Today's decision demonstrates how both difficult and fascinating enumerated powers cases can be. Much can be said, but I would like to address one brief issue. Was there a holding today that the Individual Mandate was not a proper exercise of Congress's Commerce Clause and Necessary and Proper ("N&P") Clause powers?
The Chief claimed that there was, and he did so in Part III-C, which was designated as part of the Opinion of the Court (joined by Ginsburg, et al). Roberts Op. at 41-42 ("The Court today holds that our Constitution protects us from federal regulation under the Commerce Clause so long as we abstain from the regulated activity.") (emphasis added). Really? It is true that five Justices concluded that the Individual Mandate could not be justified under that constitutional power (and the N&P Clause), but four of them (Scalia, Alito, Kennedy, and Thomas) were in dissent (at least as to the constitutionality of the Individual Mandate issue). In United States v. Morrison, the Court specifically rejected the proposition that the conclusion of six Justices in United States v. Guest -- three in a concurrence and three in dissent - that Congress could reach private conduct under Section 5 of the Fourteenth Amendment, was a binding holding of the Court. U.S. v. Morrison, 529 U.S. 598, 624 (2000) ("This is simply not the way that reasoned constitutional adjudication proceeds.").
Today, Justice Ginsburg chided the Chief for even reaching the Commerce Clause question, which she thought was unnecessary given his opinion on the Tax Power. (She was right, of course, but the same thing could have been said about her own opinion.) Did she, and those joining her opinion, nonetheless think that the Court had held that the Individual Mandate was unconstitutional under the Commerce and N&P Clauses, as Part III-C of the Chief's opinion (for the Court, remember, joined by Ginsburg, et al.) says? Isn't unnecessary legal analysis what we call dicta? Curious, then, that the Reporter of Decision, in the summary of the decision, does not identify Part III-A of the Chief's opinion (in which he discusses the Commerce and N&P Clauses) as part of the opinion for the Court. Nor does the heading above the Chief's opinion (parts of which say "Opinion of the Court" and other parts of which say "Opinion of Roberts, C.J.").
So, was there a Commerce Clause holding? Maybe, but I doubt any subsequent Court that wants to ignore it will have difficulty doing so.
Now that the anticipation is over and the decision has been read (all 193 pages), attention must focus on how, if at all, the Court's decision has changed the law. There were three major conclusions to the Court's decision.
First, the individual mandate is within the scope of Congress taxing power. This, unquestionably, is the most important aspect of the Court's decision and it doesn't change the law at all. The Court's conclusion that the individual mandate is a tax breaks no new ground. The Supreme Court previously had said that the label used in not determinative. Nor is it at all surprising that this was treated as a tax. It is in every way functionally a tax: it is collected by the IRS, it is calculated by a percentage of income (or a flat rate), and it generates revenue for the federal government. Not one federal tax has been declared unconstitutional since 1937 and so upholding this one is not remarkable in terms of the law.
Second, five justices said that the individual mandate is outside the scope of the commerce power. From one perspective, this is just dicta because the Court upheld the individual mandate on other grounds. But Chief Justice Roberts said that he needed to decide this in order to justify interpreting the individual mandate as a tax. That seems a dubious justification for his addressing the commerce power or making his discussion a holding. But putting that aside, five justices said that Congress cannot regulate inactivity. This seems highly questionable as applied here because everyone is engaged in activity with regard to health care; they are either purchasing health insurance or self-insuring. Congress was regulating the latter. Still, it is not clear how much this will matter in the future since it is rare for Congress to require activity.
The third holding is the most important in changing the law: the Supreme Court said that the burden on the states with regard to Medicaid funding exceeded the scope of Congress's spending power because it was too coercive. This is the first time in American history that conditions on federal spending have been declared unconstitutional as being unduly coercive. Many federal spending programs impose conditions on states taking federal money. There likely will be many challenges after the Court's decision. But the Court did not give any criteria as to how to decide when conditions are so coercive as to violate the Constitution.
Overall, the decision must be seen as following 75 years of Supreme Court decisions upholding federal social welfare legislation. If the Court had done anything else, that would have been a very dramatic change in the law.
In my estimation, the most significant part of yesterday's Obamacare ruling was not its handling of the individual mandate but its limitation on Congress's power to coerce states through federal funding--a holding that will become critical as the health-care law is implemented and in many other cases in the future.
To uphold the ACA's "individual mandate" and its private-insurance reforms, the Chief Justice somewhat brazenly rewrote a regulatory penalty as a tax - a reading his opinion itself admitted was not the most common-sense reading of the statutory language. The Chief's reading was hardly a model of statutory construction, but it was motivated by the conservative doctrine of "constitutional avoidance": the principle, first embraced by Chief Justice Marshall in the 1833 case Ex parte Randolph, that given the "delicacy" of the courts overturning the acts of coordinate branches (and the difficulty of amending the constitution), "a just respect for the legislature requires, that the obligation of its laws should not be unnecessarily and wantonly assailed" through the judiciary's application of the constitutional power of judicial review.
