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August 2011 Archives

"Patent company has big case, no office"

"Justice's New War Against Lenders"

The Wall Street Journal op-ed on the DOJ Civil Rights Division's counterproductive litigation against banks for disparate-impact lending discrimination is no surprise to Point of Law readers of our July 13 and May 19 posts:

All of this may boost the standing of Messrs. Perez and Halperin in the Obama administration. It's less good for the rest of us. These settlements include requirements that banks lend to minorities at below-market rates and, in effect, dish out cash to politically favored "community groups." It's a good bet that many of these loans will eventually go bad.

The Justice Department--or the bank, with the long arm of Justice hanging over it--chooses where that money goes. A Michigan judge even went so far as to call one proposed settlement "extortion." He might be onto something.

See also Bader @ CEI.

Under the controversial theory of medical-monitoring liability, courts are asked to award damages to otherwise uninjured plaintiffs so as to provide for future medical surveillance. The Third Circuit's ruling noting the impossibility of reasonable class certification on such a theory is a landmark decision for the rule of law. Congratulations to Carl Solano (an attorney of mine in wildly unrelated litigation), who argued and got this important win. [Beck; Trask; Wajert; Courthouse News; Gates v. Rohm and Haas Co. (3d Cir. Aug. 25, 2011)]

Around the web, August 31

In re Pampers Dry Max Litigation

Russell Jackson covered the case of In re Pampers Dry Max, a class action claiming that Pampers Dry Max caused diaper rash and thus committed consumer fraud; it's being settled for attorneys' fees and pretty much nothing else for existing class members. The Center for Class Action Fairness LLC filed an objection to the settlement Monday on behalf of a class member.

The Missouri Supreme Court today let stand an appellate court ruling that affirmed a $21 million fee award to Milberg and other class-action attorneys in a coupon settlement, without ever addressing the Center for Class Action Fairness's argument about the appropriate legal means for valuing coupons. I'm appalled, but thankfully, the Class Action Fairness Act will keep most future out-of-state class members from being ripped off by self-serving attorneys operating in Missouri state courts. Earlier.

Bluetooth ripples: Collado v. Toyota

Attorneys in the Collado v. Toyota class action settlement over Prius headlights requested $4.7 million in fees, despite achieving less than that in benefits to the class. The Bluetooth decision came up in court arguments over the excessive fee request, which was never publicized on the settlement website or notice to the class. Judge Manuel Real has expressed concern about the overall fairness of the settlement, and continued the fairness hearing yesterday. [National Law Journal]

Relatedly yesterday: Another victory for the Center for Class Action Fairness LLC, as Judge Margaret Morrow rejected the cy pres and reduced attorneys' fees in Weeks v. Kellogg, the Rice Krispies class action settlement. Congratulations to Dan Greenberg, lead author on the brief who argued the case. We look forward to the court's written opinion.

On the radio

I'll be on a couple of national radio shows in the next couple of days talking about the Gibson Guitars case and overcriminalization.

In the face of persistent unemployment, the New York Times publishes an op-ed to create a burdensome litigation right that will only make it more expensive to hire employees: to wit, ugliness discrimination lawsuits, perhaps as an extension of the Americans with Disabilities Act. Some jurisdictions, such as the District of Columbia, purport to allow such lawsuits already. No one ever seems to think about the workability of such litigation: does a "7" have a prima facie cause of action if he or she is passed over a promotion for a "9"? Is a pleasant appearance a legitimate job requirement for sales, or does an employer have to accept the problem of repulsing customers? Is slovenliness and being unkempt protected, or does the right only extend to aesthetic problems of the face and body?

Daniel Hammermesh, in the course of promoting his new book, proposes solving this problem: "For purposes of administering a law, we surely could agree on who is truly ugly, perhaps the worst-looking 1 or 2 percent of the population." Of course, that only leads to litigation over whether a plaintiff is in the second percentile or the third percentile. I'm reminded of Judge Easterbrook's concurring opinion in Gammon v. GC Services over the problems of interpreting a law to give a cause of action for deception of the "least sophisticated consumer":

[U]sing the "least sophisticated consumer" as the benchmark would create big problems when determining whether the plaintiff belongs to the class he purports to represent. Imagine the deposition:
Q: Mr. Gammon, I see that you received a C+ in high school English and read detective stories. How then can you be included among the least sophisticated recipients of debt collection notices?
A: Counsel, even my best friends will tell you that I am a simpering fool.

Will a defendant in an ugliness trial be allowed to require the plaintiff to get a makeover before presentation to the jury over the question of whether the plaintiff is in the protected class, or can the plaintiff deliberately choose unflattering makeup and clothing? And what do we do with the fact that jurors are more sympathetic to better-looking plaintiffs and attorneys?

The sad thing is that Hammermesh is a professor of economics. I'd expect this sort of nonsense from a law professor or a sociologist, but you'd think that an economist would have a basic understanding of transactions costs before proposing such public policy malpractice.

ABA "Blawg 100"

I agree with Sean Wajert that the ABA Blawg 100 is somewhere behind the "Kid's Choice Awards" in credibility (the brainless "Pop Tort" blog that reflexively promotes the litigation lobby has won over law blogs that break news and provide real analysis, and blogs from the center-right are quite underrepresented), but we certainly do appreciate his suggestion that Point of Law is a worthy nominee. Wajert (himself a worthy nominee) suggests several other worthy nominees, including Overlawyered, Drug and Device Law Blog, and Jackson on Consumer Class Actions, to which I'd also add Class Action Countermeasures. If you like one of these blogs, give them a shout-out.

In a unanimous opinion that is no surprise to readers of Point of Law, the Texas Supreme Court threw out the entirety of the Garza v. Merck Vioxx case Friday on the grounds that the junk-science expert evidence didn't meet the standards of Havner, the Texas equivalent of Daubert. A Texas appellate court had earlier remanded the case for a new trial, discarding the original multi-million dollar verdict on juror misconduct grounds. [Garza v. Merck via Beck; but see criticism from Oliver]

Cases like this demonstrate why it's silly to use purely quantitative counts when trying to determine if a reviewing court is "pro-business." Any reasonable court, given the precedent, would have reached the result the Texas Supreme Court did. But the lower courts made ridiculously anti-business decisions that flouted Texas Supreme Court precedent, with the trial court countenancing appalling juror misconduct. The decision is a victory for business and the rule of law, but if the lower courts had not been anti-business, this case never would have gotten to the Texas Supreme Court in the first place to inflate its "pro-business" statistics. Related.

Raid on Gibson Guitars

Recent revisions to 1900's Lacey Act require that anyone crossing the U.S. border declare every bit of flora or fauna being brought into the country. One is under "strict liability" to fill out the paperwork--and without any mistakes.

It's not enough to know that the body of your old guitar is made of spruce and maple: What's the bridge made of? If it's ebony, do you have the paperwork to show when and where that wood was harvested and when and where it was made into a bridge? Is the nut holding the strings at the guitar's headstock bone, or could it be ivory? "Even if you have no knowledge--despite Herculean efforts to obtain it--that some piece of your guitar, no matter how small, was obtained illegally, you lose your guitar forever," Prof. Thomas has written. "Oh, and you'll be fined $250 for that false (or missing) information in your Lacey Act Import Declaration."

More at WSJ, Nashville Business Journal, and Fretboard Journal.

