Subscribe Subscribe   Find us on Twitter Follow POL on Twitter  


October 2011 Archives

CCAF in the Wall Street Journal

The Wall Street Journal has an extensive profile on the Center for Class Action Fairness. (I should note that the problem with the Grand Theft Auto settlement was not so much that it provided "partial refunds" but that class members received under $30,000 while the attorneys were asking for a million dollars.) There's also a sidebar discussing the Blessing v. Sirius XM objection; CCAF's appeal of the settlement approval is pending in the Second Circuit.

Unfortunately, many journalists take trial-lawyer Susan Saladoff's conspiracy theory about the McDonald's coffee case at face value, and don't sufficiently scrutinize the movie's claims. Here are some questions for more enterprising journalists to ask.

Relatedly, the Center for Justice & Democracy spreads false urban legends about the hot-coffee case in the course of substanceless snark at a post I wrote debunking a typically shoddy CJD study. They claim that Stella Liebeck's coffee was as "hot as a car radiator." This, like much else on their website, is simply false. A car radiator temperature, between chemical coolants and pressurization, is between 195 and 225 degrees Fahrenheit. Stella Liebeck's coffee was between 170 and 180 degrees, and would rapidly cool when exposed to room temperature.

Around the web, October 31

  • DRI overcriminalization panel: Executives, "are now living 'in fear of losing everything' not for personal conduct but for what someone else may have done." [BLT]

  • LIRR disability mills generate indictments for what would have been a $1 billion fraud. The question is why functionally identical mass tort mills aren't facing criminal consequences. [Overlawyered]
  • The late William Stuntz's The Collapse of American Criminal Justice: why the justice system does a bad job of separating defendants who deserve punishment from those who don't. [Cassell @ WSJ via Volokh; Stevens, J., @ NYRB; Chronicle of Higher Ed]
  • The hypocritical attack by Congressional Democrats on Justice Thomas. [Wash Times]
  • Pero criticizes Soros's anti-judicial elections campaign. [Wash Times]
  • NYT Paul Clement profile.
  • How California drives away jobs and business. [Malanga @ WSJ, coming soon to CIty Journal]
  • Utah: you can serve alcohol, you can show movies with nudity, you can't do both simultaneously. [ABAJ]

A Center for Justice & Democracy study complains that "new media" overreports big-money plaintiffs' verdicts, while failing to report on all the small-money verdicts and losses. This strikes me as akin to complaining that there was a lot more tweeting about David Freese's World Series walk-off home run, when there are far more Little Leaguers who pop out to shortstop. Of course the news stories that are interesting and novel are going to get more attention than the events that are routine. Readers don't want to read about $15 thousand traffic accident cases, even if there are many more of them than multi-million-dollar propofol cases. Nor should they: the latter has real public policy consequences from trial lawyers putting profits ahead of people, while most traffic-accident cases do not.

So far CJD is doing nothing but identifying the obvious. But then, in its typically shoddy fashion, CJD draws conclusions that its data do not support. As I point out in an interview with Fair Warning, CJD's complaint about shorthand media reports does not support its conclusion that the result is to prejudice plaintiffs and the civil justice debate.

For example, CJD complains that newsrooms fail to mention that caps will reduce verdicts in many cases. But this is hardly a conspiracy by corporate media to promote an image of jackpot justice. It's plaintiffs' lawyers who are using the big (and often ultimately unsustainable) verdicts to draw business to themselves. For example, in Ernst v. Merck, as I pointed out contemporaneously, Mark Lanier's $253 million verdict could not possibly stand under Texas law's caps; indeed, as I predicted at the time, the entire judgment was thrown out for trial shenanigans. But Lanier disingenuously told reporters for over a year that he didn't think caps would apply to his verdict, and stalled the eventual appellate reversal so that he could use the publicity from the megaverdict to sign up thousands of clients that plaintiffs' lawyers ultimately turned into a multi-billion dollar settlement against an innocent defendant. Lanier's loss in Ernst, and the fact that Merck was victimized by thousands of fraudulent cases, didn't get a fraction of the publicity of the initial flawed jury verdict. That sort of analysis is absent from the one-side CJD "study."

