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May 2011 Archives

The settling parties have posted their briefing in support of final approval of the settlement; my client, Kimberly Craven, is identified in one of the briefs as "Objector #52." (Note especially an important correction regarding the hours of one of the plaintiffs' attorneys discussed in Docket No. 3763 at 58-59, regarding three days allegedly billed at 24 hours or more. One of those days reflected an error on plaintiffs' part; one reflected a mistake on my part; and one is a day where the attorney insists he billed 24 hours. I regret my error.)

Today, the Center for Class Action Fairness LLC filed our opposition (download) to the motion for settlement approval on behalf of Ms. Craven. (Exhibit 1 is Congressional testimony that is on-line.) The case raises interesting questions of statutory interpretation, the constitutional limits of aggregate litigation and class certification, whether material terms can be omitted from class notice, at what point class representative incentive payments create an impermissible conflict of interest, and whether class compensation allocation has to be rationally related to the alleged damages. The government also claims that Congress "can change the statutory rights of litigants, even where this change may retroactively eliminate an initially meritorious claim" against the government; we argue that that proposition has limits.

Earlier on Point of Law.

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

JoAnne Kloppenburg will not challenge the results of Wisconsin Supreme Court election in court, she announced today in a news conference. Following a lengthy county-by-county recount, the Government Accountability Board last week certified incumbent Justice David T. Prosser Jr. as the winning candidate in the April 5 election. Prosser received 752,694 votes and Kloppenburg received 745,690 votes, a difference of 7,004 votes or 0.46 percent.

The announcement by Kloppenburg, a deputy attorney general, means that the Wisconsin Supreme Court retains its 4-to-3 conservative majority and is less likely to be sympathetic toward a legal challenge against the state's news collective bargaining law for public employees. Last Thursday, May 26, Dane County Circuit Judge Maryann Sumi threw out the law, ruling that the Republican Senators had violated open-meetings laws when they passed the legislation with insufficient notice. The Milwaukee Journal-Sentinel has Sumi's expected ruling here, and more coverage here.

An interesting quirk of libel law: which fact would make you more likely to think poorly of an attorney and refuse to hire them?

  • Courtney Love, who regularly makes over-the-top statements, criticized the lawyer, Rhonda Holmes, in an over-the-top tweet a year or two ago.
  • Rhonda Holmes sued her former client seeking punitive damages when the client criticized her, ensuring that millions of people would hear about a long-ago-forgotten tweet.

I vote for the latter. In the twenty-first century, any attorney who is unaware of the Streisand Effect is, in my opinion, committing legal malpractice and victimizing their client if they fail to warn their client about it. But many attorneys are just happy to take cash from a wealthy plaintiff to bring meritless litigation that makes their client worse off. Holmes's firm seems to be acting in its own behalf, so that's not the case here, but I certainly wouldn't hire any firm that shows such a lack of judgment; if nothing else, spending attorney time shaking down a mildly deep-pocketed former client suggests that these attorneys can't keep themselves busy in more productive ways. [Hollywood Reporter via ABAJ via Torts Prof]

Mississippi capped non-economic damages at $1M in 2002 and 2004, but cases filed before then are still working their way to juries with nine-digit awards; meanwhile, the Mississippi Supreme Court is considering a constitutional challenge to the caps referred to it by the Fifth Circuit. Other jury verdicts get publicity, but will be reduced after motions. [Clarion-Ledger via Bashman]

DOJ's immigration sieve

59 percent of all illegal aliens released before their hearing dates never showed up for trial; DOJ's immigration courts grant relief to 60% of immigrants who challenge deportation orders; 98% of removal orders are appealed; and there are currently 1.1 million unenforced deportation orders. [von Spakovsky @ Examiner; Center for Immigration Studies]

Related earlier.

Chamber of Commerce v. Whiting

Can we now officially end the nonsense that this is a "pro-business" court? In a 5-3 decision authored by Chief Justice Roberts, the Supreme Court rejected the Chamber of Commerce's position that federal law preempted Arizona's E-Verify requirements. The three dissenters siding with the Chamber of Commerce (and, unusually, with federal preemption) were the liberals Breyer, Ginsburg, and Sotomayor. See also Previous discussion of the case on POL; Adler @ Volokh; Whelan; Blackman; Dow Jones]

The Colorado legislature has overwhelmingly passed, and the governor has signed, HB 1239, a bill that requires new criminal statutes to jump through a few hoops before being introduced and passed. It won't necessarily stop complications to the criminal laws, but, by making legislators evaluate whether the proposed prohibited conduct is already covered by law, one hopes that the requirement that attention must be paid will help rationalize future amendments. Colorado already has 30,000 criminal and regulatory laws on the books. [Krause (Independence Institute) @ HuffPo]

The things you learn reading through the schedule for the American Association for Justice's annual convention, Part III ... (Earlier posts here and here.)

The use of social media to maximize one's prospects for suing people and businesses is a recurring theme at the AAJ's convention scheduled for July 9-13 in Manhattan.

Part II of the Litigation at Sunrise sessions -- a series of 10 minute presentations -- features these topics:

  • Discoverability of Facebook Postings, Prof. Jeanne Kosieradzki of Hamline University in St. Paul, Minn.
  • Text Messages, Cell Phones, and the Constitution, R. Champ Crocker, AL [Champer Crocker -- A great name for a trial lawyer!]
  • Post-Trial Motions to Interview Jurors: The Impact of Social Networking and Other Late Discovered Information, Stuart N. Ratzan, FL
  • Proving Your Failure to Warn Claim Through Twitter, Jason E. Ochs, CA

There's a famous Schoolhouse Rock about how a bill becomes a law, but it doesn't apply in New Jersey, where the state supreme court has taken the position that it controls the pursestrings and the state constitution requires an additional $500 million in spending on schools—ironic, since the state constitutional language used to justify the move was merely the vague adjectives "thorough and efficient." The 3-2 Abbott v. Burke decision shows the importance of judicial appointments in preventing judicial aggrandizement; Governor Christie's nominee was blocked, and the liberal chief justice appointed the liberal swing vote. [Bader @ Examiner; Corner]

$322M verdict for phantom asbestosis

Thomas Brown, who has shortened breath, sued Union Carbide, claiming he came down with asbestosis from exposure to drilling mud, but his own physicians denied it. Nor did he have any evidence of lost wages. Never mind, said a Smith County, Mississippi, jury after some fishy rulings by Judge Eddie Bowen: they compounded a ridiculous $11 million for future medical expense and $11 million for fear of future disease with an even more ridiculous $300 million in punitive damages. Now Union Carbide seeks to throw out the verdict on the grounds that the judge failed to disclose, much less recuse himself over, the fact that the judge's father sued and settled an asbestos case against Union Carbide. Nearly 9% of the adult population of Smith County has filed asbestos claims, but the motion to move the trial out of county was denied. [Fisher @ Forbes; Clarion Ledger; LNL; ILR]

Battista v. Clarke

In February 1983, Sandy Jo Battista (born David Megarry) was convicted and sentenced to 12 to 20 years for the rape of a child under 16, unarmed robbery and kidnapping. Battista was temporarily committed in December 2001, then civilly committed to the Massachusetts Treatment Center for Sexually Dangerous Persons in May 2003 for one day to life as a sexually dangerous person. But Battista is more than a child rapist; he claims to have gender identity disorder, and wants taxpayers to pay for hormone treatment and be provided with female garb and accessories. The prison refused, noting that a female appearance, such as the breasts that would grow upon hormone treatment, would endanger Battista's safety in prison, and would create problems under the Prison Rape Elimination Act. Because Battista breaks prison rules regularly, he could not be put in a different facility. But a BigLaw firm, McDermott Will, represented him pro bono, and won an injunction requiring the treatment on the grounds that it rose to a constitutional violation for him not to get his requested treatment, including women's attire.