Around the web, August 26

  • Yet another study debunking the vaccine-autism link myth, this from National Academy of Sciences. [WaPo]
  • Also not a surprise: no criminal charges in Justice Bradley's claim of being assaulted by Justice Prosser in Wisconsin Supreme Court hearings. Someone should be disbarred over this. [Adler @ Volokh; earlier]
  • The problem of "malfunction theory" in product liability. [Jackson]
  • Six million small businesses might be ensnared by little-publicized NLRB rule of questionable legality creating liability for failure to put up a sign about the NLRA. [NFIB]
  • Suit over closed-door "merit selection" of judges in Hawaii. [Pero]
  • New disclosure process in pending FCPA case will raise costs to criminal defendants. [BLT]
  • Interesting analysis of Minnesota case about third-party criminal liability for the acts of others. [Volokh]
  • Warren Buffett structures his investment in Bank of America to be tax-advantaged. So much for "stop coddling the billionaires." [Stoll; earlier]

Bloomberg's victory in a pregnancy discrimination case is once again bringing out the "feminists" who say that demanding hard work discriminates against women. [NYT; The Hill; Reuters; Careerist] Judge Loretta Preska disagrees:

At bottom, the EEOC's theory of this case is about so-called work/life balance. Absent evidence of a pattern of discriminatory conduct . . . the EEOC's pattern or practice claim does not demonstrate a policy of discrimination at Bloomberg. It amounts to a judgment that Bloomberg, as a company policy, does not provide work/life balance.

I guess I can officially declare a trend on the work-life balance issue. Employers and employees can certainly negotiate the appropriate scope of work-life balance; if judges or juries are permitted to hold certain work-life options impermissible, the effect on the economy from the social engineering would be disastrous. Especially since there is no indication that the legislature made any sort of decision that they were outlawing the requiring of hard work when they passed Title VII.

Judge Baer approved the $0 Blessing v. Sirius XM settlement and $13 million fee award to Milberg Weiss and other firms yesterday over the Center for Class Action Fairness LLC objection. The decision contradicts (and ignores) Bluetooth, Aqua Dots, and the Class Action Fairness Act (which applies to "coupons" and not just "coupons 'to purchase something [class members] might not otherwise purchase'"), and applied the wrong standard of law in creating an essentially irrebuttable presumption of fairness for the settlement. There's also the unaddressed question of conditioning class certification on an unconstitutional quota. So we'll have an interesting appeal to the Second Circuit, which will either have to reverse or create a circuit split. Shallow coverage at Bloomberg, Reuters, and SiriusBuzz.

The Center is not affiliated with the Manhattan Institute.

A creative insight from Andrew Blair-Stanek in the Florida Law Review (via Volokh):

The Supreme Court's 2007 decision in Bell Atlantic Corp. v. Twombly has baffled and mystified both practitioners and scholars, casting aside the well-settled rule for evaluating motions to dismiss in favor of an amorphous "plausibility" standard. This Article argues that Twombly was not revolutionary but simply part of the Court's ever-expanding application of the familiar three-factor Mathews v. Eldridge test. Misused discovery can deprive litigants of property and liberty interests, and in some cases Mathews requires the safeguard of dismissing the complaint. This Article's insight explains Twombly's origins and structure, while also suggesting a source for lower courts to draw on in developing post-Twombly jurisprudence.

An interesting implication is that loosened pleading standards are not permissible without loser-pays.

Seroquel mass tort settlement?

Alison Frankel is reporting claims that the last major chunk of the Seroquel litigation is settling confidentially at the nuisance rate of about $92 million for 2300 claims (after the first 25000 or so cases settled for an even smaller $647 million). These are figures that reflect avoiding the costs of defense rather than any risk of loss. Some plaintiffs who envisioned big pots of gold after being recruited by firms that advertised for Seroquel plaintiffs and then had their claims sold en masse to the chicken pluckers are disgruntled, but mass-tort litigation is designed to benefit the attorneys, rather than any plaintiffs, victims or otherwise. (Separately, I find it fascinating that attorneys are not allowed to hire runners to recruit clients—with the result that some attorneys effectively act as "chicken-catchers" indistinguishable from runners.)

Around the web, August 25

  • Richard Epstein et al. on the FTC on intellectual property. [SSRN via Manne]
  • Another Texas attorney charged in judicial bribery case. If the government case isn't entirely fictional, this has to be the tip of the iceberg, because either the attorneys approached the judge or the judge approached the attorneys over the possibility of bribery without anyone thinking "Gosh, this is so unusual, I'm almost sure to be caught committing a felony when the other side reports it." [ABA Journal; earlier]
  • The Fairness Doctrine is officially removed from the FCC books. [WaPo]
  • 2% of federal budget is administered by Social Security Administration ALJs making overgenerous disability determinations. Unconstitutionally? [Pierce @ SSRN via Kerr @ Volokh]
  • Second Circuit acknowledges that the Supreme Court really meant it when they said subclasses with conflicting interests required separate representation, strikes down freelance writers settlement. [Trask; Frankel via Karlsgodt; In re Literary Works]
  • California woman flees police in car chase, flees car and hides, sues over injuries from resulting K-9 attack because police didn't yell "Police dog!" As if that would've made a difference when the sirens didn't. [KCRA via Cal CALA]

  • New Classmates.com settlement a 22-fold improvement over the old settlement after successful CCAF objection, but it still violates Bluetooth. [CCAF; earlier]

It's well known that patent trolls forum-shop to get their cases in the Marshall courthouse of the Eastern District of Texas, to the point of setting up empty offices in the neighborhood to create venue. But, surprisingly, I've never seen a complete explanation written why. Let me do so.

1) Only two judges sit in the Marshall division. Correctly or incorrectly, they are perceived as judges who rarely grant summary judgment, and let juries decide issues. Moreover, judge-shopping is possible: one of the judges has a close relative in private practice, creating strategic disqualification opportunities. (Judge David Folsom's announced retirement may or may not change this dynamic, depending on who is appointed to replace him.)

2) The Eastern District of Texas is perceived to have plaintiff-friendly juries. (Only 20% of the population holds a bachelor's degree, meaning that technically complicated cases may well get decided on grounds other than the science.) The actual quantitative trial win-loss record of patent plaintiffs in the E.D. Tex. isn't so spectacular in recent years, which leads some to call the idea of plaintiff-friendly juries a myth. But that quantitative record needs to be discounted because, qualitatively, much poorer cases get to the jury in the Eastern District than elsewhere. (That said, adjustment of defense trial tactics in recent years seems to have had some effect.) And once plaintiffs do win, the juries tend to be on the high side on the damages calculations.

3) The Eastern District of Texas, like many other federal districts, has a "rocket docket": local civil rules of procedure for patent cases expedite the consideration of such cases. There's nothing inherently wrong with this, but the effect is a benefit for patent plaintiffs. A patent plaintiff who has its act together will have its ducks in a row pre-filing: all of its research, experts, and infringement theory of the case prepared. In most litigation, it's the plaintiffs who need discovery the most: lots of document discovery to find smoking guns, lots of depositions to induce witnesses into saying things that can be perceived as damaging admissions. Plaintiffs need discovery in patent cases, too, especially if they're hoping to prove "willfulness," but defendants need discovery more. Defendants will be working from scratch, and hoping to find evidence to invalidate a patent. An expedited discovery schedule makes that more difficult. An expedited discovery schedule also requires a larger team of litigators, because limited bandwidth makes lean staffing inadvisable. This has the potential to make a case more expensive than it would be with a longer schedule, both in terms of cash flow and because there's more wasted and duplicated effort conveying information when one is coordinating a larger team of attorneys, though there is the countervailing effect of the impossibility of no-stone-left-unturned/scorched-earth litigation that can take place with a conventional litigation schedule.

4) The remoteness of the Marshall location raises litigation costs considerably. Every 15-hour round-trip by a senior litigator having to change planes in Atlanta adds $10,000 or more to the bill. This, combined with the decreased likelihood of resolving the litigation through motion practice rather than expensive trials, and the increased costs of the rocket docket, means that there's an in terrorem effect from simply bringing the lawsuit: the patent troll can offer to settle for far less than the cost of litigation, and the defendant, who does not collect the full social value from invalidating a bad patent, often does not have the incentive to keep fighting.

I can't complain about press coverage like this. David Freddoso gets it, though the title is perhaps over-optimistic, given that self-serving class action suits are not the only source of outrageous paydays:

And these kinds of nuisance cases often cost a lot of money to defend. Most deep-pocketed defendants would rather spend a million dollars making a case like this one go away than spend millions more in litigation.

