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Amanda M. Rose, Vanderbilt Law, has an interesting paper, "Better Bounty Hunting: How the SEC's New Whistleblower Program Changes the Securities Fraud Class Action Debate":

The SEC's new whistleblower bounty program has provoked significant controversy. That controversy has centered on the failure of the implementing rules to make internal reporting through corporate compliance departments a prerequisite to recovery. This Article approaches the new program with a broader lens, examining its impact on the longstanding debate over fraud-on-the-market (FOTM) class actions. The Article demonstrates how the bounty program, if successful, will replicate the fraud deterrence benefits of FOTM class actions while simultaneously increasing the costs of such suits -- rendering them a pointless yet expensive redundancy. If instead the SEC proves incapable of effectively administering the bounty program, the Article shows how amending it to include a qui tam provision for Rule 10b-5 violations would offer several advantages over retaining FOTM class actions. Either way, the bounty program has important and previously unrecognized implications that policymakers should not ignore.

As Rose correctly notes, FOTM suits rarely actually provide compensation: they involve transfer payments between sets of innocent shareholders—with a huge inefficient windfall commission paid to the attorneys. Nor do these suits provide deterrence: nearly all of FOTM suits are piggybacking off of public disclosures made by others. Replacing shareholder litigation with whistleblower qui tam suits would maintain or increase the deterrent effect without the social costs of securities litigation. Of course, whistleblower laws can produce their own distortions in the marketplace (already, a Fifth Circuit ruling and SEC regulations create the perverse incentive to hide wrongdoing from internal investigators), and if bounties are too high, there wouldn't be any savings to shareholders. More: Frankel; Rose @ Blue Sky Blog.

Rose already has an impressive collection of interesting papers and bears watching.

Floods of "floodgates"
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In a Adam Liptak NY Times article (via ABAJ) about a forthcoming University of Chicago Law Review paper, Duke Law Professor Marin Levy complains about the increasing use of the "opening the floodgates of litigation" metaphor in Supreme Court decisions. "Barring a true flood of tens or hundreds of thousands of cases," she wrote, "no evident principle exists to support the court taking workload concerns into account when engaging in interpretation of the law."

But that's not even remotely true. For example, imagine a court faced with an interpretative choice of applying a bright-line rule that creates certainty (but reduces some accuracy in close cases) or permitting a broad range of judicial discretion with a multi-factor balancing test. The longtime debate between rules and standards is surely informed by the inquiry whether the multifactor balancing test creates so much unpredictability that it "opens the floodgates of litigation" over that uncertainty, and thus social costs that far exceed any benefits from resolution of unfairness in the marginal case.

And, as Levy herself notes, the floodgates argument is often phrased in terms of whether a proposed interpretation creates incentives for meritless litigation. But what she doesn't discuss is some of the social costs of such litigation (her analysis focusing on habeas), which is, again, a perfectly evident principle for expressing concern about a potential decision. If a procedural interpretation creates profitable incentives for meritless litigation by making it easier for a plaintiff to impose litigation expense on a defendant and thus leverage to extract rents even when a case is without inherent factual or legal merit, a court can and should be concerned that that interpretation opens "floodgates" for such socially wasteful rent-seeking.

Levy's search focuses purely on the word "floodgates," rather than on the nature of floodgates arguments that don't use the word floodgates. So, for example, Dura Pharmaceuticals goes unmentioned in the article, though the Court's concern about a plaintiff's "tak[ing] up the time of a number of other people, with the right to do so representing an in terrorem increment of the settlement value" was a substantive part of the majority's reasoning in that case. Yet Levy makes broad generalizations about floodgates arguments affecting substantive law without addressing these concerns. And the Liptak article also misses this.

Levy thanks dozens of very smart law professors in the front of her paper. Is it really the case that the academy is so divorced from litigation realities and has such an institutional bias to litigation-as-solution that not one of them raised this basic objection to her argument?