The First Circuit, in a panel including former Justice Souter, has affirmed. Yes, choice of clothing for prisoners and the ability to grow breasts now rises to constitutional significance. [NLJ; NLJ]

So keep in mind, when you hear that there needs to be civil Gideon and more taxpayer funding of civil litigation, because there isn't enough pro bono help from law firms, that at least one law firm with over $1.5 million profits per partner has hundreds of hours of attorney time to spare for a poorly behaved rapist who wants gender reassignment therapy at taxpayer expense.

The things you find reading through the schedule for the American Association for Justice's annual convention, Part II... (Part I is here.)

Sen. Jon Tester (D-MT) has scheduled a fundraising reception for Sunday evening, July 10, at the Hilton New York, hitting up the trial lawyers for contributions to his re-election campaign.

Tester is running against Rep. Denny Rehberg (R-MT), and the Democrat's prospects depend greatly on his maintaining his image as a regular Joe, a working rancher true to his Montana ways, untempted by Washington. (See this May 20 Washington Post feature.) But there's no more Washington of Washington special interests than the trial lawyer lobby.

The AAJ has an affinity for Montana Democrats. Gov. Brian Schweitzer was a featured speaker at the 2008 convention in Philadelphia, where he invited controversy by "joking" about manipulating the results of the 2006 election in which Tester narrowly defeated Sen. Conrad Burns (R-MT). In January 2010, the Democratic governor jetted off to Hawaii for the AAJ's winter gathering.

The AAJ is also promoting an appearance of Sen. Sherrod Brown (D-OH) at the summer convention, scheduled July 9-13 in Manhattan. Brown is the invited guest at Sunday's meeting of the AAJ PAC Club M luncheon. The online promotion touts:

Please join AAJ PAC for a special luncheon to thank members who contribute $1,000 or more per year to AAJ PAC with invited speaker Senator Sherrod Brown (D-OH). Senator Brown is a true champion of the civil justice system and will give a firsthand update on the issues affecting your clients and your practice in the U.S. Senate.

M Club members know that choosing a member of Congress is as important as choosing a jury and their support is the backbone of AAJ PAC.

That's bald, isn't it? We can't buy juries, but we can sure buy ...

The trial lawyer/Democratic fundraising connection was also in the public eye last summer when 11 U.S. Democratic Senate candidates traveled to the AAJ's convention in Vancouver, B.C., raising money at an event featuring Senate Majority Leader Harry Reid (D-MT). Attendance at the fundraiser quickly became an issue in Senate races in Illinois, Iowa, Louisiana, and elsewhere.

The only other fundraiser we see scheduled for this July's NYC annual convention is for Rep. Bruce Braley (D-IA), the former president of the Iowa Trial Lawyer Association. He's a regular.

Somin on federalism and tort reform

Ilya Somin @ Volokh:

In this post, I explained why federally mandated tort reform is, in most cases, both constitutionally dubious and unnecessary. The better way to restrict abusive tort suits is through interstate competition combined with constraints on states' ability to regulate conduct outside their borders.

Somin needs to be more specific: the Private Securities Litigation Reform Act was "tort reform," but it was reforming federal securities law, and there was nothing anti-federalist about that.

When it comes to product liability, it's nice for Somin/Barnett libertarians to say that the real problem is long-arm personal jurisdiction. I don't disagree (I'd go further and say Erie's abolition of federal common law has substantially contributed), but there isn't a solution to that: that ship has sailed, and there's no chance of that problem being fixed in my lifetime. Meanwhile, we have states racing not to provide friendly business environments, but racing to extract the gains from interstate commerce for their own citizens through inefficient product liability law. There's nothing inconsistent for a federalism supporter thinking that Congress should exercise its responsibility in the arena of interstate commerce when it comes to product liability or pharmaceutical warnings through aggressive preemption of state tort suits or creation of a single consistent federal law of product liability.

Medical malpractice is obviously a different animal: when Nevada threatens pharmaceutical viability through jackpot justice, it is adversely affecting interstate commerce for everyone in the nation; but when Pennsylvania or Illinois decides to favor lawyers over doctors and patients, it is only hurting its own citizens (and helping those of Texas, who get the benefit of the inflow of doctors). There seems less a role for Congress to play in medical malpractice—except to the extent that the federal government is already involved in the issue. It's easy enough for Congress to condition portions of Medicare block grants on a state establishing reasonable medical-malpractice litigation guidelines, or for Congress to prohibit certain types of lawsuits over federally-funded medical care. It doesn't need to impermissibly federalize all medical malpractice litigation to accomplish reform.

Separately: the trial-lawyers' lobby jumps on Randy Barnett's op-ed, and The Hill covers the controversy (h/t Carter Wood).

Update: Walter Olson weighs in with similar analysis.

Daniel Greenberg of the Center for Class Action Fairness LLC will today file an objection to the coupon settlement in Stetson v. West Publishing Corp., which fails the requirements of the Class Action Fairness Act, as well as requests excessive attorneys' fees.

Class members who wish to join the objection (or write the court in support of the settlement) can do so by spending $2.64 on postage and sending six copies of your papers to the addresses on the settlement notice; the notice asks objections to be postmarked by May 30, but it might need to be received by May 30—and since the court is closed on May 30, it is unclear whether that means May 31 or May 27.

The House Judiciary Subcommittee on the Constitution holds a hearing at 2 p.m. today, "Can We Sue Our Way to Prosperity?: Litigation's Effect on America's Global Competitiveness." Witnesses:

  • Paul Hinton, Vice President, NERA Economic Consulting. Hinton has done extensive work in economic analysis of products liability, with studies of asbestos, silicone breast implants, and homebuilder liability. (Curriculum vitae)
  • Charles Silver, McDonald Chair in Civil Procedure, University of Texas School of Law. (Curriculum vitae). Silver is a critic of Texas' medical liability reforms for undermining patient safety and opposes congressional efforts to pass similar federal reforms.
  • John Beisner, Skadden, Arps, L.L.P. is a corporate defense counsel, co-head of Skadden's Mass Torts and Insurance Litigation Group. He focuses on the defense of purported class actions, mass tort matters and other complex civil litigation in both federal and state courts.

Brown v. Plata

Gang member Giovanni Ramirez was out on the streets at the age of 31, despite three separate felony convictions for attempted robbery, robbery, and firing a gun in a public place; he was recently arrested again, accused of the Dodger Stadium beating of Giants fan Bryan Stow.

Violent recidivist incidents like this are now likely to multiply in California, because the Supreme Court, in a 5-4 opinion (Kennedy plus the left wing) obliterated the Prison Litigation Reform Act, and permitted a federal district court to order the release of 46,000 felons from California prisons. Scalia and Alito issued sharp dissents to the judicial aggrandizement. [Blackman; SCOTUSblog]

Update: Hans Bader comments on the consequences of federal judicial takeover of the California penal system. "Criminal justice expert Kent Scheidegger predicts that vast numbers of people who commit property crimes, such as car thieves, will no longer be imprisoned—so if you live in California, 'don't bother investing much in a car. It will be open season on cars given that car thieves ("nonviolent offenders") will never go to prison no matter how many times they are caught.'"