The Chief Justice was very likely motivated by institutional concerns, as outlined persuasively by Charles Krauthammer. As Krauthammer notes, as Chief Justice, Roberts wears "dual hats," and in his role as "custodian of the court" he is "acutely aware that the judiciary's arrogation of power has eroded the esteem in which it was once held." Krauthammer is right that most of this arrogation occurred during the liberal era of Earl Warren and William Brennan, but also that the Court's decision in Bush v. Gore to halt the recount in Florida in a presidential election--however necessary to avoid a constitutional crisis being engendered by an irresponsible Florida judiciary--substantially eroded the Court's public perception, particularly given that case's 5-4 ideological split. The president had already shown an unhealthy willingness to demagogue the Court over its Citizens United decision and had signaled an intention to do the same should the Court overturn his administration's signature legislative accomplishment on constitutional grounds. Roberts was almost certainly haunted by the specter of Schechter Poultry, in which the Court in 1935 overturned the National Industrial Recovery Act (a signature of Roosevelt's New Deal, however misguided), and proceeded to provoke a showdown with the president that culminated in FDR's threat to "pack the Court" with new appointees.
Thus, the Chief Justice turned to perhaps disingenuous statutory construction to uphold the law in question. In the process, however, he labored to lay out some conservative markers that set boundaries on Congressional power and signal that the federal government is not one of unlimited powers under the constitution. To be sure, the taxing power is broad, but as Ted Frank suggested, that was already the law of the land before yesterday. (As I noted in my instant reaction to the case over at NRO, "Congress already can and does penalize us for acting or not acting in hosts of areas, including such sacred realms as getting married or having children.") But Nadine Strossen is right (in her analysis if not its normative framing): when you look at this decision in terms of constitutional interpretation, rather than statutory construction, you see a Court sketching out definitive limits on the application of Congressional power through the Commerce Clause, Necessary and Proper Clause, and Spending Clause.
Indeed, like Jay Cost, I see echoes of Chief Justice Marshall in Roberts's gambit here. In Marbury v. Madison, Marshall gave Jefferson what he wanted (he refused to order that Jefferson issue mandates to the remaining Federalist judges appointed under the Judiciary Act of 1801) even as he laid down the principle of judicial review. That decision paved the way for Fletcher v. Peck--when the Court assumed the power of judicial review over states--as well as the Court's broader readings of the Commerce Clause (Gibbons v. Ogden) and Necessary and Proper Clause (McCullough v. Maryland) that were to come. While yesterday's rulings didn't get us all the way back to Gibbons and McCullough, they clearly insisted that there's an outer bound to what Congress can do under those grants of power.
More significant still is the Court's decision to place limits on Congress's ability to coerce states to act through conditional use of the federal spending power. The 1987 case South Dakota v. Dole left a gaping hole that ran through the 1990s federalism decisions that kept Congress from applying the Commerce Clause to non-economic activity (Lopez and Morrison), kept Congress from applying the Commerce Clause to create private rights of action against states (Seminole Tribe and Alden), and prohibited Congress from "commandeering" states to act according to federal dictate (New York and Printz): what's the functional point of prohibiting Congress from "commandeering the states" if they can effectively coerce/induce the states to conform to Congress's will through the virtually untrammeled grants of federal money? While Dole suggested that there was a theoretical limit to Congress's ability to influence states through the Spending Clause--in which "inducement" became "coercion"--neither the Supreme Court nor lower courts had ever found an occasion to do so.
Until yesterday. Richard Epstein noted the importance of the Spending Clause question, but most other analysts ignored it, as did the lower courts, in keeping with post-Dole jurisprudence. But if it's not "plainly coercive" to condition state receipt of Medicaid funds on state compliance with Congressional dictates--noting that Medicaid is second only to education spending in most state budgets--then when would it ever be? In the minds of Justices Ginsburg and Sotomayor, the answer is essentially never, but the real constitutional problem under the Spending Clause is laid bare by the fact that the conservatives on the Court were joined in this part of the case by Justice Kagan, President Obama's former solicitor general, and Justice Breyer, Senator Ted Kennedy's former staffer.
Yes, the Court permitted Congress to condition the Medicaid expansions on state compliance--thus making this holding an outer bound rather than a major check on Congressional influence over the states through the Spending Clause. But expect more litigation in the future. At a minimum, Congress will have to check itself when it invokes the Spending Clause.
