My week is up, and this was fun. Thanks to Walter and good folks at PoL for making this happen. One last shameless plug before I leave: our Law School's blog is here. Thanks again.
Moin Yahya Archives
This recent story about how an elderly couple nearly lost their home over a $1.63 tax bill and then had to fight for seven years to keep their home is typical of many stories where a seemingly minor legal irritant mushrooms into a major nightmare. Certainty of title is the one thing that many Americans (and Canadians) count on when they buy a home or any property. No wonder decisions like Kelo generated such a backlash.
Certainty of title is what Hernando de Soto identified as the key impediment to economic growth in many developing countries. In the Mystery of Capital, de Soto documented how in seemingly poor countries, ordinary citizens were sitting on trillions of dollars in assets. The problem is that there was no way to tap into these assets due to uncertainty of title. No credit could be had or exchange be conducted for those assets if no one was clear on who owned them. Even in our developed system (unless your land title system follows the Torrens system), many homeowners will still purchase title insurance.
In Roper v. Simmons, The U.S. Supreme Court declared the execution of juveniles unconstitutional. They did so on 3 grounds, one of which was that the United States was the only country in the world that executed juveniles. Justice Kennedy stated:
Respondent and his amici have submitted, and petitioner does not contest, that only seven countries other than the United States have executed juvenile offenders since 1990: Iran, Pakistan, Saudi Arabia, Yemen, Nigeria, the Democratic Republic of Congo, and China. Since then each of these countries has either abolished capital punishment for juveniles or made public disavowal of the practice. .... In sum, it is fair to say that the United States now stands alone in a world that has turned its face against the juvenile death penalty.
Oddly enough, it seems that some of the listed countries are still executing juveniles. Next time a politician, judge, or lawyer argues "we are the only ones in the world to do X", a) do not believe that assertion, and b) say "so what!".
Apropos of Walter�s post on the NLJ story regarding Class Action lawsuits under state consumer protection statutes, where plaintiffs claims they wouldn�t have paid the purchase price for the product if knew that it was defective or harmful. These are also known as no-injury lawsuits. The big one a few years ago was the $10 billion verdict against Philip Morris for their light cigarettes. The case was overturned on appeal at the Illinois Supreme Court, but currently there is a class action certification appeal pending in front of the Second Circuit.
If there was one area of economics that I wish lawyers would understand, it is the basics of price theory or consumer demand. Prices serve as an informational clearinghouse, an idea that is neither new nor novel. The Nobel Laureate in economics Hayek explained this over fifty years ago in his article The Use of Knowledge in Society, 35 Am. Econ. Rev. 519 (1945). There he argued that the price system was �a mechanism for communicating information�, i.e. the price mechanism allows the communication of information in a dynamic fashion without the need for a centralized information gathering mechanism.
Over at Houston's Clear Thinkers, Tom Kirkendall links to this story about a 74-year-old Houston businessman and founder of pipeline giant Enterprise Products Partners, who during a trip to Russia shot and killed a moose and a sheep while riding in a helicopter. Neither animal is apparently endangered, and the Russians didn't seem to care. The US attorney's office, however, had him answer questions at a grand jury hearing and they could indict him under the Lacey Act.
The Lacey Acy was also used to convict a group of lobster fishermen who brought in lobsters from Honduras allegedly in violation of Honduras law. For this, they received 8 years in jail. Here's the best part: the Honduran law they supposedly violated was NEVER actually the law in Honduras. Easy case for appeal, you may think! Unfortunately, the Eleventh Circuit affirmed the convictions. The Supreme Court denied cert, but if it is any consolation, there was a dissent in the Eleventh Circuit's decision.
The United States Supreme Court�s decision in Bell Atlantic v. Twombly received much support by academics and practitioners alike. An end to the madness of abusive litigation, sanity in antitrust pleadings, and other such claims were made heralding a new era of antitrust jurisprudence. Others attacked the case as erecting insurmountable pleading standards that would shut out plaintiffs seeking redress for violations of the Nation�s antitrust laws. (See e.g. Dodson)
I am finishing an article that I will post soon on SSRN and Bepress titled �The Law & Economics of Antitrust Complaints: A Post-Twombly Analysis� in which I argue that that the truth is somewhere in the middle.
Many lower courts for over two decades now (recall that Twombly resulted from a circuit split) have been fashioning standards of pleadings for antitrust (and other areas of law) that require more than simple conclusory allegations. These requirements are not �hyper-pleading� requirements as some have argued, nor are inconsistent with Conley v. Gibson and the Federal Rules of Civil Procedure�s emphasis on notice pleading; rather these requirements help shape the substantive law of antitrust at the pleadings stage. What Twombly did was allow the lower courts to go ahead and continue to fashion the law of antitrust in the pleadings stage, something some have called for to happen now.