Around the web, May 23

  • "Unions flexing their corporate-governance muscle" [Copland @ Examiner]
  • Randy Barnett on the med-mal reform bill and federalism. I don't understand why the bill doesn't simply condition a certain percentage of Medicare block grants on meaningful malpractice reform, which would resolve any constitutional problem, though it exposes the federalism problem caused by Medicare block grants. [Barnett @ Volokh; earlier @ POL]
  • Pincus has the better of the argument with Miller on Concepcion. [NYT; see also [DRI]
  • Judge Reinhardt Ninth Circuit decision asserts jurisdiction over Germany corporation for allegations involving actions in Argentina. [WLF]
  • "Deutsche Bank A Scapegoat For Bad Housing Policy" [Zywicki @ Forbes]
  • Speaking of attempts to squelch criticism through libel suits, Minnesota court dismisses doctor's suit against online critic; similar Illinois suit with different doctor pending. [On Point]
  • No new trial in $5.9M rollover case against BMW. [LNL]
  • Toyota sudden acceleration "economic loss" claims continue to survive motions to dismiss. [NLJ]
  • "Three Cups of Tea" faces consumer fraud class actions. [Trask; earlier @ OL]

The things you find reading through the schedule for the American Association for Justice's annual convention, set for July 9-13 in New York City.

The CLE program of the Business Torts section, "New Business Trial Strategies with New Laws," concentrates on possibilities for suing under last year's financial reform legislation, the Dodd-Frank law. Goals of the session:
1. Identify specific changes in the law
2. Identify how to use the new law in business litigation
3. Identify methods of winning trials with the new laws

The first session is "The Dodd-Frank Wall Street Reform and Consumer Protection Act"

  • Investment advisors
  • Derivatives
  • Credit swaps
  • Fiduciary duties
  • Fund managers
  • Pay to play

The entry lists Joseph P. Borg as the presenter. Borg is director of the Alabama Securities Commission. Is that usual, for a regulator to be speaking to a group dedicated to suing the same people he regulates?

The Birmingham News profiled Borg in 2010, "Joe Borg, Alabama Securities Commission boss, has reputation of being tough on crooks."

Note (10:50 p.m.): We changed the headline to correctly refer to Borg's title, Director of the Alabama Securities Commission.

Tennessee lawmakers on Friday gave final approval to the Tennessee Civil Justice Act of 2011, a major tort reform package and one of new Gov. Bill Haslam's very few legislative priorities to improve the state's business climate. In several votes in both chambers, the bill(s) (HB 2008 and SB 1522) passed by two-to-one margins, more or less.

Legislative debate over the bill took a celebrity turn when the Tennessee Association for Justice, the trial lawyer group, hired actor-turned-Senator-turned-actor Fred Thompson (R-TN) to lobby against the bill. The mixture of star power and avuncular testimony obviously didn't work.

Key provisions as identified in a news release from the Lieutenant Governor's office.

The Senate Judiciary Committee on Thursday voted out S. 623, the Sunshine in Litigation Act, intended to compel judges to open settlement agreements and other court proceedings that seal confidential documents. Sen. Herb Kohl (D-WI), the sponsor, and Sen. Chuck Grassley (R-IA), talked about how the bill been improved and made more balanced. We don't see it. (See Shopfloor post, "Sunshine in Litigation Act, Polished Up a Little.")

An interesting little exchange followed the 12-6 vote to report out the bill:

Chairman Patrick Leahy (D-VT): I want to compliment Sen. Kohl. I know he has worked a long, long time on this.

Kohl: 18 years.

Sen. Dianne Feinstein (D-CA): 18 years?

Kohl: It's been around for 18 years.

Leahy: 18 years. So congratulations.

We detect solicitude toward a senior. Sen. Kohl recently announced his decision not to seek re-election, and -- based on our decade of experience in and around the North Dakota Legislature -- we'd say his colleagues are paying respect to the Senator's years of service by letting the bill get out of committee and maybe even pass the Senate. Legislatures are human institutions, after all, and this sort of gesture has its place. Just as long as the bill doesn't become law.

BTW, the first time the Senator introduced the bill was August 6, 1993. It was S. 1404, the Sunshine in Litigation Act of 1993.

Stephen Colbert hoped to make fun of Citizens United v. FEC by creating a humorous PAC to demonstrate the ease of corporate money influencing politics. What he actually found was that the campaign regulations are so arcane and onerous that he could not do so while keeping his television show—at least not without hiring a very expensive former commissioner of the FEC to represent him in front of the agency. [WSJ]

The Senate has just voted 52-43 on the motion to proceed to the nomination of Goodwin Liu to serve on the Ninth U.S. Circuit Court of Appeals, thus failing to reach the 60 votes needed to invoke cloture. (Sen. Ben Nelson of Nebraska was the only Democrat to vote against cloture. No Republicans voted for it. Sen. Lisa Murkowski of Alaska was the only Republican to vote for it.)

UPDATE (3 p.m.): Sen. Jeff Sessions (R-AL), a member of the Senate Judiciary Committee, was speaking on a bloggers' conference call as the vote came in. He said:

The problem of Professor Liu is he has never practiced law. He's lived in, I think, an unreal world. His writings are beyond anything I've ever seen in justifying the "evolving Constitution" theory. It's just remarkable.

I think everybody could agree that a judge takes an oath to faithfully follow the law, faithfully serve under the Constitution and under the laws of the United States. If the judge ha s a philosophy of judging that allows him to update based on cultural changes and advancements and all kinds of evolving standards, at some point they're so untethered from reality, so untethered from law, that they've moved judging from a law practice, an act of lawfulness, to an act of politics, and party and ideology and religion and sociology and whatever's in their head. And judges have never been empowered to do that. Judges are empowered to serve faithfully under the Constitution.

There's a strong belief -among people that studied this over the years - Orrin Hatch, Jon Kyl, Lindsey Graham, and certainly I felt this way - that this nominee was over the line. It wasn't even close. If I can't believe a judge will be faithful to the Constitution, I'm not going to vote for him.

Sen. Sessions was also asked about the message the vote sent to President Obama.

A new definition of chutzpah?

We all know the old definition of chutzpah -- the plea for "mercy because I'm an orphan" by the person who has just been convicted of killing his parents. The current class action against Toyota for unintended acceleration in California may serve as an even better illustration of the concept, however.

Recall that government tests have failed to replicate the claim that certain Toyotas and Lexuses "accelerate by themselves." The conclusion is well-nigh inescapable that driver error (either through absent-minded placing of one's foot on the gas pedal or through negligent placement of mats on said pedal) is at fault. This has not prevented a massive class action in California, however. For our purposes the highlight of the class action is the claim for pure economic damages, i.e., for the lowered resale value of the impugned car models. Pure economic harm is of course not claimable in most jurisdictions -- a car must in most places be "defective" and "unreasonably dangerous," and lead to personal injury or property damage, before any economic damage may be claimable. But California law is more ambiguous on this point, and the class attorneys have convinced federal judge James Selna that California law should apply to all plaintiffs, regardless of where they purchased their car and regardless of whether in fact their car ever had any instance of unintended acceleration. The cars were apparently shipped from Japan to a California point of entry, and that is apparently a sufficient nexus to allow someone who has never been to that state to invoke its radically pro-plaintiff damages rule.

I could comment forever on the legal problems created by this ruling. For now let me point out the delicious chutzpah involved. In a nutshell, here's the technique: 1) announce that you will sue Toyota for an incident for which Toyota is NOT responsible; 2) give massive publicity to the suit; 3) claim that this publicity has lowered the resale value of the models in question; 4) use that lowered resale value as the damages to be claimed in the suit.

Only in America, right?