And although Obamacare survives, the ability for states to opt out of the Medicaid provisions is the greatest prospect for reining in the statute's excesses if it isn't repealed. As my colleagues Avik Roy and Paul Howard noted in our panel discussion of the decision last night (around minute 33- of the videotaped program), there is the real prospect that some states could shift costs onto the federal government by opting out, so that even if most states won't do so (and they won't), the threat of exit could increase state bargaining power to negotiate waivers of some of the new law's most overreaching provisions.
At a minimum, through this decision, the Court holds onto the premise that the federal government (at least outside the taxing power) is one of limited, enumerated powers--and in the process reifies and amplifies its 1990s federalism decisions. From a constitutional law standpoint, there's something in there for conservatives to cheer.
To be sure, it's only the outer bounds that come into play in such constitutional judgments--because constitutional law is largely about boundary limits (which is why it's a bit odd that so many legal thinkers focus on it so obsessively--at the expense of the nitty-gritty questions of civil litigation, criminal prosecution, and corporate governance that we primarily concern ourselves with at the Center for Legal Policy, where real outcomes are at play). As Alex Bickel understood, in a democratic republic, elected majorities will ultimately get their way; and we're unlikely to see a return to the era in which the Progressive and New Deal courts turned back the tide of popular opinion. (We may or may not one day be able to get rid of Wickard v. Filburn, but we won't get rid of Helvering v. Davis or bring back Panama Refining v. Ryan and Schechter Poultry, and therein lie the heart of the welfare and regulatory state.) Elections matter--and that's where the fate of Obamacare will ultimately rest.
On Wednesday, February 27, the Supreme Court will hear oral arguments in American Express v. Italian Colors, the latest in a string of recent cases in which the Court tackles arbitration and the class action device. To preview, react to, and assess the argument, we are happy to welcome Cardozo law professor Myriam Gilles alongside our own Ted Frank.
Italian Colors involves an asserted antitrust claim filed by a class of vendors against American Express, alleging that the AmEx "accept all cards" policy constitutes an illegal "tying arrangement" by linking the card company's less-desirable credit-card customers with its more desirable charge-card clientele. The Second Circuit determined that AmEx could not invoke its contractual arbitration clause because individual arbitrations would make the expert witness necessary to assert the antitrust claim cost-ineffective--in the court's view, denying the plaintiffs the ability to vindicate a federal statutory remedy. Five judges dissented from the denial of a rehearing in banc, led by Chief Judge Jacobs's blistering dissent, joined by Judges Cabranes and Livingston, which accused the panel of substituting its public-policy preferences for Supreme Court precedents on the enforceability of arbitration clauses' waiver of class-action remedies, most recently in AT&T Mobility v. Concepcion.
Professor Gilles--who teaches torts, advanced torts, class actions, and aggregate litigation--has criticized Concepcion, warning that "most class cases will not survive the impending tsunami of class action waivers" in the decision's wake. In contrast, Frank--the founder of the Center for Class Action Fairness as well as a Manhattan Institute adjunct fellow and editor of Point of Law--has argued that such concerns are "overwrought," and that post-Concepcion, "many forms of class action lawsuits will continue, and those that are replaced by individual arbitration will generally lead to greater consumer protection, not less." It is my pleasure to welcome Professor Gilles, and I trust that her discussion with Ted will prove illuminating.
]]>After seven years of appellate litigation, including three rounds at the Second Circuit and two trips to the Supreme Court, in the final footnote of its Reply Brief, American Express has abandoned - stunningly - its primary policy argument. Amex has consistently argued that a ruling for the merchants would open the floodgates to a torrent of challenges to its and other companies' arbitration clauses, and that an "Amex exception" would swallow the "Concepcion rule." The merchants, meanwhile, have said "No, the floodgates are already slamming shut as companies enact liberal, vindication-enabling arbitration agreements - and especially, agreements that allow prevailing arbitral claimants to shift the cost of expert witnesses."
Now, in footnote 8 of Amex's Reply Brief on the merits, comes the bombshell: Amex has just recently promulgated a new version of its merchant agreement with an arbitration provision that shifts the costs of expert witnesses in favor of a prevailing arbitral claimant. Never again can a merchant complain (as the merchants here do) that the unavailability of both collective action and cost-shifting, combined with proscriptions against sharing information across arbitrations, precludes them from being able to vindicate their rights in arbitration. While footnote 8 makes clear that "Petitioners do not rely on this amendment in their challenge to the decision below," the fact is that in future cases the Amex clause will allow cost-shifting. The merchants' proffered test is whether the proven non-recoupable costs exceed the recovery sought. If all costs are recoupable, the inquiry is over before it starts. For this corporate defendant, the floodgate is closed.
