adds to the litigation financing literature by addressing the danger of path manipulation, a form of judicial rent seeking. In a system of binding precedent, litigation financiers will be faced with incentives to use case selection to maximize profits by pressuring the courts to open new areas of tort liability. These efforts, driven by investment returns instead of justice, could divert tort law from both justice and efficiency objectives. The costs of litigation financing make it prudent to consider alternative financing regimes that can capture some benefits of litigation financing while minimizing costs and distortions.


Law.com:

The state Supreme Court has agreed to hear an appeal on whether a $187.6 million class action award against retail titan Wal-Mart over allegations that its Pennsylvania employees were not properly compensated for off-the-clock work and missed rest breaks violated Pennsylvania law.

The court granted allocatur on "whether, in a purported class action tried to verdict, it violates Pennsylvania law (including the Pennsylvania Rules of Civil Procedure) to subject Wal-Mart to a 'trial by formula' that relieves plaintiffs of their burden to produce classwide 'common' evidence on key elements of their claims."

Plaintiffs, however, dispute that there was a trial by formula in the first place. It's one or the other. Unfortunately, the Legal Intelligencer doesn't tell us which side is lying. One reading the Superior Court description of the evidence might come to the conclusion that it is the plaintiffs, but perhaps the quotation of witnesses using statistical evidence to calculate damages was one of the errors of the Superior Court opinion. The Pennsylvania Supreme Court punted on this question last year in Samuel-Bassett v. Kia Motors. Of course, extrapolating from data to decide individualized issues was criticized in the Dukes case last year, and creates due process concerns, so plaintiffs' attorneys' bluster that this will necessarily be decided on state-law grounds with no hope of appeal to the U.S. Supreme Court suggests whistling past the graveyard. But, again, the Legal Intelligencer doesn't call them on this.

Though Wal-Mart had a policy of disciplining managers who violated the company's internal rest-break rules, the jury was asked to find (and did find) that Wal-Mart's policy of seeking to reduce labor expenses—i.e., the same policy that every business has—acted to trump this and incentivized managers to shortchange employees. Thus, this rationalized a finding of "bad faith" that entitled the plaintiffs to $62 million in liquidated damages. It's hard to see how this does not transform the "good faith" defense into simple de facto strict liability, if such a flimsy theory can provide a bad-faith finding, but the Pennsylvania Supreme Court is not considering this issue.

Earlier on POL: March 2007; October 2007. More: Wajert. And as Kantke notes, the court upheld a finding that the Wal-Mart employee handbook created contractual obligations that led to liability, despite the handbook explicitly disclaiming that it was a contract.


We frequently hear the plaintiffs' bar claim that all they really want is "access to justice," but that desire seems to stop at the door when it comes to challenges to abusive class action settlements that reward class counsel at the expense of their putative clients. In In re MagSafe Apple Power Adapter Litig., a rubber-stamp approval of a class-action settlement that paid the attorneys $3.1 million, but class members only about $800,000 due to a strangely restrictive claims process that wouldn't permit Apple computer owners to submit claims except using hard-copy paperwork, class counsel moved the district court to impose appeal bonds totaling another $800,000.

The Center for Class Action Fairness successfully opposed a claim that class counsel would be entitled to collect six-digit fees on appeal, but the district court still asked the parties to post appeal bonds of $60,000 to cover possible "costs." As any appellate attorney knows, this is an absurd figure, since "costs" means ten cents a page for photocopying under FRAP 39. (I just won costs in the Seventh Circuit in Robert F. Booth Trust v. Crowley—of $600.) We've posted our share of the bond (essentially a 0% illiquid deposit with the district court, since there's no legal risk that there will be costs imposed of that magnitude), and asked the Ninth Circuit to vacate the illegal bond order imposed by the district court to deter appeal of its erroneous settlement approval.

The related Opposition to the Motion to Dismiss is a preview of the merits brief.

Especially amusing; class counsel defends the appeal bond with an ad hominem attack on me, protesting that "Frank routinely files ideological objections to class action settlements and then appeals the same holding up settlements for substantial periods of time." I respond:

Frank has won four of the five federal appeals he has argued relating to class action settlements, including both in the Ninth Circuit. [cites omitted] "The possibility that [an appellate court] would see merit to [an objector's] appeal cannot be called 'prejudice'; appellate correction of a district court's errors is a benefit to the class." Crawford v. Equifax Payment Svcs., Inc., 201 F.3d 877, 881 (7th Cir. 2000) (Easterbrook, J.).