For the lawyers, this case was simple: File a lawsuit, then get a settlement agreement -- which they did. Under its terms, a hearing loss charity was to get $100,000. The lawyers were to get $800,000. And those who cranked up the volume full blast until they lost their hearing? They would basically get nothing.

The plaintiffs' lawyers put up a brave face in the National Law Journal coverage, claiming that they'll win on remand, but there is no reasonable way that good-faith application of the Ninth Circuit standard could permit settlement approval. The Aqua Dots decision would seem to preclude class certification, as well.

Jamie Leigh Jones's lawsuit against KBR with its trumped-up sensational allegations cost the company $2 million in attorneys' fees (and almost certainly more in adverse publicity), so the request is not entirely unreasonable if indeed Jones received money for a movie deal based on her lawsuit: it would be inequitable for Jones to profit from a meritless lawsuit, given that Title VII permits prevailing parties to collect fees. But that's not the argument KBR makes in its brief: they're simply claiming that the case was frivolous. As such, the motion is unlikely to succeed given the Fifth Circuit standards for permitting a Title VII defendant to recover fees, where "frivolous" is a very small subset of "meritless," and KBR's expected recovery is probably less than the publicity hit it's taking from left-wing blogs. [WSJ Law Blog (h/t R.U.)]

You may recall the pseudo-scandal that the Justice Department hired attorneys with Federalist Society credentials; that most of the claims from the resulting lawsuit were thrown out got a lot less publicity. The Hanses von Spakovsky and Bader report that the Obama DOJ hiring process is even more consistently ideological than the Bush DOJ was ever accused of being.

Of course, one would want to see who isn't being hired: it's possible that no qualified Federalist Society members have applied in the last two and a half years because of distaste for actual or perceived Obama administration policies, or because of expected rejection, especially for something like the Civil Rights Division. And I'd like to see what the metrics are for the DOJ Honors or Bristow programs, where there would be a much smaller chance of ideological preferences deterring applicants—especially in this economy.

On WGN (Chicago) today

I'll be on the radio, WGN (Chicago) today at 11:05 Central talking about overcriminalization, mens rea in criminal statutes, and the Shelton case.

The Fogel v. Farmers Group settlement seems impressive from the notice: $455 million! When you get to the fine print, it turns out that class members have to jump through hoops to claim amounts as small as under a dollar, and that anything not claimed will revert to Farmers affiliates. Even if the settlement was worth $455 million, the $90 million fee request is excessive. The Center for Class Action Fairness LLC has objected on behalf of two class members. More: LA Times; Consumer Watchdog.

Interestingly, class counsel is Thomas Girardi, who POL reported on here; the defense attorneys are Skadden, which represented Girardi in In re Girardi.

Around the web, August 22

  • California appellate court ignores Supreme Court precedent in affirming $13.8 million punitive damages award. [Cal Punitives; ATRA; WLF; BLD; SF Chronicle; Bullock v. Philip Morris; earlier Cal Punitives coverage]
  • Lots of holes in asbestos bankruptcy trusts according to RAND. [Corp Counsel; RAND; earlier from Brickman and POL]
  • "Federal Asset Seizures Rise, Netting Innocent With Guilty" [WSJ]
  • Sixth Circuit takes Rule 23's superiority requirement seriously, reverses class certification when there would be adverse public policy effects from not letting litigation proceed on an individual basis. [Trask]
  • More on the Shelton decision. [WSJ Law blog; WSJ; earlier]
  • All-star lineup at National Press Club September 27 to discuss SCOTUS OT2011. [Fed Soc]
  • The myth of the food desert. [Gratzer; OL]
  • Posner: "The persistence of the depression, however, is due in part at least to surprising failures of the Obama administration--poor leadership, poor management, the sponsorship of incomprehensibly complex health care and financial regulation laws that have created widespread uncertainty that has discouraged consumption and investment, and the inability to explain the nature of the economy's problems to the general public." [TNR]

Texas tort reform could be a 2012 issue

Hymowitz on the gender gap

Kay Hymowitz examines the gender gap statistics in City Journal and finds them all but entirely explained by career choices.

Of course, career choices may reflect some sexism in social norms, but that cuts both ways: in the legal profession, for example, it's entirely socially acceptable for the wife in a two-lawyer-income family to drop off of the BigLaw 80-hour-a-week track to pursue something more satisfying, but I know many fathers who feel trapped, and it's not clear that women don't have the better end of the deal in the resulting male-female disparity if the metric is happiness rather than income. (As the saying goes, law firm partnership is a pie-eating contest where the prize is more pie.) But the social norms causing the career choices causing the pay disparities are bottom-up, rather than top-down from employers, and can't be regulated away with even more burdensome litigation possibilities without doing severe damage to the economy and Constitution. Earlier.

Since 2009, the Center for Class Action Fairness has been objecting to a $0 settlement in a ludicrous class action against Bluetooth headsets alleging consumer injury because of failure to (adequately) disclose risk of hearing loss from loud volume settings. Apple won a similar case over iPods, but the defendants here decided to pay the attorneys $850,000 to go away. The district court rubber-stamped the settlement and fee request, and CCAF appealed. Friday, the Ninth Circuit reversed and remanded, instructing the district court to apply more scrutiny to a settlement where the fees were so disproportionate to the class recovery.

Especially important is the fact that the appeals court singled out a "kicker" provision segregating the fee request from class recovery: if the request was disallowed in whole or part, the money would revert to the defendant. In conjunction with the "clear sailing" provision whereby the defendant would not contest the fee request, the effect is to shield the fee request from scrutiny. For years, trial lawyers have argued to courts that this somehow benefits the class, because the fees will "come from the defendants, rather than from the class" as in the cases where a common fund is used to pay both the class and attorneys. This is an absurd fiction divorced from economic reality, and it is a very good sign that the Ninth Circuit rejected it. Also important is the recognition that when attorneys are asking for fees based on lodestar, there must be a cross-check against actual class recovery. [In re Bluetooth (9th Cir. Aug. 19, 2011); CCAF; Forbes; Law360 ($); Business Law Daily; Lawyers USA Online; Courthouse News; Am Law Litigation Daily ($)]

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

Georgia Superior Court Judge Douglas C. Pullen has "approved more than $33.8 million -- substantially more than any other judge in the Chattahoochee Judicial Circuit -- in contributions to dozens of charities, universities and other organizations in Columbus and around the state." Pullen has been honored for his cy pres awards of other people's money by one of his beneficiaries (including a YouTube video), and has directed millions to his alma mater, which gave him an honorary degree and where he will teach a law course. I'm quoted as part of a Columbus Ledger-Enquirer investigation into the ethics investigation pending against Pullen.

Judge Pullen's actions seem remarkably similar to those of Judge Ward in the Google Buzz case.

One unaddressed aspect of the story: judges who know that a class action settlement will eventually give them lots of money to distribute to their favorite charities may be incentivized to make rulings that make a larger class action settlement possible, as well as to approve an unfair class action settlement. Defense attorneys need to take a stronger stand against abusive cy pres. Earlier.

"Trial lawyers prep for war on Perry"

Politico covers the plans of the litigation lobby to attack candidate Rick Perry, who has made tort reform the centerpiece of his campaign.

America's trial lawyers are getting ready to make the case against one of their biggest targets in years: Texas Gov. Rick Perry.

Among litigators, there is no presidential candidate who inspires the same level of hatred - and fear - as Perry, an avowed opponent of the plaintiffs' bar who has presided over several rounds of tort reform as governor.

And if Perry ends up as the Republican nominee for president, deep-pocketed trial lawyers intend to play a central role in the campaign to defeat him. ...

Democratic Houston trial lawyer Steve Mostyn - who, along with his wife, Amber, donated nearly $9 million to Texas candidates and party committees in the 2010 cycle - said he's in the process of forming "some federal PACs" to take on Perry. ...

Perry spokesman Mark Miner said the campaign was fully prepared to engage a fight with trial attorneys on a national level, saying plaintiffs' lawyers "feed off the system" and inhibit job creation.