]]> The Amex amendment shows that companies always have their hands on the floodgate-closing switch, and it makes clear that the vindication-of-rights doctrine has had the effect of causing companies to write arbitration agreements that actually allow (or at least, do a better job of allowing) purchasers, employees and other counterparties to vindicate rights in the arbitral forum. Vindication-enabling clauses promote arbitration and further the purposes of the FAA, while vindication-disabling clauses do the opposite. Is that seriously in doubt?To be fair, when I say that Amex has conceded, I am referring only to the policy side of the argument. The concession is that the vindication-of-rights doctrine promotes vindication-enabling clauses, promotes arbitration, and entails no "floodgate" risk. What Amex does not concede is that the vindication-of-rights doctrine exists at all. And while that's a subject for another post, one thing should be crystal clear: if the Supreme Court were to hold that there is no effective-vindication rule, we will not see any more agreements shifting expert costs to prevailing parties, and companies will have an unprecedented and clear incentive to write agreements that ensure arbitrations never take place.
]]>This might be a short debate! From the beginning, I've defended Concepcion because I believe nothing in Concepcion precluded consumers from vindicating their rights. American Express's briefing, however, has focused on a theory that they can do with an arbitration clause what it would be plainly impossible to do with any other contractual clause. AmEx couldn't have a "tying arrangement" waiver clause; it couldn't even have a procedural clause to agree to restrict the use of expert witnesses in antitrust disputes. And—theoretically at least—a monopolist would not face the market competition that would force it to pass along the savings from arbitration to consumers, making the argument for where to draw the line to force arbitration weaker in antitrust cases than other cases. The Federal Arbitration Act says that arbitration clauses are not to be disfavored, not that they get special treatment from the courts.
The Second Circuit, however, did disfavor AmEx's arbitration clause, and thus failed to correctly apply the Federal Arbitration Act. They did that by giving the record and the arbitration clause a cribbed reading to reach its preferred result. The Supreme Court should correct that kind of abuse, or judges will be able to undo the FAA with the sort of rulings that the Court criticized in Concepcion, but just classify them as "vindication" decisions rather than "unconscionability" decisions.
]]> Pages 19-23 of the American Express reply brief give a roadmap for reversing the erroneous Second Circuit decision: the Second Circuit adopted a view of arbitration and of the arbitration clause that was just entirely fictional. Nothing in arbitration or the AmEx arbitration clause inherently precludes arbitration of antitrust disputes. The fact that that argument is restricted to the last five pages of AmEx's brief makes me fear that the American Express attorneys will continue to insist that Mitsubishi provides only token protection for parties subject to an arbitration agreement and focus on an argument that the Court is likely to reject 8-0. The oral argument will be telling: will AmEx quickly retreat to its strong ground and hope for a narrow ruling?The problem with the Mitsubishi exception is, as Judge Jacobs noted in his Second Circuit dissental, that disingenuous plaintiffs' lawyers will always make vindication arguments against an arbitration clause. Footnote 8 then simply . It merely clarifies the arbitration agreement to make it harder for judges to do what the Second Circuit did here: create an imaginary set of facts and then rule upon that set of facts. Unfortunately for American Express, Paul Clement has cleverly tailored respondents' brief to rest upon that narrow argument, and the Supreme Court might never reach the decisive issue, because "interpretation of an arbitration agreement" or sussing out the record is the sort of "error-correction" that the Supreme Court deigns itself above.
This will be an injustice. The underlying antitrust claim is bogus. American Express plainly does not have monopoly power that would permit it to use a tying arrangement to harm its merchants; the merchants suffer no conceivable harm from the challenged practice. This is a class action to impose litigation costs upon AmEx in the hopes that they'll pay Danegeld to the attorneys to get out from under it. That hurts consumers by raising their prices, and hurts income inequality by transferring wealth from productive sectors of the economy to rent-seekers in the 1%. As we see from the DOJ litigation against Amazon for lowering book prices, the problem with public enforcement of the antitrust laws is not that it's insufficiently overaggressive; outside of the special case of actual price-fixing arrangements, it's hard to see what private antitrust enforcement adds in the way of net social good. Even if the Supreme Court surprises me and strikes down or narrows the vindication doctrine, it's hard to see consumers being injured on net. But that would be a kluge hiding the real public-policy problem.
How do we solve the problem that Judge Jacobs identifies? Unfortunately, it might take a few years of iteration of litigation over arbitration clauses before we can get a clean set of procedures that precludes trial lawyers from destroying the cost-savings of arbitration clauses with bogus litigation claiming that vindication is impossible under the arbitration clause. That's why I hope the Supreme Court steps in to save this arbitration with a narrow ruling, and makes it clear that lower courts' distaste for arbitration does not excuse wrongful stretches of contractual language any more than it excuses wrongful stretches of unconscionability doctrine. One certainly understands why AmEx and the business community would prefer to cut the Gordian knot and just eliminate the vindication doctrine and why they're swinging for the fences here. I worry that that would be bad for arbitration in the long run, and encourage overreaction by a Congress that already has to be restrained from undoing consumer choice.