In Twombly, the Supreme Court held that an allegation by the plaintiffs that the defendants �engaged in parallel conduct� and formed a conspiracy to prevent entry into local markets was an insufficient pleading. One could view this case as legislating from the bench and the creation of new complex hyper pleading requirements. I prefer to view his case in another way. In my article, I argue is that the Supreme Court has affirmed the lower courts� fashioning of the substantive rule of antitrust law concerning parallel behavior, namely that simply observing parallel conduct as a matter can NEVER prove collusive behavior.
Whether it is a conference on the subject of regulatory crimes, or blog I read on the subject, the message is the same: regulatory prosecutions are out of hand. Many times the dialogue starts like this �I used to prosecute these types of cases; in fact, I was on the taskforce that prosecuted the defendants in [Enron/WorldCom/Adelphia/insert your favorite corporation here], but I feel that it has gotten out of hand!� If the speaker is a legislator regardless of party the message is the same �American businesses need room to breathe and the climate is not conducive for this!� The question I feel like asking these speakers is �then why did you prosecute them?�, �why did you ask for that awful sentence?�, or �why don�t you change the law?�.
It is almost as if we have become trapped in this bizarre system that everyone seems to accept is flawed, unjust, and in need of change; and yet, the system seems to get worse. Who would have envisaged just a few years ago the Thompson/McNulty memo would be in force? It is almost as if each successive administration feels the need to outdo its predecessor. Like the human sacrifices of earlier so called civilizations that were meant to appease the gods and ensure continued prosperity that kept getting more and more gruesome over time, we as a society (more on we are in a bit) almost revel in how much we can extract out of the leaders of our industry. Unfortunately, if true, the parallels are ominous: the ancient civilizations came to a screeching halt. And why not ours?
One of the charges that the prosecution added against Black was obstruction of justice. This charge was added at the last minute and was not in the initial indictment. The charge related to the fact that Black removed boxes of documents from the offices of Hollinger Inc. (which was the parent company of Hollinger International the American company based in Chicago). The order not to remove the boxes had been issued by a Canadian judge in Toronto. (As an aside, wouldn�t a simple contempt of court charge have sufficed?)
What jurisdiction did the United States have over Black for an event that took place on foreign soil? Putting aside the question of whether the prosecution already had these documents, so it is not clear that his removal obstructed any investigation; the more important and troubling aspect of this case is the creeping federalization of American law not just inside the United States but abroad. There have been many cases where the American courts and prosecutors have begun asserting jurisdiction over events that happen abroad. Traditionally they found a nexus to some event in the United States. The Blackberry injunction by NTP against RIM affected a relay station located in Canada. The arrest of a British executive for running an offshore online gambling site was used by Americans in the United States. But now, the courts and prosecutors are asserting jurisdiction over events abroad unconnected to any local victims whatsoever.
An American faces charges in the United States for sex tourism abroad. The Ninth Circuit affirmed another conviction under the Protect Act against another individual who engaged in sex tourism, holding that it was within Congress�s authority to regulate foreign commerce to have jurisdiction over such activities. (United States v. Clark, 435 F.3d 1100 (9th Cir. 2006).)
The Conrad Black convictions have provided ample fodder for the press up here in Canada. After all, Lord Black is our native son who gave up his citizenship to take a seat in the British House of Lords. But apart from the human interest dimension to this story, there are some troubling legal implications for corporate governance. (Ribstein and Kirkendall offer their thoughts on the subject.)
I offer three:
I. Tort/Crime/Market � What Purpose?
The real problem with Conrad Black�s conviction and other such cases is that ordinary breaches of fiduciary duties have been converted into criminal conduct. In the realm of civil law, however, many safeguards that have developed over the years in the civil domain are hauntingly absent in the criminal arena. The �business judgment rule� for example insulates directors from civil liability when they take procedural precautions such as consult experts and document the rationale behind their decisions (I am simplifying, of course, so see Bainbridge or Ribstein for more on this). Recall that when Jamie Olis tried to use this argument (WSJ$)in his criminal case, namely that he relied on legal and accounting advice at Dynegy assuring him that the booking of loans as revenues was a valid accounting technique, he was found guilty and (initially) sentenced to 24 years! The sentence was based on a miscalculated notion of damages, again, something that would never have happened were this case in the civil litigation system. Olis� inability to raise adequate legal fees while the Feds had unlimited resources to pursue this and other cases is another imbalance in the criminal system (that some judges are trying to rectify as in the KPMG saga).