Update: Professor Levy responds in the comments, and corrects the sentence I've crossed out above. I apologize for the misunderstanding about methodology, and should have delved more deeply into the footnotes rather than relying on the necessarily abbreviated description in the newspaper. But I disagree with Levy's claim "I never suggest that concerns about litigation (or the greater social costs of litigation) are not hugely important." The line "no evident principle exists to support the court taking workload concerns into account when engaging in interpretation of the law" certainly suggests that concerns about the greater social costs of litigation are not a principle that "support the court taking workload concerns into account when engaging in interpretation of the law." Certainly, that's the takeaway message that was emphasized in the New York Times.

NLJ's misleading law-school ranking
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The National Law Journal ranks law schools by the percentage of graduates who end up in BigLaw jobs right out of law school, but the computation is misleading. For example, I had an offer to join Kirkland & Ellis out of law school, but also for a one-year clerkship with a federal judge. That clerkship was plainly more competitive than a BigLaw offer; K&E even gave me financial incentives to defer starting for them so I could have the clerkship. But I wouldn't have been counted in the NLJ employment statistics, reducing the score of my law school. For schools like Yale, Harvard, Stanford, and Chicago, large percentages of students could have BigLaw offers if they chose, but instead take jobs that are tougher to get, often more prestigious, and often would not preclude (and often would even help) a BigLaw career. A better study would provide those percentages of graduates as well. Prospective law students should not think that Penn provides twice the opportunity of a Yale: many Penn grads are in BigLaw because they could not get the clerkships and DOJ fellowships that other law school graduates are receiving.


The Above the Law blog is filled with complaints about the legal job market. It's too hard to find a high-paying job; the high-paying jobs require a lot of unpleasant unenjoyable time-consuming work. I may have had some sympathy for this a few years ago. Today, I just don't want to hear it.

I started the Center for Class Action Fairness in 2009 on a whim, with the vague goal of racking up some court experience that might let me establish a law-school clinic and sneak onto a tenure track at an advanced age, and maybe do some good in the process. Then I discovered how much I like litigation when I have autonomy and don't have to make arguments I don't believe in, and discarded the idea of writing law-review articles no one would read. Today I have two attorneys working for me, a fascinating docket, and get to argue more appellate cases every six months than I did in my entire ten-year BigLaw career. Every month, I'm presented with class action settlements where class members have legitimate objections and want to object, but my attorneys don't have the time because of other opportunities or commitments. Every month, I'm presented with still other class action settlements where class members would have legitimate objections, but no class member ever approaches me. If I were more gregarious and extroverted and proselytized for my cause better (and if I wasn't burdened with a right-wing resume that has the consumer blogs skeptical of my motives and refusing to write about me), I'd be even more utterly overwhelmed with these opportunities. I don't have a monopoly on class action objections or helping consumers and shareholders. At the risk of creating competition that cannibalizes my donors, go do what I do, maybe you'll do it better. You'll certainly make more money than me and my attorneys do if you don't handcuff yourself with a non-profit structure; this year alone, we've sacrificed hundreds of thousands of dollars of legitimate attorney-fee requests because we would have exceeded IRS limits if we asked for everything we were legally entitled to.

Ivy League schools have been discriminating against Asian-Americans for years; affirmative action programs produce illegal racial discrimination and entitlement to attorneys' fees in places other than New Haven; the Obama administration is engaging in any number of lawless counterproductive activities that could be stopped by litigation; there's a potential opportunity to profitably advocate on behalf of mass-tort clients victimized by their attorneys. Mad at your law school? Find a friendly tenured law professor and bring an antitrust class action against the AALS. Sue telemarketers that violate the TCPA: be the one who takes down those bastards at Card Services. Go, find clients, toil in obscurity and poverty for a few years, come out millionaires.

And these are just some of the things I would do if I didn't have to sleep or if there were 144 hours in the day or I could clone myself five or six times. And it drives me nuts because nobody's doing them!

Even if all you're looking for is money, the plaintiffs' mass-tort bar charges their clients 35-40% of recovery and flies around in Gulfstream jets. Be the one to charge clients 20-30% and settle for flying in first class.