"Of course they're going to scream and shout when they feel that someone like Gov. Perry is standing in the way of them lining their pockets," Miner said.

Harvey Silverglate celebrates a Florida federal district-court ruling invalidating a state drug law as unconstitutional for lack of a mens rea requirement, but I'm less optimistic than he is that it will have long-term meaning: this is just a single trial judge and, while the U.S. Supreme Court has been skeptical of legislative overcriminalization, they haven't given any sign that they would be anywhere nearly as aggressive as this decision was. But I'll be happy if Silverglate is right.

As if prompted by my Tuesday post on the case, yesterday the California Supreme Court correctly ruled on Howell, which will save consumers billions of dollars a year on insurance costs at the expense of attorney windfalls. More at Cal Biz Lit and CJAC.

Around the web, August 19

  • Unintended but totally predictable consequence of capping debit-card interchange fees is that banks are now charging low-income debit-card users more money. [TOTM; earlier]
  • CJAC: legal reform is one painless way to achieve necessary California court budget cuts. [Capitol Weekly]
  • Likely unconstitutional California ballot proposal would ban home foreclosures. [BLD]
  • Do sex offender registries reduce sex crimes? [Adler @ Volokh; Marg Rev]
  • Virtual animals face real-life litigation. [WSJ via @bobdorigojones]
  • Do disability benefits discourage work? (Yes.) [RAND]
  • Romney was right: corporations are people. [NJ.com]
  • McConnell on Hamilton on the debt crisis. [Hoover]
  • Cuomo scores labor win. [Public Sector Inc.]
  • California legislator proposes requiring hotels to purchase fitted sheets. [City Watch LA]
  • Video-game company suggests settling lawsuit with competitor in trial by video-game combat. [Kaus]

Aqua Dots Product Liability Litigation

A must-read landmark decision from Judge Easterbrook in Aqua Dots Product Liability Litigation. The Chinese manufacturer of the Aqua Dots toy used the wrong adhesive in the product process; when swallowed, the adhesive metabolized into gamma-Hydroxybutyric acid, i.e., GHB, the so-called date-rape drug, with predictably adverse effects for the small children who did so.

The companies involved acted responsibly when they discovered the problem, and recalled the product, offering refunds and replacements.

There are of course legitimate personal injury claims that stem from a defective product like this. But there were also class actions seeking recovery for economic loss. What economic loss when the manufacturer is offering a refund or replacement? Well, that's a problem, isn't it, but lawyer-driven class actions often seek to free ride off of and take credit for what the manufacturer is already doing for the sake of justifying a large attorneys' fee: the attorneys in the similarly free-riding Mattel Lead Paint settlement asked for $12.9 million.

This will not fly in the Seventh Circuit now: "the district court should have relied on the text of Rule 23(a)(4), which says that a court may certify a class action only if 'the representative parties will fairly and adequately protect the interests of the class.' Plaintiffs want relief that duplicates a remedy that most buyers already have received, and that remains available to all members of the putative class. A representative who proposes that high transaction costs (notice and attorneys' fees) be incurred at the class members' expense to obtain a refund that already is on offer is not adequately protecting the class members' interests." It is good to see a court recognize that Rule 23(a)(4)'s adequacy requirement forbids class representatives from incurring socially wasteful litigation costs for the benefit of their attorneys at the expense of the class they represent. This will be an especially important principle in merger-and-acquisition strike suits.

"The Anti-Interference Principle"

A new paper from Donald J. Kochan of Chapman Law:

This Essay introduces the "Anti-Interference Principle" - a new term on the meaning of equality, or at least one not yet so-named in the equality lexicon - as a necessary foundation for achieving the goal of true equality. Equality has a long-standing place in the discussion of politics and jurisprudence and remains a struggle of definition today. Rather than rehash the mass of scholarship, this Essay seeks to summarize the general equality concept, and propose that the legal discourse on equality center on a requirement that governmental power must protect and respect equal treatment and opportunity, unconstrained, not equal outcomes. It argues that, to do so, equality requires that the government engage in anti-interference with individual choices and activities, so long as these things create no negative externalities to others. Absent avoidance of harm - special designations, privileges, or classifications necessarily interfere with equality in a manner that consequently violates the Anti-Interference Principle. Such actions necessarily interfere with equality. As such, if we are serious about respecting equality, such interference actions should be avoided.

The primary point is that equality matters. The purpose of this Essay is not to survey the vast political, jurisprudential and academic debate on equality but instead to take a broad look at the philosophical concept of equality itself. Part I discusses the general meaning of equality. Part II presents brief summaries of some selected recent developments regarding the concept of equality, namely California's Proposition 8 and the U.S. Supreme Court decision in Ricci v. DeStefano. Part III introduces a useful term for the equality discussion - "anti-interference" - and argues that the best way to foster equality is to embrace freedom, choice, and liberty in the absence of a showing that different treatment is justified to avoid harm. Simply stated, equality is best served when the government refrains from interfering with individual choice and individual freedom.

Warren Buffett and taxes II

Following up on my earlier post, my brother reminds me that Buffett plans to avoid billions of dollars of estate and capital gains taxes by donating his fortune to charity—suggesting that he believes that the Gates Foundation can better spend his money than the US government can. But Tim Carney points out that Buffett has very much a financial interest in ensuring that Leviathan has a lot of money to spend, as he can make profitable investments by accurately predicting where government largesse will go.

Around the web, August 16

  • Twenty years of Sentencing Guidelines for corporate compliance. [Paul McNulty]
  • AT&T Mobility sues to stop scheme to misuse arbitration to block merger. [complaint @ Reuters (h/t W.K.); earlier at POL]
  • Presser: Obama likely to stall Supreme Court consideration of healthcare reform constitutionality. [LNL]
  • No honor among trial-lawyers: six class action law firms file copycat lawsuits free-riding off of e-book antitrust conspiracy theory. [Frankel]
  • ABA censures Villanova Law for misleading students about employment prospects, Villanova buries censure on its website. [ABA; related at NLJ]
  • IJ wins Supreme Court battle over Arizona clean elections law, a victory for free speech. [IJ; earlier on POL]
  • That Righthaven business model runs into the wee problem that it is explicitly precluded by law. [Property Intangible; Legal Satyricon; EFF; OL]

  • Jeff Koons drops his litigation claiming exclusive rights to balloon-dog-shaped sculpture. [Artinfo; NYT]

The consequence of seeking criminal liability on the theory that a suicide was caused by a bullying breach of privacy is that the decedent's privacy is breached all the more as the defendant seeks to prove reasonable doubt through alternative reasons for the suicide. [ATL; Kashmir Hill @ Forbes; NYT; New York; NJ Star-Ledger]

Howell v. Hamilton Meats & Provisions

In a 2005 San Diego County collision, a Hamilton Meat truck seriously injured Rebecca Howell. "Howell's medical bills approached $200,000 but medical insurance settled with the care providers for $60,000 and the trial judge reduced the medical part of her judgment to that amount." Is Hamilton Meat liable for $200,000, or for Howell's actual damages? California courts differ, and now the California Supreme Court will resolve the issue after a May oral argument. On this question lies $3 billion a year of damages awards, a billion of which would go to attorneys. [Sac Bee; lower court decision]

The New Haven fire department, by virtue of its loss in Ricci, is now subject to a disparate-impact claim from minority firefighters who did not benefit from the recognition of test results after the Supreme Court's resolution of the disparate treatment claim. As the Second Circuit notes, this is largely a consequence of the litigation choices of the city in conjunction with existing incoherent disparate-impact law. But the effect is that just about any civil-service promotion method is the subject of a prima facie claim of illegality.

Mourad Samaan was furious that his ex-wife wanted to hyphenate their daughter's last name, but the court system wasn't taking his side. So he killed Madeline Layla Samaan-Fay before taking his own life. According to Samaan's brother, Nabil Samaan, a licensed California attorney, this is an entirely appropriate reaction and the "right thing.... [H]opefully, the court will learn a little bit about justice." [KTXL via ATL]

Rick Perry's first advertisement mentions two separate tort reform measures in Texas.