In a perfect world free from special-interest pressure, we could have legislation or regulation that sets out the bounds of arbitration agreements to create bright-line rules of what would vindicate rights. The fact that Obama administration regulators have been hacking at arbitration agreements with a cleaver, however, demonstrates regulatory capture by the trial bar; as a political matter, we need to rely upon the courts, but the courts have been less than consistent in applying Concepcion. But the same problem is true in Rule 23(e) fairness hearings and PSLRA protections against abusive class actions.
Professor, maybe we can find some grounds for debate anyway. Would you agree that if AmEx is correct that its arbitration clause does not preclude a merchant from bringing antitrust litigation that its arbitration clause should have been enforced by the Second Circuit? Do you disagree with anything in my white paper?
]]>Ted Frank's posting starts off on an agreeable enough note: it turns out we concur that the vindication-of-rights doctrine does, in fact, exist, and that Amex's lead argument rejecting the doctrine is "extreme." Sad times that we celebrate agreement on such a basic concept. Assuming Frank acknowledges that the earth is round, there are now at least two things that we agree upon.
But these are sad times at the Supreme Court. Having sat through the rough and nasty argument in the Voting Rights Act case - where the conservative Justices seemed flummoxed by the suggestion that egregious acts of discrimination in voting were still an especial problem in the South, and where Justice Scalia characterized legislative protection of the franchise "a racial entitlement in perpetuity" - I was prepared for just about anything. So I rejoiced that the Justices appeared to agree that the vindication-of-rights doctrine is alive and well - Justice Breyer described the doctrine as "well-established," and no other Justice seemed to question is basic premises. Whew! The earth is round.
Beyond that basic agreement, however, the argument was a mess. Justices Kennedy and Breyer wondered why it would be prohibitively expensive for small merchants to engage economic experts to opine on issues such as relevant market definition or anticompetitive effects - despite the fact that this Court's own antitrust jurisprudence has exponentially increased the costs of lodging antitrust claims. When the merchants' lawyer, Paul Clement, observed that antitrust guru Herbert Hovenkamp submitted an amicus brief arguing that expensive expert testimony is indispensable, Justice Breyer countered that if Professor Hovenkamp or Justice Breyer were the arbitrator, then no experts at all would be required. (I wonder what Justice Breyer's day rate would be).
But the biggest source of confusion - and the issue that might ultimately cause the Court to dismiss certiorari as improvidently granted or possibly remand for further elucidation - involved Amex's late-in-the-game assertion that its air-tight confidentiality clause did not actually bar Respondents from freely sharing information across arbitral proceedings, such that merchants could "share an expert between multiple plaintiffs." Justice Kagan specifically and repeatedly asked Mr. Kellogg, Amex's lawyer, whether Respondents would "violate the confidentiality agreement of this clause" if they all decided to "get together and produce one report." And each time, Kellogg answered that Amex's confidentiality clause did not bar Respondents from doing so.
This is new, and possibly changes things. It's new because when the confidentiality clause came up at the Second Circuit, Amex did not make this concession. Rather, the company stood by its clause, which broadly provides that "all testimony, filings, documents and any information relating to or presented during the arbitration proceedings shall be deemed to be confidential information not to be disclosed to any other party." Based on this, the panel below correctly ruled that Amex's "confidentiality provision effectively block[ed]" claimants from sharing information such that they could develop (and informally pass the hat to pay for) one, single expert report that could be used in multiple arbitrations.
And this late-breaking concession that the confidentiality clause doesn't mean what it says possibly changes things because perhaps Respondents can now seek to vindicate their rights via individual arbitrations of their antitrust claims - hundreds and hundreds of individual arbitrations, using the same expert report, that over time, create a momentum that might match or surpass traditional notions of collateral estoppel in the arbitral fora.
It may be a while before we get to witness any such activity, though, because my guess is the Court will remand the case, as it seems awfully late in the day for Amex to suddenly make this important concession. As Malcolm Stewart of the Solicitor General's office argued on Respondents' behalf, Amex seems to have engaged in certiorari bait-and-switch, seeking Supreme Court review "on the important legal question whether the inefficacy of arbitration procedures is a basis for invalidating the agreement," but then once before the Court, arguing that "it would, in fact, have been feasible to pursue these claims through individualized arbitration." These facts about the violability of the confidentiality provision were simply not in the record, and for that reason alone, the case may prove difficult to decide.
[And, to be clear, Frank and I agree on little else. I think it begs reality to assert Amex's arbitration clause doesn't completely preclude the vindication of federal antitrust claims. If Respondents cannot share information, shift the extremely high costs of an expert report, or do both via a class action in court, they simply cannot bring their Sherman Act claims. Even less rooted in reality is Frank's floodgates argument - i.e., that droves of displaced class claimants will scale the arbitration barricades and overwhelm the citadel proclaiming their inability to vindicate statutory rights. If the only question is whether non-recoupable costs exceed the recovery sought, it should be clear that few camels will make it through the eye of this needle.