It goes without saying that nothing in Fed. R. App. Proc. 7 justifies a punitive appeal bond because of class counsel's unsupported ad hominem attacks against opposing counsel. But these ad hominem attacks are especially mysterious in this case: class counsel is complaining that Gryphon's counsel "routinely" brings successful appeals against settlements that violate Rule 23 and Rule 23.1.

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

Update: In re Baby Products
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We previously discussed the pending Center for Class Action Fairness appeal in In re Baby Products, No. 12-1165 (3d Cir.), where the:

district court held that the class wasn't even entitled to an opportunity to object to the as-yet-to-be-proposed [cy pres] 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.)

Briefing is now complete, with oral argument likely in the second half of September.

In both the lower court and Third Circuit, CCAF argued that the court should apply Klier v. Elf Atochem; the district court refused to do so by distinguishing Klier on erroneous grounds. Yet neither appellee even mentioned Klier in their briefs. Does pretending the dispositive issue doesn't exist actually work as an appellate strategy? If so, I've been doing it wrong all these years.

Thanks to Dan Greenberg, Adam Schulman, and Lisa Solomon for their assistance on these briefs.

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


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

For several years, Manhattan Institute's Trial Lawyers, Inc. series has chronicled the vast profits accumulated by the plaintiff's bar. Another example of outsized attorney profit comes in the form of California's Proposition 65, which is meant to protect Californians against exposure to hazardous toxins. Passed by voter initiative in 1986, the law holds that no person in the course of business can knowingly expose others to toxins that are carcinogenic or can lead to birth defects; to be in compliance, companies must post notices and signs where exposure to such toxins is possible.

One of the enforcement mechanisms for Prop 65 is private actions, which can be brought if they are "in the public interest." In practice, this means that plaintiff attorneys can identify proscribed toxins in such seemingly-innocuous things as everyday house-cleaning products or vehicles parked in a parking lot and then charge businesses with knowingly exposing people to these agents. Companies, seeking to avoid costly litigation, are often quick to strike a settlement deal. Furthermore, the statute shifts the burden on the defendants to prove that they did not expose the plaintiffs to dangerous amounts of the proscribed toxins, further incentivizing settlements over a trial. The end result is large attorney's fees for the plaintiff's counsel, sometimes ranging as high as millions of dollars. From 2007-2011, attorney's fees made up some 67% of the money from Prop 65 settlements.

In the 2006 case Consumer Defense Group v. Rental Housing Industry Members, 137 Cal. App. 4th 1185, the California Court of Appeals described the ease with which Prop 65 claims can be brought:


The point is ... bringing Proposition 65 litigation is so absurdly easy that the sorts of attorney fees on which the parties settled here are objectively unconscionable. More than half a million dollars for walking into a group of apartments (and there is evidence that some of that might have been falsified!) looking for signs (and--just to give the exercise a little verisimilitude, also looking for pools and spas) and then serving a boilerplate, form notice based on such ubiquitous things as paint and parking deserves only the most minimal compensation.

The California Attorneys General office, tasked with monitoring private actions brought under Prop 65, is often so overwhelmed with the many notices of alleged Prop 65 violations that it is unable to weed out dubious cases brought by private attorneys merely seeking to line their pockets.

Although Prop 65 has received more scrutiny in recent years, attorneys are still profiting from the statute. In 2011 - the most recent year from which data is available - attorney's fees comprised over 70% of the total amount of Prop 65 settlements. Prop 65 allows dubious claims to be brought against businesses in order to obtain quick settlements featuring large attorney fees - all in the name of protecting Californians from dangerous substances.


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

Last month the Pennsylvania Supreme Court raised the bar for proving causation in asbestos cases. Previously, plaintiff attorneys could argue that any exposure to a product that contained asbestos was sufficient to establish substantial causation for asbestos-related diseases.

The defendants in Betz v. Pneumo Abex LLC et al., 2012 Pa. LEXIS 1208, filed a motion challenging this so-called "any exposure" theory. "Any exposure" causation is problematic because it seems to fly in the face of the general scientific consensus that asbestos-related diseases are "dose responsive" - meaning there is a relationship between the amount of a person's exposure to asbestos and the amount of the disease that person is likely to have.

If asbestos-related diseases are dose-responsive, then this would suggest that small levels of asbestos exposure may not cause asbestos-related diseases. The plaintiff's expert in Betz tried to claim both that asbestos-related diseases were dose responsive and that "any exposure" to asbestos was enough to establish substantial causation. The court rejected this argument:

In this regard, Dr. Maddox's any-exposure opinion is in irreconcilable conflict with itself. Simply put, one cannot simultaneously maintain that a single fiber among millions is substantially causative, while also conceding that a disease is dose responsive.