Once upon a time, banks loaned on the basis of creditworthiness. This resulted in racially disproportionate lending patterns: African-Americans and Hispanics, with higher unemployment, and lower income, savings, and educational attainment, tended to have worse credit than whites. Though there was no evidence banks were discriminating on the basis of race rather than objective financial criteria, there was government pressure to loosen lending standards and have more outreach to minorities. Though there was no law supporting these governmental desires, there was the question of keeping regulators happy even when what they wanted had no basis in law. Thus, as banks sought regulatory approval for mergers in the 1990s and early part of this century, they loosened lending standards to demonstrate their willingness to lend to minorities. Of course, it would be illegal to offer those loosened lending standards to just minorities, so lending standards were loosened across the board. And we all know what happened next.

In addition to the huge financial hit banks (and taxpayers) took from the mortgage bubble collapse, the NAACP and entrepreneurial plaintiffs' attorneys sued a variety of banks for daring to enforce their contractual rights, accusing them of targeting minorities with subprime loans.

This is all prelude to note that the Obama administration Department of Justice has created a twenty-person task force to open dozens of cases investigating alleged redlining and lending discrimination. What is the line about history repeating itself as farce? The Business Week story on the subject doesn't mention the reverse-redlining suits the banks are currently facing.

After a Republican Senator delivered his statement Wednesday against the nomination of Goodwin Liu to serve on the Ninth Circuit Court of Appeals, Sen. Dianne Feinstein (D-CA) had this to say: "I have been on the Judiciary Committee for 18 years. I have never heard a harsher statement about a brilliant young man than I have just heard."

She was referring to the remarks of Sen. Charles Grassley (R-IA), the ranking Republican on the committee, whose (excellent) floor statement concluded:

If confirmed, I am concerned that Mr. Liu will deeply divide the Ninth Circuit and move that court even further to the left. If confirmed, his activist ideology and judicial philosophy would seep well beyond the Berkeley campus. Sitting on the Ninth Circuit, his opinions and rulings would have far reaching effect on individuals and businesses throughout the nine-state Circuit, including places like Bozeman, Montana; Boise, Idaho, and Anchorage, Alaska.

For the reasons I have articulated – (1)his controversial writings and speeches; (2)an activist judicial philosophy; (3) his lack of judicial temperament; (4) his lack of candor before the Committee, and (5) his limited experience – as well as many other concerns which I have not expressed today, I shall oppose this nomination.


It appears Liu's nomination is in serious trouble. The 11 Republicans who voted against a filibuster on the nomination of trial lawyer John "Jack" McConnell to be a U.S. District Court judge in Rhode Island were moved by arguments against "politicizing" the confirmation of district court nominees. But Liu, whose qualifications appear primarily to his being a "brilliant young man" -- he's 40 -- and a legal radical, is being nominated to the appellate court.

The Senate continues the debate on Liu at 11 a.m. with a cloture vote anticipated for 2 p.m.

UPDATE (10:15 a.m.): Sen. Lindsey Graham (R-SC) tweets: "Goodwin Liu's outrageous attack on Judge Samuel Alito convinced me that he is an ideologue." When you've lost Sen. Graham ...

UPDATE (1:30 p.m.): Here's Graham's statement opposing Liu's nomination. On Senate floor, Graham says he accepts judicial candidates who have differing views, but there is no excuse for impugning the motives and reputations of conservative judicial nominees.

Rakofsky v. the Internet

Joseph Rakofsky's murder-defense mistrial received a great deal of Internet attention when bloggers discussed a Washington Post story detailing the judge's criticism of Rakovsky's performance. Now Rakofsky has found an attorney, Richard Borzouye, willing to sue several dozen bloggers who reported on the story, including Eric Turkewitz, who is not remotely impressed. Neither is Scott Greenfield.

In my mind, any attorney who files an abusive complaint like this should be disbarred as a danger to society. It certainly presents a reason for stronger anti-SLAPP laws. Walter Olson reports on one such effort in Texas.

A call for FCPA reform

D. Michael Crites and Mark A. Carter argue that the absence of a willfulness requirement in the Foreign Corrupt Practices Act is stifling American business opportunities.

Remember Hubert Blackman?

The pro se litigant got both more (a sex act of some sort) and less (not the full hour of dancing) that he allegedly bargained for from a Las Vegas escort service, and sued it in New York for $1.8 million. [Overlawyered]

Because Blackman proceeded in forma pauperis, the district court had the authority to dismiss the suit sua sponte, and Judge Preska did so on grounds of lack of jurisdiction and venue. Blackman has appealed, but has no IFP status for the appeal, so the appeal will be dismissed without his filing fee. If Blackman had paid his filing fee, however, and managed filing service, he could have generated considerable legal expense from his suit, who would have needed to hire a New York attorney to deal with it. The Newark Star-Ledger documents (via Overlawyered) one such pro se litigant, who has successfully used the court system to avoid paying rent for years, at considerable expense to his middle-class landlords.

A 2006 Louisiana law allows conventional tort litigation by landlords who leased to oil companies to supplant state regulatory efforts at remediation and cleanup. Oil companies express concern that they're now drawn into expensive litigation that delays the cleanup process for several years, but one suspects that they're even more concerned that entrepreneurial trial lawyers have figured out that impoverished remote-county juries and judges plus deep-pocketed defendants presents desirable rent-seeking. One verdict awarded $54 million for environmental damage to a piece of land that was never worth more than $108,000. Business is asking the legislature for relief, and there has since been a feeding frenzy of suits over decades-old leases; meanwhile, Louisiana's attempt to sue itself into prosperity has hurt job growth. [Times-Picayune; Landry (Louisiana Lawsuit Abuse Watch) @ Houma Daily Comet]

The Abnormal Use blog points us to a quack expert report hypothesizing that a defective (rather than unattended) stove caused a fire that destroyed a home, defeating summary judgment, and likely leading to a settlement between the stove manufacturer and the home-owner's fire insurance. The subrogee likely won the battle, but insurance companies (and consumers as a whole) lose the war when they encourages nonsensical litigation unrelated to the facts for short-term profit. A collective action problem, to be sure.

I'll be arguing the AOL cy pres case June 7 in Pasadena. (My record in Ninth Circuit oral arguments to date: 2-0, with one pending.) Come watch if you're interested in cy pres issues. If you're not interested in cy pres, but are interested in trademarks and pornography (and who isn't?), they're also arguing Roxbury Entertainment v. Penthouse Media ("The content of the film is primarily graphic sex scenes; however, the 'story line' to the extent there is one, concerns a young couple fleeing some unfortunate or unlawful event.") the same session.

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

Bob Dorigo Jones's Wacky Warning Label contest finds an instruction manual printed in four languages, but only the English version gives this warning. This merits an empirical study whether unwarned German-speakers are now more likely to choke on pen caps.

Fisher on Concepcion

Stetson v. West Publishing Corp.

Federal Rule of Civil Procedure 23(h) permits class action attorneys to request "fees and nontaxable costs." But nearly every fee application requests "fees and expenses." The "expenses" can often be a substantial percentage of the total award, even though there is no reason to treat airfare and meals (expenses) differently than office rent (overhead for fees)—money is money. Precedent frowns on attorneys asking for more than 25% for fees, but the attorneys just go ahead and ask for the 25% (or 33% or 35%) and then expenses of several percent on top of that.

Stetson v. West Publishing is just such a settlement. The notice says that the attorneys will ask for 25% "plus litigation expenses"—and don't even disclose to the class what those litigation expenses are. Moreover, the 25% is not calculated on the class benefit, but includes a 25% commission for notice and administration expenses.