Warren Buffett and taxes

Warren Buffett's New York Times op-ed is getting some attention, with praise for his selflessness in calling for higher taxes on himself. It should be noted that Buffett's motivations can't be called entirely selfless: Berkshire Hathaway's business model often involves purchasing private family-owned companies that are hit hardest by the estate tax. The absence of the estate tax takes away this source of profit.

Poorly-drafted 2007 legislation intended to help Medicare collect money it's owed when secondary payers (such as personal injury defendants) reimburse Medicare recipients for medical expenses already paid by Medicare is having adverse consequences. Because insurers are strictly liable for $1000/day fines if they accidentally shortchange Medicare a penny, they are essentially forced to get Medicare confirmation before signing off on settlement payments. But there is no time limit for Medicare to respond, and no statute of limitations for Medicare to decide whether to collect; regulatory compliance costs are effectively a hidden tax on all parties involved. Both trial lawyers and the Chamber of Commerce are lobbying for a fix. [NLJ; HR 1063]

Around the web, August 15

  • You probably heard that the Eleventh Circuit overturned part of PPACA. The nifty aspect of that is that, because the PPACA challengers lost on the issue of severability, they can appeal directly to the Supreme Court, forcing a cross-appeal to the Supreme Court, and ensuring that the Obama administration can't delay Supreme Court consideration past the 2012 election. The deciding vote was Clinton appointee Frank Hull. [Kerr @ Volokh; Adler @ Volokh; SCOTUSblog; Florida v. HHS; related: Richard Epstein]
  • Trask on Scruggs biography The Fall of the House of Zeus
  • California litigation lobby targets arbitration agreements in AB 1062. [BLD; ACIC]
  • The late Richard Nagareda's influence on Wal-Mart v. Dukes. [Frankel]
  • Olson on age discrimination laws. [Reason]
  • Texas bank focuses on small business loans even as economy hurts from drying up of credit in that area; naturally, federal regulators complain. Bank decides to go Galt to escape regulation and focus on its business absent FDIC insurance. [WSJ]
  • Utah trial court rejects "negligent directions" claim against Google brought by woman who walked into traffic. [Volokh]
  • How riots start, and how they can be stopped. [Glaeser]
  • Who lost the middle class? [City Journal]

From today's WSJ ($) and Ribstein. Earlier.

Arbitration and adhesion

One of the oddest arguments I see against pre-dispute arbitration clauses is that they are "contracts of adhesion"—because the provisions are non-negotiable, the argument goes, they are unconscionable. I recognize that many courts buy this argument, but it makes little logical sense. My contract with my cell-phone provider is non-negotiable in every way. But if I were to go to court and complain that my $89.99/month rate was unconscionable because it was a take-it-or-leave-it provision, I'd rightly be "laughed out of court." Oblix, Inc. v. Winiecki, 374 F. 3d 488, 491 (7th Cir. 2004) (anticipating AT&T Mobility v. Concepcion). So why does the similarly foolish anti-arbitration argument have so much traction? It seems to me to be a function of the judicial bias in favor of the lawyer cartel.

"Fair Employment Opportunity Act of 2011"

One of the great barriers to economic recovery is the spectre of employment litigation. Congress has repeatedly expanded the ability of employees to sue employers over employment decisions. This is not good for employees as a group. Why? Imagine if Congress legislated that employers have to give employees a $500 Starbucks gift certificate every year. Would that make employees better off? Of course not: the employers would simply reduce wages by the expense of giving out the gift certificate. The same is true when Congress creates additional rights to sue employers. If every employee is a potential lawsuit, employers will reduce wages (and reduce hiring) to account for those additional costs. And, of course, those costs aren't just the damages awarded to employees: it's the cost of attorneys' fees for both plaintiffs and defendants, and it's the costs of gigantic human resources bureaucracies to ensure compliance with increasingly burdensome employment laws. While a tiny fraction of employees win jackpot awards, the net result is a wealth transfer from productive employees to lawyers and human resources departments, and increased unemployment.

So, of course, in the face of this, two Democratic legislators have the brilliant idea of making it even easier to sue employers by creating a new cause of action: HR 2501, making it illegal to discriminate against the currently unemployed. A National Law Journal op-ed praising the legislation doesn't even consider the unworkability of it. Is it a litigable prima facie case of discrimination when an employer hires a lateral? Are there grounds for disparate impact litigation when an employer asks for a certain number of years of experience? If this passes, an unemployed person can make more money applying for jobs and repeatedly suing and agreeing to nuisance settlements than actually finding work. The natural consequence will be fewer advertisements for new employees, and more unemployment. Except for lawyers.

Patton Boggs v. Chevron dismissed again

Judge Kennedy once again dismisses the complaint in Patton Boggs v. Chevron, which was an odd second front against Chevron in the corrupt Ecuadorian Lago Agrio case. Earlier.

Zero for Ground Zero worker

But the lawyers got paid. The buried lede is how Napoli Bern coerced its client into settling.

Vioxx fee-ing frenzy

Alison Frankel reports upon Judge Fallon's decision divvying up the nine-digit "common benefit fund" in the gigantic Vioxx settlement. Among the beneficiaries are the attorneys who won the notoriously bogus Garza case in south Texas—though that decision was reversed on appeal, they still get $2.7 million from the common fund. Other attorneys also got millions for winning jury verdicts that were eventually reversed for their "salutary effect on the Vioxx litigation."

Note that the justification for the $1000/hour contingency fees attorneys get in these cases is the risk they take that if they lose they get nothing. Now, it seems, attorneys can get paid even when they bring meritless cases and lose.

26 U.S.C. § 3306(c)(7) excepts from the definition of "employment"—and thus exempts from the payment of employment tax—"services performed in the employ of an Indian tribe, or any instrumentality" of a tribe. Thus, the Ninth Circuit holds in Blue Lake Rancheria v. United States, a 53-member tribe can create a corporation that "hires" existing workers at other companies, rent those employees back to their original employers, and split the tax savings. Everyone wins! Except taxpayers. [Martin via Wallace]

A Health Affairs study (summarized by Reason) puts to rest the hoary claim that Medicare is more "efficient" than privately administered insurance programs: even without the high corporate executive pay and advertising of private insurance, Medicare's administrative expenses per enrollee are higher than private insurance. And that's before we get into the fact that Medicare underspends on fraud prevention, losing tens of billions a year that way.

Medicaid will get only more expensive if the Supreme Court affirms a Ninth Circuit decision in a pending case, Douglas v. Independent Living Center of Southern California. The Ninth held that Medicaid providers could sue states over their Medicaid reimbursement policies and ask for courts to adjudicate disputes over whether the states were complying with federal law—though the federal law has no such provision for private action. If so, that's a one-way ratchet for increased costs to state and federal taxpayers, with outlays being decided by judges even more unanswerable to voters than the existing regulatory mechanisms. Oddly, the Chamber of Commerce finds itself in the position of supporting an implied cause of action, arguing that one can enforce the Supremacy Clause in any preemption situation. It seems to me that the Solicitor General's brief has the better of the argument in suggesting that Ex parte Young-style suits are limited to cases where plaintiffs are claiming immunity under federal law to state regulatory action, rather than a broad cause of action to resolve inter-governmental disputes. It's hard to see where the Chamber's limiting principle is: if parties can sue states in an implied cause of action to force compliance with the parties' preferred statutory and regulatory construction, why can't parties sue other private parties in Buckman style claims over alleged regulatory non-compliance? So, yes, I'm siding with the Obama administration against the Chamber of Commerce. More: NYT, NCLC resource page; ABA resource page. The case will be argued at the start of the term on October 3.