Similarly, the exoneration of Toyota in the trial-bar's ginned-up sudden-acceleration hysteria got a fraction of the publicity as the original false claims of the trial bar; Jamie Leigh Jones's false accusations got much more promotion than the fact that they contradicted the evidence and a jury quickly rejected them. Teva and other propofol manufacturers are being dragged through the mud in the coverage of the Nevada litigation over propofol misuse, while the unfairness of that litigation gets a fraction of the coverage, and almost never mentioned in the stories about the big verdicts themselves. Susan Saladoff's dishonest documentary on the McDonald's hot coffee case has a far bigger footprint on the web than the truth about why the case is frivolous. (Ironically, Wyzga does a mea culpa for taking the CJD study on faith without considering the other side of the story, and then repeats the mistake with "Hot Coffee" in the next blog post.) conclusions on faith without considering the other side, and The media is far more likely to report sympathetically about litigation as a David-and-Goliath story when, in fact, the trial bar is wealthy and politically connected, and willing to use that power to extract wealth using trumped up allegations that fail to distinguish the innocent from the guilty. Again, this sort of analysis is absent from the CJD paper. The legal establishment promotes CJD's dishonest blog, while debunking websites are ignored.

Yes, media coverage of the civil justice system can be sensationalistic and skewed (as is the media's coverage of most events). But it's corporate defendants that bear the brunt of it.

A study by BU Law professors James Bessen and Michael Meurer (via a good Popular Mechanics article via @normative) analyzes stock market events associated with patent troll litigation, and comes up with a $500 billion estimate for lost wealth. But less than 10% of this reflects wealth transfers to the patent trolls themselves. The authors theorize that the difference reflects lost innovation incentives, but it's hard to see why that wouldn't be reflected in companies' stock prices already: are investors that unaware of the patent thicket ex ante, before the lawsuit is filed? And if they are, why do we believe the market is efficient in predicting the effects of patent litigation on market value? If one smartphone manufacturer is sued by a patent troll claiming a blocking patent, shouldn't we expect the rest of the smartphone market to face similar problems?

Certainly the existence of a patent lawsuit means costs to a defendant beyond the eventual damages or license fees; there are the costs of attorneys, there's lost executive and engineer time sitting in depositions and engaging in other litigation tasks instead of productive activities. There's increased cost of capital from the overhang of the threat of litigation. And, yes, at the margin, there's decreased innovation incentives. But much of this should have been captured in the existing stock prices (and, for that, reason, any study estimating the costs of litigation based on stock market events will systematically fail to count existing depression of stock prices; the authors themselves note that their study doesn't capture the losses to privately-traded firms). If market values are really declining ten times as much as what is eventually paid out to the trolls themselves suggests to me what I've said in other circumstances: markets underestimate litigation risk before litigation is filed and overestimate litigation risk once litigation is filed and plaintiffs' lawyers and their agents start inserting self-serving information into the marketplace. This is a great data set: I'd love to see if companies facing stock shocks from being sued by patent trolls then outperform peers in the long run because the market overreacts to the realized threat of litigation.

It would not surprise me if patent trolls do cost the economy as much as $500 billion or more. I don't think this paper dispositively demonstrates that. Much of the loss from patent litigation and the threat of patent litigation (which would include resources diverted to defensive patent filings) is unmeasurable, mostly because we cannot observe the but-for world where incentives are better aligned to see what consumer surplus we're missing from depressed innovation.

A new report by Josh Wright finds, says the Pennsylvania Record,

that Philadelphia courts host an especially large number of cases and have a larger docket than expected; Philadelphia plaintiffs are less likely to settle than plaintiffs in other state courts; and Philadelphia plaintiffs are disproportionately likely to prefer jury trials.

"These findings are consistent with a conclusion that Philadelphia courts demonstrate a marked and meaningful preference for plaintiffs, consistent with both the Complex Litigation Center's intention of inviting 'business' from other courts and criticisms that Philadelphia's courts provide a unique combination of advantages for plaintiffs," the study states.

The Complex Litigation Center handles mass tort cases such as asbestos lawsuits and other drug litigation or similar cases. It was designed to streamline mass tort cases and simplify resolution, but instead seems to have created a climate "inviting" to business from plaintiffs in other jurisdictions, the study states.