Given this recent ruling, it will be interesting to see how asbestos cases that rely on dubious causation arguments fare in the state of Pennsylvania.

Happy Fourth of July!
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Our legal academy
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Drew Singer and Terry Baynes of Reuters purport to quote a law professor complaining about the activity/inactivity Commerce Clause ruling in NFIB v. Sebelius:

In a slightly more fanciful scenario, [name omitted], a liberal law professor at [Top-14 law school], posited an example of a deadbeat dad who could mount a creative legal argument to dodge child-support payments under interstate enforcement laws. The dad could challenge the federal enforcement laws on grounds that they penalize him for failing to pay for something.

So, if we're to believe Reuters, a Yale JD/Ph.D. tenured law professor (who blogs on perhaps the best liberal law professor blog) doesn't know the difference between the Commerce Clause and the Full Faith and Credit Clause. I'd make a remark about how biased the legal academy has become and how divorced from the Constitutional text "mainstream legal thought" has become that the Con Law professors don't know basic structural clauses relating to the enumerated powers in the Constitution—except that I just refuse to be that cynical, and have to think that this is a misunderstanding or other mistake by the reporter rather than a stunning display of elite ignorance and epistemic closure. Thus, I omit the professor's name in this post, though you can find it in the Reuters story. Or am I being too generous?


Gregory Conko, a senior fellow at the Competitive Enterprise Institute, comments on the GlaxoSmithKline settlement where the pharmaceutical company agreed to pay a record $3 billion in fines to settle various criminal and civil charges associated with 10 of the company's drugs -- making this the largest such settlement in history.


Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

Recently the New Hampshire legislature voted to override the veto of Gov. John Lynch and enact an "early offer" system for medical malpractice cases. As Walter Olson describes, the law incentivizes "defendants to make offers early in the litigation process that cover plaintiff's economic losses such as medical bills and lost wages." The plaintiffs can then choose whether to accept the early offer from the defendant doctor or continue to litigate the case. According to Section XII of the statute, if the plaintiff ultimately does not prevail, a form of "loser pays" takes effect:

XII. A claimant who rejects an early offer and who does not prevail in an action for medical injury against the medical care provider by being awarded at least 125 percent of the early offer amount, shall be responsible for paying the medical care provider's reasonable attorney's fees and costs incurred in the proceedings under this chapter.

In addition to being advantageous for the doctors as defendants, "early offer" also can benefit the claimants in certain situations:

Early offers allows, but does not force, a claimant to bypass the tort system. Tort law has virtues, but among them are not certainty and swiftness. Because of an understandable focus on individual justice, the tort system can be very uncertain and slow, with significant transaction costs. There are many claimants who would prefer to have their claims resolved along insurance principles--with more certain payment for economic loss, taking care of the their urgent needs. I have sat at the hospital bed of a catastrophically injured loved one. After his health, my main concern was that he not be bankrupted by the enormous costs of life-saving care.

New Hampshire is the first state in the country to enact an "early offer" system. Given its benefits for doctors and patients, maybe more states will choose to follow the Granite State's lead.



In 2007, Xavier Alvarez introduced himself at a public meeting as a recipient of the Congressional Medal of Honor, the United States' highest military award for bravery. But Alvarez - a habitual prevaricator who lied about everything from playing professional hockey to marrying a Mexican starlet - had not been awarded the medal, and was indicted under the Stolen Valor Act. The Act made it a crime for anyone to "falsely represent" that he or she had been awarded a military medal. Last week, the Supreme Court agreed that the statute was an impermissible restriction of speech, and invalidated it under the First Amendment. In an opinion joined by three other Justices, Justice Kennedy accepted the government's argument that the statute protected the important interest of preserving the integrity and purpose of the military medal system, but held that it failed to meet the "exacting scrutiny" required under the First Amendment. Justice Kennedy noted the government's argument that the Court had found no First Amendment protection for false statements in other contexts, including defamation, but found no categorical exception from First Amendment protection for false statements. Generally, the restrictions on false speech are tied to some injury, while the Stolen Valor Act "targets falsity and nothing more." Justices Breyer and Kagan provided the swing votes, but reached their decision applying intermediate scrutiny. Specifically, Justice Breyer held that the statute violated the First Amendment because its objective could be met in a less burdensome way; for example, by a "more finely tailored statute" requiring a showing of specific harm or materiality. Finally, Justice Alito, joined by Justices Scalia and Thomas, dissented, writing that the speech at issue has "no value," and that "proscribing [it] does not chill any valuable speech."

 

 


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

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

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.