Around the web, August 11

  • Exxon Mobil asks for en banc review of 2-1 DC Circuit decision with expansive view of Alien Tort Claims Act. [BLT; Doe v. Exxon Mobil petition for rehearing en banc]
  • Loser pays in action: Mattel's unsuccessful suit against competitor trying to take credit for competitor's successful Bratz dolls will now require it to pay other side's $137 million legal bill. [Volokh]
  • CJAC seeks disclosure of Orange County's contingency-fee arrangement with private law firm against Toyota over bogus sudden-acceleration theory. [BLD]
  • Million dollars in legal fees over a dispute about burger smells that was resolved with $90,000 ventilation system. [BLT]
  • Rescuers sue woman they saved from burning vehicle. [AP/law.com]
  • Dodd-Frank side effect: devastation of Congo. [NYT via Bader and OL]
  • "Havana Club" brand name not misleading because bottle label acknowledges that the rum is manufactured in Puerto Rico. [Bloomberg]
  • Watch what you say about lawyers: Public Citizen sued for writing about litigious lawyer's 100-page pro se complaint. [Levy @ CLP Blog]
  • Richard Epstein and John Yoo have a podcast. [Ricochet]
  • Colorful opinion: "Madder than mosquitos in a mannequin factory." [Olson]

Monday's Wall Street Journal reports on statistics that felony defendants were convicted in 61% of bench trials, while juries convicted 67% of felony defendants. But fewer than 20% of defendants waive their rights to a jury trial. Are they making a mistake? Are New York judges soft-hearted?

Not necessarily. After all, the statistics reflect apples and oranges. Because the criminal defendant has a right to a jury trial, such a defendant is rarely, if ever, going to choose a bench trial with a judge considered pro-prosecution. It wouldn't surprise me if there were several such judges who never had a bench trial in the five-year period reported on. Imagine a world where the jurisdiction has eleven judges who are one to eleven percent more likely to rule in favor of the defendant than the average jury, but 49 judges who are one to twenty percent more likely to rule in favor of the prosecution than the average jury. Assuming criminal defense lawyers knowledgeable about judge's tendencies, we'd see the same sort of statistical results from this hypothetical law-and-order judiciary—about 6% higher acquittal rates for bench trials than for jury trials, but fewer than 20% of defendants picking bench trials—as we do in New York City.

What I found most fascinating in the article is the argument "legal experts" made for when a bench trial makes sense: the cases where "a jury could be swayed by emotion for the victim, overwhelmed by technical evidence, or confused by complicated legal instructions." Or, in other words, the same scenario as just about every civil product liability trial.

It's also surprising that prosecutors win fewer than two thirds of their trials. Again, there is an iceberg effect, as someone truly innocent is less likely to plea bargain and someone faced with overwhelming evidence is more likely to. But such a statistic does seem to suggest either overaggressive prosecutors or rampant jury nullification.

Dewey v. Volkswagen opening brief

On Friday, the Center for Class Action Fairness LLC filed its opening brief in the Third Circuit case of Dewey v. Volkswagen (10-3618). The case presents some interesting jurisdictional issues as a side effect of Devlin, plus run-of-the-mill economic quackery and an inexplicable decision to arbitrarily include in the class a million vehicles without providing the same pecuniary reimbursement benefit available to the rest of the class. The settlement as a whole is inexplicable: the class counsel's economist calculated that defendant Volkswagen was going to spend $55 million on a service action that would prevent $24 million in future damage. This, the economist concluded, was worth $103 million to the class: the $55 million spent on repairs, plus the $24 million in future damage avoided, plus the $24 million in increased resale value from not being damaged!

Most entertaining, however, was the economist's insistence that the injunctive relief—a letter to the class informing them of a revised maintenance schedule—was worth millions of dollars to the class because now the class would get the benefits of purchasing maintenance. As we argued:

Imagine three hypothetical class-action settlements with Apple. In Hypothetical Apple Settlement #1, every class member receives a free $700 iPad. It is easy to conclude that the value of this settlement would be $700/per class member; even if a class member did not want the iPad, they could sell it on the market.

In Hypothetical Apple Settlement #2, every class member receives a brochure describing the iPad that contains a coupon for $50 off an iPad. Here, the Class Action Fairness Act dictates the valuation of the settlement: it is worth $50 times the number of coupons redeemed. 28 U.S.C. § 1712.

Now imagine Hypothetical Apple Settlement #3, where every class member simply receives the iPad brochure (or say "educational iPad information") without the coupon. How should that settlement be valued? According to Eads's methodology, the educational information tells a class member that an iPad exists (whether or not they already knew that: the Eads Report assumes 100% ignorance replaced by 100% knowledge), and could lead a class member to purchase an iPad worth $700 to the class member. Therefore, according to the Eads Report, Hypothetical Settlement #3 is worth $700 per class member, as much as Hypothetical Settlement #1, and more than a settlement that included a coupon.

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

This 21-minute radio story is perhaps the best general-public news piece I've seen on the patent-trolling strategy, though it relies on innuendo for why Marshall, Texas, is the home of the patent-troll litigation, when it would have been easy enough to get quotes from people explaining the phenomenon. The conclusion is devastating:

In early July, the bankrupt tech company Nortel put its 6,000 patents up for auction as part of a liquidation. A bidding war broke out among Silicon Valley powerhouses. Google said it wanted the patents purely to defend against lawsuits and it was willing to spend over $3 billion to get them. That wasn't enough, though.

The portfolio eventually sold to Apple and a consortium of other tech companies including Microsoft and Ericsson. The price tag: $4.5 billion dollars. Five times the opening bid. More than double what most people involved were expecting. The largest patent auction in history.

That's $4.5 billion on patents that these companies almost certainly don't want for their technical secrets. That $4.5 billion won't build anything new, won't bring new products to the shelves, won't open up new factories that can hire people who need jobs. That's $4.5 billion dollars that adds to the price of every product these companies sell you. That's $4.5 billion dollars buying arms for an ongoing patent war.

The big companies -- Google, Apple, Microsoft -- will probably survive. The likely casualties are the companies out there now that no one's ever heard of that could one day take their place.

In an extraordinary two-sentence order in Jewel v. NSA, the Ninth Circuit has accepted for filing an ex parte in camera classified brief that the plaintiffs will not be allowed to see. You'd think the government would be grateful for this seemingly unprecedented breach of due process, but they have instead doubled down to warn the judges not to ask any questions that would disclose information from that brief in public. [Politico]

If the Ninth Circuit is going to adopt such a policy, they should at least justify it with an opinion. Because that order is presumptively illegal. As we've previously quoted Judge Easterbrook in Union Oil Co. of California v. Leavell, 220 F.3d 562, 567-68 (7th Cir. 2002):

"Even disputes about claims of national security are litigated in the open. Briefs in the Pentagon Papers case, New York Times Co. v. United States, 403 U.S. 713, 91 S.Ct. 2140, 29 L.Ed.2d 822 (1971), and the hydrogen bomb plans case, United States v. Progressive, Inc., 467 F.Supp. 990, rehearing denied, 486 F.Supp. 5 (W.D.Wis.), appeal dismissed, 610 F.2d 819 (7th Cir.1979), were available to the press. ... Judicial proceedings are public rather than private property, U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18, 27-29, 115 S.Ct. 386, 130 L.Ed.2d 233 (1994); In re Memorial Hospital of Iowa County, Inc., 862 F.2d 1299, 1302-03 (7th Cir.1988), and the third-party effects that justify the subsidy of the judicial system also justify making records and decisions as open as possible. What happens in the halls of government is presumptively public business. Judges deliberate in private but issue public decisions after public arguments based on public records. The political branches of government claim legitimacy by election, judges by reason. Any step that withdraws an element of the judicial process from public view makes the ensuing decision look more like fiat, which requires compelling justification."

The circumscribed public oral argument will be held August 31, 2011, but the Ninth Circuit website doesn't yet indicate whether it will be in San Francisco or Pasadena.

Dilbert on the patent arms race


What media bias? Debt-ceiling edition

When Barack Obama was a senator, he voted against raising the debt ceiling.

When Ronald Reagan was president, the Democratic-controlled Congress refused to raise the debt ceiling in 1985. The only reason that there wasn't a default was because the administration engaged in creative accounting that has since been made illegal.