"While this may provide additional work for Pennsylvania lawyers, it also increases the cost of operating the civil justice system in Philadelphia and Pennsylvania more generally - a cost borne by the state's consumers and businesses," Wright's study concludes.

H.B. 1552, pending in the Pennsylvania legislature, would require suits to be filed in the county where the injury occurred. Plaintiffs' lawyers claim that the bill is unconstitutional because the legislature doesn't have authority to regulate civil procedure.

The Competitive Enterprise Institute has filed an amicus brief opposing the $3.4 billion settlement in the Cobell v. Salazar Indian trust case. The lead brief author, Andrew Trask, has written on Wal-Mart v. Dukes, a critical precedent in this case, for the Cato Supreme Court Review, and is the co-author of The Class Action Playbook. [BLT]

Available at the #ILRSummit hashtag, and the ILR blog is discussing, too.

Speaking of attorney general slush funds

Congratulations to Dan Greenberg and the Advance Arkansas Institute for their victory over cy pres abuse in Arkansas. Greenberg, the son of Pulitzer-Prize winning journalist Paul Greenberg, did a remarkable job of shining sunlight on AG Dustin McDaniel's practice of funneling cy pres awards to his personally preferred programs. That use of settlement money as a personal slush fund is now ending:

This month, McDaniel revised his office policy on settlement funds, effectively ending the practice of directing those funds to charities chosen by the attorney general. McDaniel's new policy means that, in a matter of months, the state of Arkansas should ultimately have something like an extra $7 million dollars available in its budget.

Coverage of Trial Lawyers Inc.

Daniel Fisher @ Forbes:

Copland explains how there's a problem when elected AGs hand over to their contributors cases that are often slam-dunk sources of fee awards. Those awards diminish the amount of money available to pay the state, but also might come from cases the government otherwise wouldn't file, for good reason.

See also Legal Newsline and Jim Copland's piece in yesterday's Washington Examiner:

Although state AGs' offices may need to hire outside attorneys because they lack in-house manpower and institutional expertise to handle all legal matters, states' contracting with such lawyers on a contingency-fee basis -- the common private practice of paying lawyers nothing up front in exchange for a share of the litigation proceeds -- raises hosts of ethical quandaries.

The huge windfall fees generated by state-sponsored litigation bear little relationship to work performed and create at least the appearance of "pay to play" arrangements in which lawyers donate campaign dollars to state officials who return the favor by handing their donors no-bid contracts entitling them to monies that would, assuming the underlying lawsuits have merit, more properly belong to the state's taxpayers.

Moreover, by avoiding the need for legislative appropriations and undertaking lawsuits with broad regulatory goals, state AGs have often been circumventing legislatures in setting policy. Indeed, the AGs are often essentially delegating such authority to private parties with venal interests, because in many instances the lawsuits do not originate with the state officials but rather the private attorneys who approach them with ideas.

Trial Lawyers Inc.: Attorneys General

A new Manhattan Institute report:

Personal-injury lawyers, collectively, are among the biggest of big businesses, so much so that we at the Manhattan Institute have dubbed them "Trial Lawyers, Inc." It's no secret that this group of attorneys is a powerful political force, exerting pressure on legislators and elected judges alike. Few realize, however, just how in bed the litigation industry is with the very officials we entrust to enforce the law itself--the attorneys general of the various states. In fact, our state attorneys general have become not just allies of the trial bar but, in many cases, indispensable to developing Trial Lawyers, Inc.'s new lines of business. State AGs make possible the payment of windfall fees to their allies in the plaintiffs' bar, whose lawyers in turn gratefully fill the officials' campaign coffers with a share of their easily obtained cash. This report tells the story of the questionable bargain between the trial bar and the states' top law-enforcement officers.

There's also an impressive lineup participating in a feature discussion: John Beisner, John Fund, Tiger Joyce, Amy Kjose, Lisa Rickard, and Victor Schwartz.

Occupy Wall Street is keeping $500,000 in a bank, but hasn't opened its books. Protestors are getting frustrated that they aren't getting bailouts from their own collective, notwithstanding huge tax rates by the collective on their fundraising.

"The other day, I took in $2,000. I kept $650 for my group, and gave the rest to Finance. Then I went to them with a request -- so many people need things, and they should not be going without basic comfort items -- and I was told to fill out paperwork. Paperwork! Are they the government now?" Smith fumed, even as he cajoled the passing crowd for more cash.