And I won't take the time to address the uninformed views on the underlying antitrust claim. After all, the Amex case hasn't even gotten to the merits stage because of 8 years of litigation over the arbitration clause. But it should suffice to note that the Justice Department has filed suit against Amex on similar grounds, and that Visa/Mastercard recently settled a related antitrust case for $7.25 billion dollars (a settlement in which Frank and his cohort have not lodged their typical objections).]
Professor Gilles's last parenthetical confuses me. What is my "typical" objection? For that matter, who is my cohort? I always thought of myself as sui generis.
I honestly haven't paid a lot of attention to the Visa/Mastercard settlement because (1) no class member has asked for my help and (2) there are several competing class-action attorneys who have already (if clumsily) objected, and, thus, there doesn't seem to be a need for my non-profit to get involved to vindicate class members' interests, because for-profit entities with the proper incentives seem to already be on the case. But if one side or another wants to offer me a suitcase of money to consult on the litigation and possible objections as a private attorney, I'll be happy to consider the possibility and try and get permission from CCAF to do so.
Not that I think Visa/Mastercard tells us a lot about AmEx. I can think of exactly one American brick & mortar merchant with more than $100,000 in annual sales that I dealt with in the last five years that wouldn't take my Visa card, and it just went out of business. The case for Visa monopoly power is a different one than that for AmEx, where enough merchants don't do business with AmEx to show that when AmEx makes a take-it-or-leave-it offer that the merchant doesn't like, AmEx doesn't get the business. And DOJ has cried wolf often enough in the antitrust context in the Clinton and Obama administrations that a complaint over a tying arrangement doesn't have a lot of credibility with me: it's at least as likely to be the result of special-interest rent-seeking as consumer protection. In any event, that the Justice Department sued AmEx sort of undercuts the idea that we need a private class action to bring AmEx to heel.
Separately, since I've been critical of the AmEx Italian Colors litigation strategy through now, let me give credit where credit is due to Mr. Kellogg's excellent oral argument--which as Professor Gilles suggests, performed as I hoped and retreated to AmEx's stronger arguments. At oral argument, AmEx disputed the claim that it had not challenged certain factual contentions in the record. I'll note that the dispute exists without attempting to resolve the quibble, since the underlying public-policy question that I'm interested in doesn't turn on how well AmEx litigated its case in the lower courts. I do note that I've certainly been the victim of court opinions that chose to assert that I had not made an argument that I made rather than reach the questions my argument raised.
It's not clear to me why Professor Gilles is upset that a possible consequence of this argument would be dismissal of certiorari as improvidently granted; that result would very much be perceived as a victory by the array of special interests opposing the freedom to contract for arbitration clauses, leaving the broad Second Circuit exception to Concepcion intact.
Does it beg "reality to assert AmEx's arbitration clause doesn't completely preclude vindication of federal antitrust claims"? The Andy Pincus's amicus brief for the Chamber and other business entities suggests numerous ways arbitration proceedings could be aggregated to spread the costs of an expert witness (though I think their reliance on the Honda small-claims-court movement is overstated). It's just that the resulting aggregate litigation would be opt-in rather than opt-out--as it was in American courts during the first several decades of the Sherman Act. And, as Justice Breyer notes, why do we assume that the streamlined and informal procedures of arbitration require the same disastrous litigation expenses of court proceedings? There's certainly nothing in the record about that.
Professor Gilles complains that my floodgates argument isn't "rooted in reality," but my contention is hardly hypothetical: we see it in the Italian Colors case itself. As Justice Breyer noted at oral argument, plaintiffs' expert report about vindication was perfunctory, and didn't even mention arbitration. Yet it was sufficient to put American Express through what must be to date seven digits of litigation expenses, and may even eventually be successful in nullifying AmEx's contractual rights. Anyone who doesn't think it won't be easy to invest a few thousand dollars in a hired-gun expert to create a factual dispute over whether an arbitration clause makes vindication of a cause of action possible hasn't seen how little adverse consequence attaches to attorneys and parties who hire experts to make fantastic claims.
Speaking of vindication, I find it fascinating how often class action advocates speak of the importance of the class action in vindicating rights but how little they speak of vindication when it comes to the class actions themselves. Friday, I was in court watching class counsel argue that it was okay to freeze small shareholders out of a securities settlement because of the administrative expense in paying their claims; in the pending Fraley v. Facebook settlement, I expect to see class counsel argue that it is fair, reasonable, and adequate to pay the class zero cash because there are too many class members who want to be compensated. I find these arguments remarkable: if the class action has such high administrative expenses that after paying for notice and attorneys' fees, the class cannot be paid at all, why are these classes being certified under Rule 23(b)(3) in the first place? Doesn't that rule require a demonstration "that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy"? What makes a class action "superior" in the (b)(3) sense, much less the "vindication" sense, when class counsel takes the position that the class can't be compensated?