On the defense side, does BigLaw really add enough value to justify $2M PPP partners—who make that money after the overhead of expensive offices in the middle of the city? Perhaps in mass-tort cases mobilizing hundreds of attorneys, but there's lots of other low-hanging litigation fruit for the picking. You don't need to be physically near the courthouse; everything's electronically filed these days. Get together with three of your law school friends, find a loft on the cheap side of town, bill lower rates for fewer hours, and make more money, or at least "enough" money to enjoy your newfound leisure and autonomy.

Your career ideas don't have to be my ideas. You went to law school for a reason; find a cause you love, and advocate for it, and, to the extent it's not entirely crazy, the money will follow; even if it doesn't, you'll be happier. Tikkun olam, even if your goals aren't mine. (From July 1, 2011, to June 30, 2012, class action settlement objectors won a grand total of seven federal appeals. I won four of those cases. If you're a regular reader of mine, you know more about this area of the law than I did when I started. How many other areas of the law are there that have gotten corrupted and could be meaningfully moved in the right direction with a little effort? Go find them.)

Want to know a secret that will help you even if you stick around in (or decide to go into) BigLaw? The law is big. Really big. Too big for anyone to learn completely. There are millionaire lawyers who barely understand civil procedure, but they hire someone who sort of does or fake their way through it. Pick an area of the law and learn it thoroughly, thinking hard and skeptically about it. There's no barrier to entry to reading cases and law review articles. Just by doing that, you'll become one of the top fifty attorneys in that area, and the other 49 are earning good livings. If it's a minor area of the law (like, say, class action settlement objections), and you put a couple of thousand hours into learning it and thinking about ways to make it better, you'll become one of the top five attorneys in that area before you know it.

But stop whining. The minute you become a member of the bar, you're a member of a cartel that permits extraordinary rents. And with 21st-century technology, you don't need a lot of help to make it out on your own.


From the provocatively entitled Inside the Law School Scam blog, a very interesting posting on Nov. 16:

October LSATs administered

2009 (all-time high): 60,746

2010: 54,345

2011: 45,169

2012: 37,780 (Lowest total since 1999)

In addition, the ratio of applicants to LSAT administrations has declined quite a bit since LSAC started allowing law schools to report only a matriculant's highest LSAT score (another sign of the tail wagging the dog). The result of this has been a big increase in re-taking, as reflected by the following numbers:


2003-04: applicants took the test 1.47 times on average

2010-11: 1.98 times on average

2011-12: 1.92 times on average

If 2012-13 sees the same number of tests per applicant on average, we can expect only 59,200 applicants in this cycle This is a lower number than the total number of people admitted to ABA schools two years ago.

All of this bodes extremely ill for law schools desirous of maintaining the quality of their student body while satisfying their universities' need for income....

"The terrorists' veto"
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In City Journal, Michael Totten warns of allowing terrorists to veto free speech—something that law professor Eric Posner is surprisingly willing to allow happen.


Over at Ricochet, we've launched a new podcast series on the Constitution, hosted by yours truly. It's called "The Naked Constitution" because our goal is to discuss the original public meaning of the framers' words without the "help" of later academic encrustations. Episode One is: The Living Constitution vs. The Naked Constitution. I'm joined by Ed Whelan, the president of the Ethics and Public Policy Center, and host of NRO's Bench Memos Blog, and by James Poulos, producer at HuffPost Live and a contributor to Forbes and Vice. In this wide-ranging discussion, the danger of the Living Constitution is exposed with references to Napoleon Bonaparte, flogging, and the "metaphysical aromatherapy" of Planned Parenthood v. Casey. You can subscribe to this podcast through iTunes here. Direct link here.
More on the Daye diversity study
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Don't miss the comments, especially an insightful one from Roger Clegg regarding the study's timing, on my earlier post about the Daye diversity study. Paul Caron was kind enough to cite to my rebuttal, but blogs like JDJournal blithely repeat the press release with a headline that the study "proves" the benefits of diversity.