Meanwhile, the drum circle, which was annoying protestors almost as much as the middle-class residents who have lost their neighborhood to noise and urine smells, have found their drums vandalized and the unfeeling collective unwilling to purchase new drums or storage. [NY Post and Urban Grounds and NY Post via Geraghty's Morning Jolt; must-read NY Magazine via Bernstein @ Volokh via me]

Robert Ambrogi writes of two recent cases where experts retained by or on behalf of Stan Chesley essentially disavowed their testimony after being confronted with unpleasant facts that had been kept from them in drafting their testimony. My Point of Law post on the subject is quoted.

So says Spiegel, via Glenn Reynolds on Facebook. It's far from clear to me why making accurate information about nations' creditworthiness harder to get will increase financial stability. Someone seems not to have heard of the concept of the adverse inference.

As in many tort cases, the facts are unfortunate: Chris Boertmann was driving home from a wedding on his motorcycle, when he was hit by a car and killed. But the plaintiff here is Gale Boertmann, Chris's mother, who was driving behind him. She wasn't involved in the accident, but she witnessed her son being killed, and says she incurred tens of thousands of dollars of medical bills over the emotional trauma. Who should pay? According to Boertmann, her own auto insurer: after all, she was driving in her insured vehicle when she suffered the injury. The insurer protested that that wasn't what the insurance policy covered, but a Michigan-state trial court and appellate court have found the insurer liable. The case is on appeal to the Michigan Supreme Court. [ABAJ]

Jim Hood's coupon settlement

Jim Hood's office trumpeted a settlement with Microsoft that provided 5 million $12 vouchers to Mississippi residents. Regular readers won't be surprised that less than 2% of the coupons were redeemed. Contigent-fee attorneys walked away with $10 million, but Hood's office treats voters like idiots when it claims that this didn't cost taxpayers anything because Microsoft paid for the fees. I'm quoted in the Legal Newsline coverage.

State AGs often use the power of their office and bad publicity to mau-mau defendants in meritless suits; perhaps that was the plan of then-Ohio AG Richard Cordray when he sued ratings agencies for violations of the Ohio Securities Act, though the ratings agencies were not sellers of securities as the act requires. A federal district court judge threw out the case this week, nothing that the "complaint identifies who the issuers of the securities were, but it does not contain even a general allegation that the issuers violated the Ohio Securities Act, let alone plead a violation with particularity." The law firms bringing the suit on behalf of Ohio were indirect donors to Cordray's campaign. [LNL]

As J.W. Verret and Michael Krauss point out in separate articles, part of the problem with the Consumer Financial Protection Bureau is that it is run by a single czar; when the SEC or NLRB exceed their authority for partisan political gain, the minority members of the commission can speak out and draw attention to the abuses. That can't happen when the decisions are made by a single individual. Krauss argues against the nomination of Cordray because of his ties to the trial bar. [Krauss @ American Thinker; Verret @ WaTi] Dodd-Frank is already vague and overbroad; if the CPFB can bring the sort of abusive lawsuits that the Ohio AG's office did, it will be problematic.

Update, October 20: see also IBD.

Mr. and Mrs. Smith go to Baltimore

Why? Well, Fred and Fran Smith of the Competitive Enterprise Institute are objecting to an unreasonable nuisance settlement in In re Mutual Funds Investment Litigation, No. 04-cv-1310 (D. Md.). As the objection notes, the class notice indicated that the attorneys would ask for 25% of the settlement fund—but their actual request would give the attorneys $2.142 million and the class $2.27 million. Why is it that class action attorneys suing for fraud are allowed to give class notice far more misleading than what they claim they should be allowed to sue for? (Meanwhile, not only does the settlement website fail to include the motion for fee request, the fee request itself fails to identify the appropriate statutory provision and standards of the PSLRA, and is wildly inflated under the law as a result.) The fairness hearing is October 25.

Lester Brickman and I are on a panel about class actions at the National Lawyers Convention November 10, but other speakers include Justices Scalia and Thomas, Judge Easterbrook, Michael McConnell, Michael Mukasey, Senator Rubio, Senator Lee, Lawrence Tribe, Paul Clement, Walter Dellinger, Ed Meese, Eugene Volokh, and Paul Singer. Deadline for discounted lodging in Washington, DC, is tomorrow.