That's before we get to the part of the settlement where the attorneys are asking for an extra $450,000 because they distributed coupons to the 170,000-member class. (The coupons, called "discount certificates," are for up to 10% off a Kaplan course, which means class members will likely have to sell the coupons at an even lower discount since they're unlikely to use them. At least these coupons are transferable.)

The Center for Class Action Fairness (not affiliated with the Manhattan Institute) will be objecting.

Writing at the Center for Individual Freedom, Quin Hillyer previews the upcoming Congressional debate over the Lawsuit Abuse Reduction Act, seeing in the legislation an extension of the procedural restraint marked by the U.S. Supreme Court rulings in the Iqbal and Twombly rulings.

Chairman Lamar Smith (R-TX) of the House Judiciary Committee introduced H.R. 966 (called LARA for short) in March and the committee is expected to take up the bill early next month. The legislation seeks to reduce the number of frivolous lawsuits in federal court by amending the sanctions provisions in Rule 11 of the Federal Rules of Civil Procedure to require the court to impose sanctions who misrepresent their claims to the court. The sanction will compensate the injured parties. The bill also ends to so-called "safe harbor" provision, which now allows an attorney to escape sanctions if withdraws his complaint with 21 days after serving it.

Hillyer writes in "Beating Rattlesnakes and Bottom Feeders: Congress Fights Frivolous Lawsuits":

In two recent cases, Bell Atlantic Corp. v. Twombly (2007) and Ashcroft v. Iqbal (2009), the Supreme Court recognized that frivolous lawsuits are problematic. Before Twombly, a case could be dismissed for "failure to state a claim" only if it were "beyond doubt" that "no set of facts" could support it. In Twombly, seven justices overturned that standard. Former Justice David Souter wrote that a valid complaint must assume facts that are not merely "conceivable" or "speculative, but actually "plausible." Otherwise, he wrote, "The threat of discovery expense will push cost-conscious defendants to settle even anemic cases before reaching those proceedings."

The Twombly and Iqbal cases set the predicate for Chairman Smith's LARA proposal, which well complements those decisions. Just as the high court ruled that what constitutes "anemic" cases must be more broadly defined so as to make it easier to dismiss such cases, so should the penalty for filing those suits in the first place actually act as a deterrent (and as relief to unfairly targeted defendants).

Earlier Point of Law on LARA with background.

And we're glad to see Quin continuing his reporting on civil justice issues in his new gig as Senior Fellow with CFIF, which he joined in April. The strength of The Washington Times' editorials on tort reform, election law, and the politicized Justice Department were largely due to Quin's insights and reporting, and it looks like he's still on the beat -- just from a base of operations in Mobile, Ala.

The constitutionality of HR 5

The rareness of the event demonstrates the prosecutorial overreach. [US v. Stevens; FCA Alert; Waller Lansden; Main Justice; ABA J; Corporate Counsel]

Angry charges, procedural maneuvering and threat of a walkout by Democratic lawmakers lent drama to the Texas House's consideration of tort reform legislation Saturday and the bill's ultimate passage Monday.HB 274 bill history, text) passed by a vote of 96-49.

As Ted indicated below, the original “loser pays” proposition has been watered down substantially into procedural reforms. The Austin American Statesman’s report is good on the legislative substance:

As originally introduced, the bill would have created a true loser pays system — lawsuit losers would have to pay the other side's court costs and lawyer fees.

But House Bill 274 was changed in committee to assess legal fees against somebody who files a lawsuit that is tossed out under a so-called motion to dismiss for failing to state a valid legal claim.

Texas is among eight states that do not allow motions to dismiss before evidence is presented in civil court, and the bill would direct the Texas Supreme Court to adopt rules creating that option.

It IS progress. Texas Gov. Rick Perry issued a statement: "I applaud the House and Rep. Brandon Creighton's leadership for moving Texas one step closer to implementing a loser pays system that will help expedite legitimate legal claims and crack down on junk lawsuits. This legislation will also protect Texas jobs and stimulate economic opportunity by relieving Texans and employers of the costs and burdens created by frivolous and drawn-out lawsuits. I encourage the Senate to quickly take action on this important legislation." Earlier …

Zywicki on CFPB

Trump's record

For some reason, the media is taking Donald Trump's supposed presidential campaign seriously, so it's worth reviewing why his track record with women will cost him many independent voters and Walter Olson's summary of his record as a litigation bully, which deserves more scrutiny.

On the other hand, Mickey Kaus suggests Trump may be on to something when he asks to see Obama's transcripts and test scores. Some argue that Obama's benefiting from affirmative action is irrelevant, because he graduated with honors from Harvard Law, but the Harvard Law of Obama's day gave honors to a majority of graduates. Of course, this is an inquiry that should have happened in 2008.

NFL lockout appeal in Eighth Circuit

ESPN has the NFL's opening brief appealing the preliminary injunction against the lockout and the document (with David Boies and Paul Clement on the brief) makes a persuasive case that the district court had no legal authority to enjoin the lockout. I hadn't heard anything about the Norris-LaGuardia Act in the press coverage to date. Oral argument is scheduled for June 3.

Texas loser pays?

As the link roundup at the Torts Prof blog demonstrates, the Texas House passed a bill that is being called "loser pays." I haven't seen the latest text of HB 274, but if it's anything like an earlier version on the web, "loser pays" is a generous description: all that version of the bill did was to expand the equivalent of Rule 11 to permit discretionary awards of fees where a motion to dismiss has been granted. If that's what is in the final bill, it's a long way from loser pays.

Browning on class actions

Congressional committees have scheduled several hearings and mark-up sessions of interest for this week. ...

Wednesday: House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, "Legislative Proposals to Address the Negative Consequences of the Dodd-Frank Whistleblower Provisions." The financial services reform bill entitles individuals who alert the Securities and Exchange Commission or the Commodities Futures Trading Commission to violations of security law to rewards -- "bounties" -- of 10 percent to 30 percent of any recovery in excess of $1 million.

Wednesday: Sometimes you can strain too hard for a Lewis Carroll reference. The Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights, has scheduled a hearing entitled "The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?" for Wednesday, May 11, 2011 at 10:15 a.m. in Room 226 of the Dirksen Senate Office Building. The top CEOs of the involved companies and competitors are scheduled to testify.

Thursday: Senate Judiciary Committee marks up S.623, Sunshine in Litigation Act, legislation to force open sealed consent agreements and judicial orders if there is a potential impact on public safety and health. Major industry groups operating as the ad hoc Coalition to Protect Privacy, Property, Confidentiality, and Efficiency in the Courts sent the committee a letter last week expressing sharp opposition. The letter concludes that the legislation would "undermine theprivacyand property rights of all litigants," and "also have a profoundly damaging impact on the United States civil justice system while burdening and delaying the just disposition of litigation." Earlier POL post here.

Thurday: Also on the mark-up calendar is S.350, the Environmental Crimes Enforcement Act, sponsored by Sen. Patrick Leahy (D-VT) and cosponsored by members of the Alarmism for Litigation Caucus including Sens. Dianne Feinstein (D-CA) and Sheldon Whitehouse (D-CT). The CRS summary: "Environmental Crimes Enforcement Act of 2011 - Directs the United States Sentencing Commission to review and amend the Federal Sentencing Guidelines and policy statements applicable to persons convicted of offenses under the Federal Water Pollution Control Act (commonly known as the Clean Water Act) to reflect the intent of Congress that penalties for such offenses be increased to appropriately account for the actual harm to the public and the environment from such offenses. Amends the federal criminal code to require mandatory restitution to victims of crimes under such Act."