Yet Joe Nocera and many many others complain that Tea Party is acting uniquely unreasonably. As Russ Roberts points out, the debt-ceiling deal will reduce spending over the next ten years from $46.1 trillion to $43.7 trillion, or just over 5%. "This year we're going to spend about $3.8 trillion. For further perspective, in the ten years between 2002 and 2011, the Federal government spent $28.1 trillion dollars." So the Tea Party is apparently terroristically evil, because it succeeded in insisting on reducing federal spending over the next ten years to a level 50% above the average 2002 - 2011 level. Sheesh.

No surprises on Zach Scruggs

The Supreme Court limited the scope of the federal honest-services fraud law to cases of bribery and kickbacks. Zach Scruggs was convicted for his role in bribing a judge, but argued that Skilling applied to him, too. You won't be surprised to learn that the district court didn't buy that argument. [Freeland; Clarion-Ledger]

More, please:

[Judge] Lourie wrote that Eon-Net's case against Flagstar "was part of Eon-Net's history of filing nearly identical patent infringement complaints against a plethora of diverse defendants, where Eon-Net followed each filing with a demand for a quick settlement at a price far lower than the cost to defend the litigation."

"The record supports the district court's finding that Eon-Net acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement from Flagstar," he wrote. [...]

He observed that Eon-Net's settlement offer range of $25,000 to $75,000, which was less than 10% of what Flagstar spent defending its suit, "effectively ensured that Eon-Net's baseless infringement allegations remained unexposed, allowing Eon-Net to continue to collect additional nuisance value settlements."

He also mentioned that Eon-Net "had the ability to impose disproportionate discovery costs on Flagstar" because accused infringers often have "enormous amounts of potentially relevant documents."

Flagstar spent more than $600,000 to litigate the case brought by Eon-Net even though the district court stayed all discovery that not related to claim construction issues.

The patent troll and its attorney were ordered to pay over $631 thousand in sanctions and fees, though that does not fully compensate the defendant, given the appellate costs, and the costs to its business of diverting internal employees to comply with discovery obligations. [NLJ; Eon-Net v. Flagstar Bancorp (Fed. Cir. 2011)]

Relatedly, the E.D. Pa. has interpreted 28 U.S.C. § 1920 to make the costs of e-discovery taxable. The Third Circuit has a similar case pending on appeal. [Legal Intelligencer; Beck]

Richard Kreimer rides again (redux)

Richard Kreimer is homeless. He goes to public places, makes himself sufficiently obnoxious that he gets thrown out, and then sues on his rights. Wally and I have covered this at Overlawyered through the years, Mar. 2005, Feb. 2006, Dec. 2006, Aug. 2008. The Star-Ledger rediscovers the story (via ABAJ). Kreimer's own lawyer says "It's become kind of like a sting operation, where he's waiting for someone to violate his rights...This is a way for him to make money." Part of the problem is that the New Jersey Supreme Court has forbidden anti-loitering laws, a rebuke to James Q. Wilson's "broken windows" theory.

There was some fear that a Dodd-Frank-required GAO report on Stoneridge and secondary liability would be a Trojan horse for Congress to justify a broad expansion of liability for the benefit of lawyers at the expense of the economy, but the report turned out to be a nothing-burger of the "On the one hand, on the other hand" variety.

One of the most remarkable (and frightening) things about the foreclosure crisis is the number of lawyers and judges who care so little about the rule of law and the problem of moral hazard that they think that the appropriate remedy for some alleged immaterial technical violation of the law or deal gone bad in hindsight is to let someone live rent-free in a house they don't own. Daniel Fisher reports on Jean Robert and Edith Saint-Jean, who were $30,000 behind on their bills and made a conscious decision to borrow $66,500 in cash off of the equity of their home at an 11.75% rate, and then stopped paying their mortgage. Emigrant Bank, extraordinarily, offered to cut the interest rate to 6% and forgive the resulting penalty payments. No dice: the Saint-Jeans are instead suing Emigrant, alleging that it committed racial discrimination by offering and granting them a loan they wanted and needed. The plaintiffs are asking for a free house and damages, but are apparently willing to settle for a fraction of that.

Tactics like this in New York state has increased the cost of a foreclosure from $1,500 to $30,000—and Justice Lippman is proposing having taxpayers pay for lawyers to increase those costs further. This is a wealth transfer from honest people to lawyers and homeowners who engage in dishonest gamesmanship. The threat of such strategic behavior means that banks like "Emigrant can't even consider lending money on a $150,000 home any more, since the foreclosure costs if the borrower defaults would dwarf any potential profits on the loan." Does that really make homeowners better off?

What effect Twombly / Iqbal?

Cecil (FJC) et al., Motions to Dismiss for Failure to State a Claim after Iqbal: Report to the Judicial Conference Advisory Committee on Civil Rules:

This report presents the findings of a Federal Judicial Center study on the filing and resolution of motions to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The study was requested by the Judicial Conference Advisory Committee on Civil Rules. The study compared motion activity in 23 federal district courts in 2006 and 2010 and included an assessment of the outcome of motions in orders that do not appear in the computerized legal reference systems such as Westlaw. Statistical models were used to control for such factors as differences in levels of motion activity in individual federal district courts and types of cases.

After excluding cases filed by prisoners and pro se parties, and after controlling for differences in motion activity across federal district courts and across types of cases and for the presence of an amended complaint, we found the following: There was a general increase from 2006 to 2010 in the rate of filing of motions to dismiss for failure to state a claim (see infra section III.A); In general, there was no increase in the rate of grants of motions to dismiss without leave to amend. There was, in particular, no increase in the rate of grants of motions to dismiss without leave to amend in civil rights cases and employment discrimination cases (see infra section III.B.1); Only in cases challenging mortgage loans on both federal and state law grounds did we find an increase in the rate of grants of motions to dismiss without leave to amend. Many of these cases were removed from state to federal court. This category of cases tripled in number during the relevant period in response to events in the housing market (see infra section III.B.1). There is no reason to believe that the rate of dismissals without leave to amend would have been lower in 2006 had such cases existed then; There was no increase from 2006 to 2010 in the rate at which a grant of a motion to dismiss terminated the case (see infra section III.B.1).

Of course, there could be hidden effects that the study is not picking up. Some judges are going to be resistant to Twombly and Iqbal; others were already applying a heightened standard of review of complaints before Twombly (recall that Twombly itself involved an appeal to the Second Circuit from a plaintiff who had had his complaint dismissed). And the mix of cases that are going to be brought post-Twombly are different. We will still see cases dismissed because of lawyers pushing the envelope and failing to create new law. But, after Twombly, the hypothetical 100-page complaint alleging wildly implausible conspiracies is much more likely to be filed by a deranged pro se than a lawyer who cares about adhering to ethical standards. Meritless implausible complaints that would have been filed in 2005 are less likely to be filed in 2011, but it's hard to say that that is a bad thing.

Around the web, August 3

  • The SEC's remarkable losing streak. [Bradford via Bainbridge; earlier]
  • Department of Education's strange insistence on depriving students and teachers of their rights under the pretense of enforcing Title IX. [Bader; Bennett; Sommers; see also Young]
  • What pro-business court? Does Matrixx complicate application of Daubert? [WLF; Beck]
  • Congressional staff lawyers who drafted Dodd-Frank cashing in. [Carney; Stoll]
  • Judge Kavanaugh concurrence lays open roadmap for challenging Humphrey's Executor and the power of independent agencies. [Elwood @ Volokh]
  • Judicial hellholes in action: Illinois state court preliminarily approves coupon settlement against CVS that will pay lawyers $950,000. [LNL]
  • Best Buy threatens to sue competitor who advertised against a hypothetical big-box store where ignorant employees wear blue shirts. Also, because competitor uses the word "geek" in its slogan. [NYT via ABAJ]

A trivia note

A: This nominee to head the CPFB was one of the attorneys representing Morgan Stanley on the successful cert petition in Credit Suisse v. Billing.

Q: Who is Richard Cordray?