So says Todd Zywicki at Forbes:

[S]ome major AGs (led by California's Kamala Harris) are threatening to walk away from the settlement agreement because they think it is too lenient on the banks. Torpedoing the settlement at this stage, however, would sink the housing market still further.

It has been a year since the initial discovery of the robo-signing fiasco came to light. During that time, the average length of time it takes to foreclose on a home has skyrocketed. According to LPS Analytics, as of August 2011 the average home in foreclosure today has been delinquent for an average of almost two years, 50% longer than before the robo-signing scandal came to light. During the period the home is in foreclosure the borrower need not pay the mortgage and has no incentive to invest in upkeep of the property.

Most important, of course, allowing the non-paying resident to occupy the house indefinitely prevents it from being owned by someone else who will pay. Thus, while delay certainly aids some borrowers who are underwater, it also keeps non-paying borrowers in the house while keeping out new owners, to the detriment of those seeking homes and the operation of the housing market more generally.

The continued delay and specter of liability has haunted a housing recovery. Long, unpredictable delays ripple through the housing market, frustrating short sales, foreclosure sales, and other devices that would turn dead property into performing loans and squatting homeowners into real residents. Potential homeowners are reluctant to bid on homes in foreclosure or negotiate a short-sale in light of the continued uncertainty of the legal regime. Banks are reluctant to approve mortgages for homes in foreclosure. The result is a sagging housing recovery.

After defendants pointed out that a $4.7 million fee request was unreasonably high after the Bluetooth decision required a cross-check against actual class recovery, a Central District of California judge reduced it to $766 thousand. Earlier. [NLJ]

Opening brief filed in Cobell v. Salazar

The Center for Class Action Fairness LLC filed its opening brief today in the DC Circuit in Cobell v. Salazar, No. 11-5205. The case, relating to the $3.4 billion government settlement of Indian trust mismanagement claims, raises important issues regarding class members' rights in class action settlements; whether it is permissible to abrogate some class members' individual rights while giving other class members a windfall; whether one can impose a mandatory class upon a wholly monetary settlement by characterizing the monetary relief as "equitable"; the appropriateness of certifying a unitary class involving dozens of different types of claims; the extent to which Congress can abrogate the protections of Rule 23; and whether it is an impermissible conflict of interest for a class representative to request an incentive award of $13 million. It's an important case for delineating the scope of Wal-Mart v. Dukes.

Which raises an interesting issue. The plaintiffs' attorneys, Kilpatrick Townsend, hoping to defend a fee award between $99 and $111 million (some of which will be shared with other attorneys), are now placed in the position of arguing for a narrow construction of Wal-Mart v. Dukes—so narrow as that they will need the D.C. Circuit to essentially find that that precedent has no effect, because plaintiffs cannot possibly win an affirmance consistent with Wal-Mart. Kilpatrick's clients include Adidas, BellSouth, British Petroleum, Chrysler, Delta Air, Dupont, General Electric, Google, Office Depot, Pepsi, and Sony—all of whom would be adversely affected if Kilpatrick Townsend wins this case in the DC Circuit. I've previously complained that Fortune 500 companies are more concerned about political correctness in their law firms than whether those firms are taking litigation positions harmful to their own long-term interests, and this case provides another remarkable example of a BigLaw firm putting its own financial interests ahead of its clients. General counsels should pay much more attention to whom they're giving their business to: they should do more to insist that their outside defense firms are really defense firms that believe in their clients' rights, rather than mercenaries that happen to represent defendants in a particular case.

(CCAF is not affiliated with the Manhattan Institute.)

It is theorized: special-interest groups friendly to the administration sue the government. There is a kabuki dance of litigation, and then a wink-wink settlement where the government agrees that the special-interest group is a "prevailing party," and thus entitled to fees under the Equal Access to Justice Act. Taxpayers pay the bill, and the executive branch is able to funnel money to its friends without Congressional oversight.

How big a problem is this? No one knows, because Congress stopped requiring the tracking and reporting of payments in 1995. One Wyoming law firm has tracked 14 environmental groups obtaining $37 million in fees, but many settlements and fees are sealed from public view. A Virginia Tech study made a FOIA request on two agencies that simply didn't compile any data on how much they were spending: settlement money below a certain amount comes from the Treasury without the need for Congressional budgeting or allocation.