Thursday: The same Senate Judiciary markup is scheduled to include committee votes on Virginia A. Seitz, to be an Assistant Attorney General, Office of Legal Counsel, and Donald B. Verrilli, Jr., to be Solicitor General of the United States. Votes were originally planned for last week, but the committee failed to pull together a quorum. See MainJustice.com, "Senate Panel Postpones Votes on Four DOJ Nominees."

Also, on Monday, the Senate is scheduled to resume consideration of the nomination of James Michael Cole, of the District of Columbia, to be Deputy Attorney General, with a cloture vote planned for 5:30 p.m.

The Battle over the CFPB

Yesterday I tried to give some historical context to the continuing controversy over whether President Obama should nominate Elizabeth Warren to head the CFPB. I want to return to that subject today.

This morning’s New York Times has an article addressing the issue. Part of the objection to Warren is her outspoken criticism of the banking industry.  Bankers apparently feel that “she has unfairly accused them of exploiting consumers.”   This has become a familiar refrain of late in the financial community (see for example Jamie Dimon’s comments at Davos earlier this year).         

But such expressions have a much older lineage than that. In 1939, Ferdinand Pecora wrote Wall Street under Oath, his memoirs of the Senate investigation he led in 1933 and 1934. This quote is from his introduction.

Frequently we are told that regulation has been throttling the country’s prosperity. … That its leaders are eminently fitted to guide our nation, and that they would make a much better job of it than any other body of men, Wall Street does not for a moment doubt. Indeed, if you now hearken to the oracles of The Street, you will hear now and then that the money-changers have been much maligned. You will be told that a group of high-minded men, innocent of social or economic wrongdoing, were expelled from the temple because of the excesses of a few. You will be assured that they … were simply scapegoats, sacrificed on the altar of unreasoning public opinion to satisfy the wrath of a howling mob blindly seeking victims.

A good deal of the New York Times article was devoted to chronicling attempts to weaken the agency. Warren described the efforts this way:

Every day, somebody’s got a plan to undercut this agency, to knock it down,” she said. “The conversation is effectively: ‘Oh, we’d really like to kill this thing but it might be too popular for that — that might cause too much blowback. So can we find a way to maim it?’ ”

In 1939, Pecora ended Wall Street under Oath this way:

When open mass resistance fails, there is still the opportunity for traps, stratagems, intrigues, undermining—all the resources of guerilla warfare. These laws are no panacea; nor are they self-executing. More than ever, we must maintain our vigilance. If we do not, Wall Street may yet prove to be not unlike that land, of which it has been said that no country is easier to overrun, or harder to subdue.

The more things change …

Sen. Lamar Alexander was one of 11 Republicans to vote for cloture Wednesday on the nomination of John "Jack" McConnell to the U.S. District Court for the District of Rhode Island who then voted against McConnell's final confirmation. The Tennessee Republican explained his position in floor remarks. Excerpt:

Mr. President, the Senate is a body of precedent. One important precedent is that never in Senate history has a President's district court nomination reported by the Judiciary Committee been defeated because of a filibuster, that is, because of a cloture vote. Once a nominee for federal district judge has gotten to the floor, the majority of senators have made the decision in an up-or-down vote.

Therefore, I will vote today for cloture in order to allow an up-or-down vote on the President's nomination of John McConnell. Then, I will vote "no" on confirmation because I believe he is a flawed nominee.

Coverage ....

Over at the Baseline Scenario, Simon Johnson was kind enough to mention The Hellhound of Wall Street in his call for President Obama to nominate Elizabeth Warren for the top spot at the new Consumer Financial Protection Bureau. The continuing controversy over Warren calls to mind a similar battle waged in Washington exactly 77 years ago.

In May 1934, the Securities Exchange Act was finally making its way through Congress after a bitter lobbying campaign to defeat it. With passage now virtually certain, the predominant question was who would lead the new agency the law created, the Securities and Exchange Commission.

Most New Dealers wanted James Landis, the Harvard law professor who had been a primary architect of the federal securities laws and who was already in charge of the securities division at the Federal Trade Commission. Others wanted Ferdinand Pecora, the stalwart lawyer who led the investigation of Wall Street that was just then wrapping up. Bankers hated both ideas. They thought either man would push through regulations that were far too stringent.

With mid-term elections on the horizon and with hopes of jump starting a business recovery, President Roosevelt sought to make a “truce of God” with bankers. The rumor was that he would appoint as the new chairman Joseph P. Kennedy, a man who had made a substantial part of his fortune operating the very manipulative pools the Exchange Act sought to eliminate.

Word of Kennedy’s potential appointment reached future Supreme Court Justice Felix Frankfurter, who wrote to the President to lobby for his protégé, Landis. Frankfurter’s advice is just as salient today as it was then.

Legislation, Frankfurter wrote, means predominantly administration and less than vigorous administration would doom the new agency. Frankfurter pointed to the then well documented cases of public service commissions, which had been extremely weak-kneed in the face of lobbying from the utilities they oversaw. Securities regulation, Frankfurter warned, presented even graver dangers:

Now the administration of the Stock Exchange Act will, I am sure, be even more difficult and call for even greater skill, resourcefulness, firmness as well as fairness of temper, a will not worn down by fatigue, than has been the work of the older regulatory commissions. The problems are more subtle, the abuses less obvious, the public more misleadable [sic] and the consequences of non-action more far reaching. What will matter most to Wall Street indeed is what the Commission will refrain from doing, in view of what the law might enable a courageous and knowing commission to do. I don’t know, of course, what the final terms of the Act will be, but I do know that the extent and effectiveness of the powers conferred by the legislation will depend largely upon the understanding of the possibilities under the statute by those charged with its administration. … [Y]ou need administrators who are equipped to meet the best legal brains whom Wall Street always has at its disposal, who have stamina and do not weary of the fight, who are moved neither by blandishments nor fears, who in a word, unite public zeal with unusual capacity.

Roosevelt was unswayed. On July 2, 1934, Kennedy became the first chairman of the SEC. Perhaps the result will be different this time around.

UPDATE (6:10 p.m.): The Senate has now confirmed John "Jack" McConnell to be a judge on the U.S. District Court by a vote of 50-44. Republican Senators who supported cloture (see below) voted against final confirmation.


Eleven Republicans joined all Democratic Senators (save an absent Sen. Akaka of Hawaii) to invoke cloture on the nomination of John "Jack" McConnell to the U.S. District Court for the District of Rhode Island by a vote of 63-33. The roll call vote is here.

It appears the arguments about depoliticizing the confirmation process carried weight with the Republicans, along with a little New England regional solidarity. The Republicans voting yes:

The Senate is expected to vote shortly after noon today on whether to move ahead with the full debate on the nomination of John "Jack" McConnell to the U.S. District Court for the District of Rhode Island.

The public got a preview of any debate Tuesday when Sen. John Cornyn (R-TX) spoke on the Senate floor against the nomination of McConnell, an attorney with Motley Rice who made -- and continues to make -- millions from the state tobacco lawsuit, is a major political contributor across the nation -- even in North Dakota -- and who in his public statements demonstrates judicial intemperance. Cornyn:

I am sorry to have to say this, but the hard truth is Mr. McConnell's record--which I will describe in a moment--is one of not upholding the rule of law but perverting the rule of law, ignoring the responsibilities he had to his client, and manipulating those ethical standards in order to enrich himself and his law partners.