]]>The traditional common-law principle of "Ignorantia juris non excusat,"--Latin for "ignorance of the law" does not excuse--prevented a criminal defendant from escaping liability by claiming that he was unaware that his conduct was unlawful. When most crimes were malum in se--meaning inherently wrong according to the generally accepted moral code--the concept of "ignorance is no excuse" went unchallenged. That was all before the phenomenon of overcriminalization, before criminal codes and regulatory provisions were flooded with new criminal offenses, many of which were vague, ambiguous, duplicative and well-beyond the scope of the traditional common-law-based criminal justice system.
]]> Now in the face of a new reality, policy experts and legal scholars have been working on solutions to curb overcriminalization and reign in the unwieldy proliferation of criminal laws. Policy makers have met those efforts with interest; the House of Representatives formed a special task force on the question earlier this year. Among the many proposals being considered to deal with the alarming trend is a reversal of this age-old principle that "ignorance of the law is no excuse." What has been proposed by many advocates is a new "mistake of law" defense which would for the first time allow a criminal defendant to make the case that he did not know that his conduct was against the law and that no reasonable person in his position would know. This drastic departure from the "ignorance of the law" principle has alarmed many experts who, while acknowledging the threat of overcriminalization, worry that a mistake of law defense would create its own host of serious problems.To advocate in favor of the "mistake of law defense", we're thrilled to welcome Paul Larkin, senior legal research fellow at the Heritage Foundation's Edwin Meese III Center for Legal and Judicial Studies. Before joining Heritage, Larkin held various positions with the federal government in Washington, D.C. At the U.S. Department of Justice from 1984 to 1993, Larkin served as an assistant to the solicitor general and as an attorney in the criminal division's section on organized crime and racketeering. He argued 27 cases before the U.S. Supreme Court. Additionally, Paul authored several legal memoranda which outlined the case for the Mistake of Law Defense generally and also specified the elements of that prospective defense.
Opposite Larkin, we are happy to welcome Georgetown Law adjunct professor William G. Otis, a former chief of the Appellate Division at the US Attorney's Office for the Eastern District of Virginia, counselor to the administrator with the Drug Enforcement Administration and special counsel to President George H. W. Bush.
We hope you will visit back over the ensuing days to see what our distinguished participants have to say, in what promises to be a fascinating discussion.
The reach of criminal law to enforce the regulatory state poses serious questions. Regulatory crimes tend to be "strict liability" offenses. That is, they do not require that that the defendant be found to have had bad intent in order to convict and punish him.
This is a relatively new and potentially ominous development. The Founders contemplated criminal punishment for, roughly, "bad actors" -- those who do something a person with common sense and ordinary intelligence would intuitively think of as criminal. Generally, criminal behavior up to now has been defined by people who either don't control their temper; want to make a quick buck; or range from extremely non-empathetic to malevolent.
To partly counteract these problems, some have suggested an updated version of the mistake of law defense. Under this version, it would be an affirmative defense if the defendant did not know, and a reasonable person in the defendant's position would not have known, that the defendant's conduct was a crime.
Such a proposal has obvious appeal for the reasons outlined. Yet caution is in order, because the on-the-ground reality will look different. What will happen is that the defendant will preemptively go to his brother-in-law (the one with a law degree) and present some sanitized version of his plan, in order to inveigle the newly-employed "counsel" to say, "Well it might be close to the line, but I guess it's OK."
When the defendant goes to trial -- having swindled his way to millions through some novel, improvised, now-you-see-it-and-now-you-don't "financial product" -- he'll use the mistake of law defense to insist, "I sought legal advice and was told it wasn't any worse than close to the line. I might have made a mistake, but I asked and my lawyer said it was OK."
More generally, once we allow defendants to turn the trial into a contest about the state of their legal knowledge, we have invited a morass. State-of-mind defenses are already out of control; state of legal knowledge defenses will be, if anything, worse. Even to combat the dangers of regulators-run-wild, we should be cautious before we expand them.
]]>A millennium ago, the criminal law was simple. If you knew the Decalogue, you knew what not to do: don't murder, steal, or lie. As a result, the law did not exonerate someone who claimed to believe that what he did was not a crime, since no one could reasonably believe that those immoral actions were not also illegal. Today, however, the criminal law has expanded to Brobdingnagian proportions. There are approximately 4,500 federal crimes alone. Atop that, use of administrative agencies to define criminal statutes (or their terms) exacerbates the problem. Congress may use a broadly defined term (e.g., "solid waste") in a statute (e.g., the Resource Conservation and Recovery Act) that delegates to an agency (e.g., the EPA) the power to define its terms (e.g., "hazardous waste") by creating a list of specific examples (e.g., "listed hazardous wastes") or by specifying exemptions (e.g., "recyclable materials"). The result is that there are perhaps 300,000 potentially relevant regulations. No one--no law enforcement officer, no lawyer, no law professor, no judge--could honestly claim to know them all.