One commenter writes: "You assume that LSAT scores or college grades are a predictor of success as a law student, and that success as a law student is a predictor of competence in the practice of law." I don't just assume it. I know it to be a fact. The race is not always to the swift nor the battle always to the strong, but that's where the smart betting man puts his money. As Richard Sander has demonstrated, LSATs do predict law school success; law school success does have predictive value for career success. Not everyone with a perfect LSAT will become a millionaire (some of us will foolishly toil in the think-tank mines and fritter away their skills with other non-profit work), and not every smart attorney was Order of the Coif in a top-six school, but ceteris paribus, law firm hiring attorneys have Bayesian reasons to want graduates with good grades from top law schools.

Now, concededly, there's more than one way to be a success as an attorney. Someone with extraordinary social skills can squeak past the bar exam, and use his social skills to recruit many clients with profitable cases, and then hire other attorneys to do the intellectual heavy lifting; someone else with exceptional charisma and oral communications skills can persuade juries (or threaten to persuade juries) of facts that just aren't so, and use those results to attract clients and negotiate favorable settlements before appeals courts throw out the cases. If you have these rare skills, you have the capacity for far nicer Christmas parties than the average Harvard Law Review editor, and your LSAT is irrelevant—but so is the name on your law school diploma, and thus your relevance to the conversation about opportunity and the need for racial preferences.

Bogus "diversity study"
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The National Law Journal headline is "Research attests to the value of diversity at law schools," and that's certainly how study authors Charles Daye et al. pitch their piece. But they simply demonstrate shoddy science to reach the authors' predetermined conclusions.

The study relied on self-reporting of law students, and found that "Many students reported that they left law school with a deeper understanding of the law as a result of diversity among their classmates." Thus, the authors argue diversity should matter in admissions.

The non sequitur is astonishing. All we conclude is that students think that diversity helps their understanding of the law. In the absence of controls (or even a quantifiable statistic for "understanding of the law"), the most we can conclude is that students want to seem politically correct when talking to interviewers.

Even if we were to accept the conclusions of the paper, the policy conclusions—there's a benefit to race discrimination in the name of diversity—do not follow.

Leave aside the constitutional question whether these unquantifiable diversity benefits survive strict scrutiny. How much diversity is required? If every law school abolished diversity-based race discrimination (so that schools that refused to participate in the race-based race wouldn't lose qualified students to better-ranked law schools that reach down to inflate their non-Asian minority population), would the resulting percentages of non-Asian minorities be sufficient to inculcate students with the benefits of diversity? If so, why need affirmative action at all?

If the argument that diversity is good because of the exposing of students to differing viewpoints, wouldn't students be better off if a law school went out and used affirmative action to recruit a Hasid, a Sri Lankan, a Macedonian, an Argentinian, a Mennonite, a Latvian, a Roma, a Gujarati Hindu, a Tibetan Buddhist, and a North Korean refugee? That surely does much more to increase the number of viewpoints available to students than disregarding African-American LSAT scores in admissions. Many law schools have no Hasidim or Roma or North Korean refugee students whatsoever, and the increase from zero to one surely does more for promoting diverse viewpoints than the twenty-third African-American does.

If law schools really care about diverse viewpoints, shouldn't they be doing more to promote diverse viewpoints in faculty hiring? In particular, it's well known that Federalist Society membership and conservative credentials result in blackballing at many law schools; even the schools with token conservatives are overwhelmingly liberal. Surely to the extent students benefit from diverse viewpoints, they'd especially benefit from diverse political viewpoints from faculty. Perhaps we should have a two-year hiring freeze on non-Federalists until conservatives catch up?

Or is the argument that only African-Americans have the innate qualities that create the positive externality of diversity? I'm waiting for someone to come out and say that, though it seems suspiciously like the Magical Negro stereotype.

"Daye said he hopes the findings will influence admissions officials to continue to consider race as at least a small part of the review process and will help inform the courts struggling with affirmative action challenges." I bet.

Related: Big Business weighs in with an unpersuasive brief in Fisher v. University of Texas. [Clegg @ Bench Memos] One hopes that Jenner & Block wasn't being paid with shareholder money for this buoyant political correctness.

Update: more discussion.

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.

 

 

 


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