Sen. Patrick Leahy (D-VT), chairman of the Senate Judiciary Committee, rose in defense of McConnell's nomination, but only after excoriating Republicans for delaying action on President Obama's judicial nominees. Leahy challenged Cornyn's assertion that McConnell had deceived the committee during the confirmation procedures, and praised the trial lawyer's dedication:

Some oppose him because he successfully represented plaintiffs, including the State of Rhode Island itself, in lawsuits against lead paint manufacturers. Some here in the Senate may support the lead paint industry. That is their right. I support those who want to go after the people who poison children. That is what Mr. McConnell did. But nobody should oppose Mr. McConnell for doing what lawyers do and vigorously representing his clients in those lawsuits.

It's a shock to see a Senate chairman so blithely accusing U.S. manufacturers of "poisoning" children. In any case, even if you admire McConnell's partnership with then Attorney General Sheldon Whitehouse in ginning up a public nuisance complaint against the paint companies, it hardly reflects a mindset or legal experience befitting a judicial appointment.

We have The Congressional Record's account of the Cornyn and Leahy exchanges here.

Pecora the Prosecutor

Erwin Chemerinsky, the Dean at UC Irvine Law School, had a piece in the National Law Journal the other day about prosecutorial misconduct. We’ve all heard about the high profile cases involving the Duke lacrosse team and the late Alaska senator, Ted Stevens.  Chemerinsky’s article, citing evidence from an empirical study conducted by the Northern California Innocence Project at Santa Clara University School of Law, suggests that misconduct (which can run the gamut from outright corruption and malfeasance to simple negligence) might be more widespread than many people realize.

The article got me to thinking about what kind of prosecutor Ferdinand Pecora (the subject of my book The Hellhound of Wall Street) had been.

Pecora was appointed as a deputy assistant district attorney in Manhattan in 1918, and he eventually became the number-two man in the office. During his twelve-year prosecutorial career Pecora was, in the words of his boss, an idealist with “an inveterate passion for justice.”

In one of his earliest cases, the junior lawyer was asked to cover a simple, one-day robbery trial for a sick colleague.  Pecora easily won the conviction of a young black man named Malcolm Wright, but Wright continued to insist on his innocence. Most prosecutors probably would have ignored those claims, but Pecora had a “queer feeling” about the case. He investigated Wright’s arrest and uncovered blatant police misconduct. Pecora presented the evidence to the judge and asked him to set aside the conviction and to order a new trial, at which Wright was acquitted.

Pecora had no tolerance for prosecutorial misconduct either. Here's a brief excerpt from the book:

As a result of his work on the Wright case, Pecora was assigned to investigate another potential wrongful prosecution, this one involving a New York poultry dealer named Joseph Cohen, who’d been convicted of hiring assassins to kill his business rival, Barnett Baff. The murder and trial had been front-page news in all the city papers, and Cohen was on death row in Sing-Sing when the district attorney learned that some of the testimony at the Cohen trial might have been perjured. He set Pecora to investigate the matter. In the face of obstruction after obstruction thrown up by the attorney general’s office, which had originally tried Cohen and which seemed to be implicated in the perjured testimony, Pecora was relentless, spending almost all his time over the next two years tracking down evidence in the case. Thanks to Pecora’s efforts, Cohen was eventually released from prison. (His execution had earlier been stayed just seven minutes before he was scheduled to go to the electric chair.)

Pecora obtained a perjury conviction against one of the witnesses in the Cohen murder trial. The day after the lengthy trial ended was a Saturday, and Pecora went to his then quiet office to clean up some paperwork. There was a timid knock on the door. A small gray-haired woman dressed all in black demurely asked whether he was Mr. Pecora. When he said that he was, she responded, “I am Mrs. Joseph Cohen.” Mrs. Cohen clasped Pecora’s hands and fell at his feet. As she sobbed uncontrollably, the only words she managed to get out were, “I came to thank you for what you have done for my husband.” For the rest of his life, Pecora called it the biggest fee he ever received as a lawyer.

Sen. John Cornyn (R-TX) has distributed a "Dear Colleague" letter that destroys the already weak case for Senate confirmation of Motley Rice attorney John "Jack" McConnell to the U.S. District Court for Rhode Island. Cornyn charges McConnell with ethical failings, lack of judicial temperament, an anti-business bias and for helping to spread the practice of state-run contingency-fee lawsuits. From the letter (via the Institute for Legal Research):

[Mr. McConnell's] 25-year legal career is surrounded by ethical cloud. As a crusading plaintiff's lawyer, "Mr. McConnell and his firm helped pioneer the practice of soliciting public officials to bring lawsuits in which the private lawyers are paid a percentage of any judgment or settlement." Specifically, Mr. McConnell has helped initiate and direct the litigation of mass tort suits brought by state attorneys general against tobacco and lead -based paint manufacturers. I have long argued that these types of outsourced contingent-fee arrangements are inherently unethical and inevitably lead to the appearance of public corruption. In Texas, for instance, my predecessor as Attorney General served over three years in federal prison for his role in manipulating documents related to a contingent-fee contract and attempting to channel settlement funds to a close friend. While in the private sector contingency fee agreements, though not without controversy, can provide a poor person a key to the courthouse they could not otherwise afford, they have special problems in the public sector. In the public sectors it would be analogous to outsourcing traffic tickets to a private security firm paid by a percentage of the income - no checks, no balances, no exercise of prosecutorial discretion, just a pure profit motive.

More commentary below the fold ...

"Overcriminalized America"

The Hellhound of Wall Street

I’d like to thank Ted Frank for giving me the opportunity to blog this week on my book, The Hellhound of Wall Street: How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance.

Nearly 80 years ago the Pecora hearings captivated the country.  In the worst depths of the Great Depression, Pecora paraded a series of elite financiers before the Senate Banking and Currency Committee.  The sensational disclosures of financial malfeasance galvanized public opinion for reform and led to passage of the first federal securities laws and the Glass-Steagall Act.  The drafters of those laws were forthright in their gratitude for Pecora's meticulous investigation.  “We built completely on his work,” one of them acknowledged.

The investigation was the crucial turning point in the relationship between Washington and Wall Street, but to many readers of this blog on the US litigation system it might seem a bit off topic. Let me try to link it up.

Until his death in 1982, Abraham Pomerantz was one of the leaders of the plaintiffs’ bar. He helped pioneer derivative suits brought by small shareholders against publicly traded corporations, and the law firm he founded remains a major player in the field. He and the partners in that firm today should also offer Pecora their thanks.

In 1932 Pomerantz, three other lawyers, and a stenographer were shoehorned into one small room trying to eke out a living. Clients were few and far between and most of the time they sat around playing knock-rummy. One day, Celia Gallin, the widow of a high school gym teacher walked in the door. Her husband had left Gallin 20 shares of stock in the National City Bank of New York (today’s Citigroup). During the heady days before the Great Crash, those shares had sold for $585 a share; now they were at $17. Wasn’t there someone she could sue? Pomerantz sent her on her way. There was, he told her, no law against losing money.

A few months later, Pecora took over as counsel for what had been, to that point, a bumbling Senate probe of the causes of the crash. Nearly everyone had written the investigation off as a failure and predicted that it would limp quietly off the stage, accomplishing nothing.

They were wrong. In just a few weeks Pecora turned the investigation around. His first target was City Bank and its Chairman, “Sunshine” Charlie Mitchell. After a whirlwind investigation, Pecora chronicled how Mitchell and the bank’s other executives had manipulated stocks, dodged taxes, ripped off their shareholders, and collected enormous bonuses for peddling shoddy securities to unsuspecting American investors.

Pomerantz quickly called Gallin. He still couldn’t get her money back, but he might be able to get her some retribution. If she agreed to bring a derivative suit against City Bank maybe the bank’s executives would be forced to pay their bonuses back to the bank. Pomerantz parroted the disclosures from the Pecora hearings and he won. The executives coughed up $1.8 million in bonuses and Pomerantz and the other lawyers split $450,000 in fees.