]]>A reasonable mistake defense does not pose the risk that rogues could manipulate it and escape justice. Some conduct is so well known as immoral and illegal that no one reasonably could claim ignorance of the law as an excuse. Murder, manslaughter, rape, mayhem, robbery, burglary, arson, and larceny were crimes at common law and have been outlawed by state and federal criminal codes ever since. Kidnapping, possession of heroin, and the like are modern crimes everyone knows or should know. No one could reasonably claim ignorance that such conduct, or even analogous behavior, is prohibited. A reasonableness requirement would impose a sensible limitation on a Mistake of Law Defense and would go a long way toward eliminating the concern that scallywags will wriggle out of responsibility for conduct that any reasonable person would have known is a crime.
]]>Defenses that on paper look perfectly reasonable can morph into something entirely different in the hands of a creative counselor.
Lack of bad intent is -- as it should be -- a long-accepted defense to criminal charges. We would think grossly unfair a system that provided no such defense. Little did we suspect, however -- until it actually happened -- that garden-variety criminal intent could be flummoxed out the jury's mind by defense counsel's claim that his client ate too many Twinkies. But exactly that happened because of the inventive approach authored by the attorney for Dan White, the San Francisco city supervisor who killed Harvey Milk. White beat the murder wrap, and got punished only for manslaughter, because his lawyer convinced the jury that excess Twinkie consumption had deepened his "depression."
This is not an isolated example. The invention currently in vogue is "urban survival syndrome." This "syndrome" is now used to convince juries that the defendant is a victim, not a bad guy. In the hands of a smooth-talking defense lawyer, more than one jury has been persuaded that the client more nearly resembles a counseling patient than, as it used to be known, a thug.
There is a lesson here as we contemplate expanding the mistake of law defense. In the era of the gargantuan regulatory state, quite properly we want to help defendants who never had a bad heart -- or, worse, may never have known or had reason to know that their conduct was criminal at all. Expanding the mistake of law defense thus has understandable appeal. But like so many modern inventions of the law, there is the danger of unintended consequences. The danger here is that the mistake of law defense will sooner rather than later shed the limitations we build into it, incrementally nibble away at what is left of responsible commercial life, and become the corporate reincarnation of too many Twinkies.
Bill Otis, a highly respected former prosecutor and now a law professor, argues that a mistake of law defense would hamper the government's ability to enforce the criminal law. I respect Bill and always value his opinions, but this time he is mistaken.
Bill notes that regulatory crimes are problematic because administrative officials are not directly accountable to the electorate. That is true, but there is an additional and bigger problem: Regulatory offenses oftentimes involve a network of one or more intricately worded statutes and a boatload of hyper-complex regulations. It is easy to understand a law prohibiting a street crime, but far harder to comply with a regulatory offense because the line between lawful and unlawful regulated conduct can be indistinct. No amount of murder is permissible, and no one can obtain a license to steal, but a party can obtain a license to dispose of used oil and other types of waste that are the unavoidable byproduct of legitimate business activities. In fact, administrative laws assume that some regulated conduct is permissible; those laws just limit when, where, how often, and by whom certain it can be done. The problem lies in knowing what can and cannot be done. Is this used oil a "waste"? If so, is it a "hazardous waste"? Or is it a "recyclable material"? Agencies need complex rules, oftentimes requiring considerable scientific or technical knowledge, to regulate industrialization. But those same complex rules can be impossible for the average lawyer--let alone the average person--to understand. A mistake of law defense forces the government clearly to define crimes before someone can be held liable for committing one.
Bill argues that a mistake of law defense would enable crooked defendants, aided by unscrupulous lawyers, to escape responsibility for conduct that any reasonable person would have known was unlawful. The concern with manufactured defenses is legitimate, but overstated. If a government civil inspector notifies someone that his conduct is unlawful, the government can use that notice as proof of guilt if the defendant repeats that conduct. Also, if you place the burden of proof on the defendant, you effectively compel him to testify at trial to establish a mistake-of-law defense. Once he testifies, the prosecution can cross-examine him, and the jury can decide if he is a con artist who connived with a shyster. If the judge finds that a mistake of law defense is incredible--that is, no reasonable person could buy it--the judge need not instruct the jury on it. Finally, if corporate wrongdoing is a concern, a mistake of law defense can be limited to individuals and exclude corporations. In sum, Bill's concern can be met without turning every reasonable mistake of law into a crime.