A new law, SB 407, goes into effect September 1 and creates a Penal Code 43.261 and a Family Code 51.03(b)(7) that makes teens criminals and juvenile delinquents for sexting outside the bounds of a "dating relationship."

(Update. Leif Olson and Julian Sanchez suggest that this is an improvement over existing law, which required sex-offender registration.)

Boycotting CPAC

As I mentioned on my Twitter feed, if CPAC is barring GOProud from its convention, I don't want to be there any more than Andrew Breitbart does. CPAC probably doesn't care much about my opinion (they've only invited me as a speaker once in the last six years), but more heterosexual conservatives and libertarians need to speak up against this hijacking of the conservative movement by intolerance when there are far more critical issues than the sex lives of conservatives. It might even be time to supplant CPAC with a real-world-right convention.

Around the web, August 2

  • The problem of the perjury trap. [OL; NY Times; Tangled Webs]
  • When Congress passes vague criminal laws, it invites judicial activism. A surprising author. [Greenhouse]
  • South Texas plaintiffs' lawyer indicted under RICO for allegedly bribing now-indicted judge. [Monitor, U.S. v. Marchan indictment (Case No. 11-CR-594, S.D. Tex.)]

  • Prisoner Jerry Lee Bustos sues A&E for libel for calling him an Aryan Brotherhood gang member when all he did was conspire with the Aryan Brotherhood; case dismissed because statement was substantially true. [Bustos v. A&E (10th Cir. Jul. 19, 2011)]
  • USDA issues $90,463 fine against Missouri family for selling $4600 of rabbits. Family wanted to teach teenage son about business; boy, did he get a lesson. [Big Gov; update]
  • Houston judge tries to circumvent Texas Supreme Court ruling forbidding prosecution of child prostitutes. [Bennett]
  • Why is the government doing so little to end sexual assault in prisons? [Reason]
  • What media bias? Thirteen factual errors in Time magazine's cover story on the Constitution. Note which way all of them tilt. [Worthing @ Patterico]

  • Remember adverse possession in your first-year property class? Squatter tries to use it in the foreclosure mess in Houston. [KHOU]
  • What double jeopardy clause? More Casey Anthony hysteria. [petition; Popehat]

Around the web, August 1

  • Even as left claims there is no such thing as voter fraud, honest Democratic prosecutors in Mississippi use DNA evidence to convict NAACP official stuffing absentee ballot boxes with dead voters. [Daily Caller; earlier on POL]
  • Montana Supreme Court: aluminum-bat manufacturer on hook for $850,000 for failure to warn—though the injured plaintiff wasn't the person who purchased the bat or would've seen the warning. [Wajert; Fisher @ Forbes; Patch v. Hillerich & Bradsby Co.; earlier on POL]
  • The problem of lack of demand-side regulation: Ribstein on Yockey on the FCPA: "The article paints a classic picture of over-criminalization in action and how a poorly designed and over-enforced law is crippling U.S. firms ability to compete internationally." [Ribstein; SSRN]
  • Related: ILR critical of WaPo denigration of FCPA reform efforts. [WaPo]
  • Government wants Internet providers to spy on your browsing history for them. [Sanchez @ NYPost]
  • Say what you will about Nancy Grace, but she's at least willing to file a Rule 11 motion; efforts in the House to return teeth to Rule 11 are probably doomed, though. [Frankel; OL]
  • Who's suing whom in the mobile phone market, graphically represented. [Lowering the Bar]
  • "Hilton guest makes federal case of 75-cent paper" [SF Chronicle (h/t N.M.); Gawker]
  • September 11 didn't create waves of PTSD; perhaps vindicating my 2008 testimony. [Bader; NYT]
  • Debt-ceiling bill not so much a "sugar-coated Satan sandwich" as a lot of sound and fury over nothing. [Barro; related: de Rugy]

When family court reaches levels of self-parody: man's first wife kills his children. She pleads temporary insanity, implausibly blames Prozac for deaths, escapes criminal punishment. Man remarries, has more kids, divorces, takes up again with killer of his first children. Second ex-wife has no luck in family court expressing reluctance leaving kids with child-killer. [Alkon; AP/NYT]

Meanwhile, in the same jurisdiction, a horrifically crooked expert in the same family court jurisdiction got disciplinary records sealed, and had a reign of terror harassing women as an evaluator in child-custody cases. If he hadn't been caught videotaping his employees using the restroom, he might still be running amuck in family court. [Seattle Times via OL]

Sunday's Pittsburgh Post-Gazette covers CSX's lawsuit against Robert Peirce & Associates, a Pittsburgh law firm that allegedly engaged in fraudulent mass screenings as part of its strategy in asbestosis litigation, a subject covered in more detail in Lester Brickman's Lawyer Barons. Peirce recently dismissed with prejudice over 1300 lawsuits against CSX when the company made it clear they would actually put them to proof rather than engage in quick settlement.

"Disparate Impact Realism"

Amy Wax in a forthcoming William & Mary L. Rev. piece:

In Ricci v. DeStefano, 129 S. Ct. 2658 (2009), the Supreme Court recently reaffirmed the doctrine, first articulated by the Court in Griggs v. Duke Power Company, 401 U.S. 424 (1971), that employers can be held liable under Title VII of the 1964 Civil Rights Act for neutral personnel practices with a disparate impact on minority workers. The Griggs Court further held that employers can escape liability by showing that their staffing practices are job related or consistent with business necessity.

In the interim since Griggs, social scientists have generated evidence undermining two key assumptions behind that decision and its progeny. First, the Court in Griggs noted the absence of evidence that the selection criteria in that case (a high school diploma and an aptitude test) were related to subsequent performance of the service jobs at issue, and expressed doubt about the existence of such a link. But research in industrial and organization psychology (IOP) has repeatedly documented that tests and criteria such as those at issue in Griggs (which are heavily "g"-loaded and thus dependent on cognitive ability) remain the best predictors of performance for jobs at all levels of complexity. Second, Griggs and its progeny rest on the implicit assumption, reflected in the so-called 4/5 rule, that fair and valid hiring criteria will result in a workforce that roughly reflects the representation of each group in the background population. Work in psychometrics and labor economics shows that this assumption is unjustified. Because blacks lag significantly behind whites on measures of cognitive ability, most valid job selection criteria will have a substantial adverse impact on this group. The combination of well-documented racial differences in cognitive ability and the consistent link between ability and job performance generates a pattern that experts term "the validity-diversity tradeoff": job selection devices that best predict future job performance generate the smallest number of minority hires in a broad range of positions. Indeed, the evidence indicates that most valid screening devices will have a significant adverse impact on blacks and will also violate the 4/5 rule under the law of disparate impact.

Because legitimately meritocratic (that is, job-related) job selection practices will routinely trigger prima facie violations of the disparate impact rule, employers who adopt such practices run the risk of being required to justify them - a costly and difficult task that encourages undesirable, self-protective behaviors and may result in unwarranted liability. To alleviate this burden, the article proposes to adopt a new regime of "disparate impact realism" that abandons the 4/5 rule in favor of sliding scale ratios pegged to measured disparities in group performance and the selectivity of particular positions. Alternatively, the disparate impact rule should be repealed altogether. The data indicate that pronounced differences in the background distribution of skill and human capital, not arbitrary hurdles imposed by employers, explain racial imbalances in the workforce. Moreover, blacks lag behind whites in actual on-the-job performance, which indicates that employers are not unfairly excluding minorities but rather bending over backwards to include them. Disparate impact litigation, which does nothing to correct existing disparities and distracts from the task of addressing them, represents a cumbersome, misplaced effort that could better be directed at the root causes of workforce racial imbalance.

Speaking of Ricci, New Haven finally threw in the towel and settled the damages aspect of that reverse-discrimination case: the twenty plaintiffs will receive $2 million in back pay, even more in enhanced pension benefits, and fourteen of them won promotions previously wrongfully denied them: congratulations to Karen Lee Torre. [WSJ Law Blog; Hartford Courant]



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.