A few months later the pattern repeated. Pecora held hearings on Chase Manhattan Bank. Pomerantz found a shareholder to bring a derivative lawsuit alleging the same wrongdoing Pecora had revealed. This time the bank settled and Pomerantz had another big payday. It was at that moment that Abe Pomerantz decided to specialize in stockholder suits.

What is remarkable to me about this story is how little things have changed in nearly 80 years. Private lawsuits are supposed to provide a necessary supplement to public enforcement. Lawyers are given a stake in the case so they can ferret out wrongdoing that might otherwise go undetected. Ferreting out wrongdoing is, however, an expensive, high-risk proposition. It is much cheaper, easier, and more lucrative to mimic the allegations of wrongdoing that someone else has already brought to light. But how much should we pay lawyers to do that?

Senate Majority Leader Harry Reid on Monday filed a cloture motion to force a confirmation vote on John "Jack" McConnell, the Motley Rice lawyer and major Democratic contributor who made millions from the state tobacco lawsuits. President Obama has nominated the trial lawyer several times to the U.S. District Court for the District of Rhode Island, but only to find his confirmation blocked because of his controversial statements, legal history -- directing the state's contingency suit against paint manufacturers, for example -- and hyperpartisanship.

Reid's motion could force a floor vote as early as Wednesday. In filing for cloture Monday, Reid said:

Mr. REID. Mr. President, I hope, as I mentioned this morning, we are not in a situation where we have to file cloture on district court judges. That is a little much. I filed cloture on this because I couldn't get agreement not to do it, but I hope we don't have to have cloture on all the district court judges whom somebody has some concern about.

This is a very good man. Morally his record is impeccable. As a lawyer, he is certainly one of the two or three best lawyers in the State of Rhode Island, and I would hope we could get this done on Wednesday when this cloture motion ripens.

The Providence Journal reports, "Reid seeking to force Senate vote on nomination of John J. McConnell to U.S. District Court for R.I."

Earlier POL coverage.

This week, Michael Perino will be joining us to talk about his fascinating book, The Hellhound of Wall Street: How Ferdinand Pecora's Investigation of the Great Crash Forever Changed American Finance. It's not just a book about the development of the law, but it's a historical snapshot book, an enjoyable casual read akin to The Devil in the White City, Last Call, or Longitude, about 1932 America and the beginnings of federal financial regulation.

Michael Perino is currently the Dean George W. Matheson Professor of Law at St. John's University School of Law in New York. Professor Perino's primary areas of scholarly interest are securities regulation and litigation, corporations, class actions, and judicial decision making. Professor Perino has also been a Visiting Professor at Cornell Law School (2005), the Justin W. D'Atri Visiting Professor of Law, Business and Society at Columbia Law School (2002), and a Lecturer and Co-Director of the Roberts Program in Law, Business, and Corporate Governance at Stanford Law School (1995-1998). He was one of the principal developers of Stanford Law School's Securities Class Action Clearinghouse. We've previously seen him on Point of Law for his analysis of attorneys' fees in Delaware shareholder actions and his empirical study of Milberg Weiss fees. I look forward to his posts.

Court rules for NVIDIA

The short opinion is self-explanatory (though it confuses a motion to enforce the settlement with an "objection"). As I stated earlier, if the court believed the intellectually dishonest report of Milberg's expert witness, the consumers would lose, and that's exactly what happened. All those consumer advocates complaining that AT&T Mobility v. Concepcion would take away consumers' ability to engage in class actions were completely silent in this class action where plaintiffs' lawyers extinguished valuable claims in exchange for a $13 million payoff. Every single one of my clients would have been better off with AT&T Mobility's arbitration provision rather than this outrageous class action rip-off. The class members didn't even get a chance to object or opt-out because of the bait-and-switch between what the notice promised and what was offered in the settlement.

The question then becomes: why did Milberg submit such an intellectually dishonest expert report to minimize the likelihood that their clients would receive any relief? If I were a class member, I'd be looking for a good legal malpractice attorney right now to sue over this breach of fiduciary duty. It would be nice if the "consumer advocates" fighting against freedom of contract actually advocated for consumers instead of attorneys and spoke up here.

Last week, I said "Any corporate defendant considering King & Spalding as their attorneys should evaluate closely: apparently, all it takes for that law firm to unethically drop a representation is just a wee bit of political pressure, and if it works for Human Rights Campaign, why not for unions or other activists on the left?"

Since then, the state of Virginia and the National Rifle Association have dropped King & Spalding, both expressing concern that the law firm might choose to abandon them in the face of pressure. Neither is an especially big client of the firm (and both were probably with the firm because of Paul Clement rather than the firm's reputation, so would likely have followed Clement to Bancroft anyway), but more King & Spalding clients should consider carefully Attorney General Ken Cuccinelli's reasoning.

John Tabin's analysis (which quotes my analysis) is sound, but the typical media coverage of the 5-4 decision gives a loud megaphone to the ludicrous claim that the Supreme Court opened the way for consumers to be raped with impunity. Not one of these attacks on the decision points out that AT&T's arbitration clause makes it easier for an individual consumer to bring a profitable claim against the phone company. The only thing it does is to preclude a class action that would rip off the vast majority of consumers for the benefit of attorneys. The Supreme Court decision permits consumers to see cheaper prices; a mandatory arbitration clause still has to provide a consumer a remedy. The only losers are attorneys. (My organization, the Center for Class Action Fairness, filed an amicus brief in this case.)

The victory for consumers may be short lived. Elizabeth Warren has long expressed her disdain for freedom of contract and arbitration, and, as Dan Fisher points out has the regulatory power to abrogate the Federal Arbitration Act. And the Federal Arbitration Act does nothing to prevent federal courts from expressing distaste for arbitration; the Second and Fifth Circuits have each struck arbitration clauses in federal litigation for reasons of unconscionability. And we can expect the litigation lobby to continue to push for anti-arbitration provisions in federal legislation.

Update: Ribstein analyzes.

As the authors of Toyota Under Fire point out on the Harvard Business Review blog (via W.O.), there is only one "sudden acceleration" accident that can be attributed to Toyota, the case of a local dealer that improperly installed an SUV floor mat into a Lexus sedan, causing the accelerator to get stuck and kill several people. Nevertheless, a trial-lawyer-created panic has resulted in a trial-lawyer-created litigation over the "economic loss" from that panic, and the district court has refused to dismiss the suit, notwithstanding the complete refutation of the conspiracy theory of electronic defect. [NLJ]

The decision will eventually be posted on the court's Toyota MDL site. We've been covering the case for some time.

Osama bin Laden is dead

And to think that all those times I took off my shoes in the airport were what made it possible!

On a more serious note, I see some younger analysts say that this guarantees Obama's election. Not so.

Certainly, this improves Obama's 2012 chances. He will see a bump in his approval rating that he has the opportunity to prevent from dissipating. For the first time, he has a non-controversial achievement to point to. (The best one could say before this was that he could have been far worse in his response to the crisis events of 2009.) The death of bin Laden prolongs the expected life of the Saudi regime, which has the effect of reducing uncertainties around the supply and price of oil, which will reduce inflation and the trade deficit and their braking effect on the economy. But George H.W. Bush was in a much stronger position in 1991, didn't have three wars pending, and was facing a lower unemployment rate. A lot can happen in eighteen months.

Relatedly, see Ilya Somin @ Volokh anticipating the debate that will take place over the legality of the action once the hoopla dies down. One wouldn't expect politicians to complain, but law professors might.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.