Maybe this is a big problem; maybe it's a small one. But no one can dispute that transparency is likely to make it less of a problem. Rep. Cynthia Lummis has proposed HR 1996, the Government Litigation Savings Act, which caps fees going to a single entity in a calendar year, and requires the Administrative Conference of the United States to compile data on EAJA awards. (Senator John Barrasso has proposed the parallel S. 1061.) The bill would also prohibit attorney awards in cases seeking injunctive relief; it's unclear to me why this doesn't create more problems than it solves. Compare the testimony of Jeffrey Axelrad with that of Brian Wolfman. [Oct. 11 House hearing; BLD; Freddoso; Lummis]

Occupy Wall Street and the Tea Party

I see a bit of a tabula rasa effect in those on the right who think that OWS can be co-opted to the cause of freedom if only they understood the difference between free markets and crony capitalism; what many OWS protestors really have in common with the Tea Party is an amorphous economically irrational grievance about the lack of free ponies, and they aren't going to be receptive to being told that libertarians dislike bailouts and Obama's corporatism.

More Occupy Wall Street commentary: Gelinas @ City Journal; Barro; Krauthammer; Will; Manne; Wallison @ WSJ; Jim Harper.

Around the web, October 14

  • Second Circuit takes issue with attorney ethics in informal aggregate settlement. [Johnson v. Nextel; Torts Prof]
  • Former silicosis clients sue their indicted lawyer, though it's hard to see how they're the victims in his scheme to defraud an insurance company through kickbacks to the claims adjusters. [Texas Lawyer/law.com]
  • Legal trap doors for New Jersey builders. This sort of statutory authority for litigation is appalling: it merely transfers wealth from builders and their customers to attorneys without any consumer protection whatsoever. [OL]

  • Thank Wal-Mart for your new bank fee. [Instapundit link roundup; relatedly me earlier @ NY Post]
  • "California's Kafkaesque Rent Control Laws" [Epstein @ Hoover]

  • Al Davis, litigant. [ATL]

Coming soon: felony to satirize TSA?

Overcriminalization alert: a Republican House member has introduced HR 3011, which would make it a felony to

without written permission, use the words, acronyms, or symbols of those agencies on apparel or in a publication "in a matter that is reasonably calculated to convey the impression that the wearer of the item of apparel is acting pursuant to the legal authority of" the agencies or "to convey the impression" that the written materials "is approved, endorsed, or authorized by" the agencies.

While courts have previously held that satire does not violate trademarks, there is certainly a risk of a chilling effect if a future Justice Department decides not to have a sense of humor, since there is no explicit exception in the statute for parodies.

To promote Senator Franken's bill stripping consumers of the right to agree to lower prices in exchange for precommitting to arbitration proceedings, the Senate is holding a hearing today with the misleading title "Arbitration: Is It Fair When Forced?" Of course, calling the provision forced is misleading. Earlier; more.

The 53%

Lago Agrio lawyers lobbying state AGs?

Of course, it's a standard tactic for plaintiffs' lawyers to lobby media, hedge funds, and government to mau-mau corporations into settling, so this isn't exactly a man-bites-dog scandal, but the New York Times takes a look at this often underreported aspect of big-bucks litigation. Chevron has filed a freedom-of-information request with New York state government. Chevron's Amazon Post website is an admirable attempt to get its side of the story out there (one we'd wish other corporations would emulate when being unfairly attacked by the trial bar).

Relatedly, Miami Herald film critic Glenn Garvin has some trenchant observations about the number of trial-lawyer-funded films masquerading as documentaries.

In other Lago Agrio news, the Second Circuit vacated Judge Kaplan's preliminary injunction against the plaintiffs regarding enforcement of the Ecuador judgment. A request to remove Kaplan from the case was denied.

We've previously discussed a series of lawless cases in Nevada against Teva Pharmaceuticals and Baxter Healthcare over the misuse of propofol by the Desert Shadow Endoscopy Center, whose ludicrously unsanitary practices caused dozens of cases of hepatitis C: May 19, 2010; May 24, 2010; ; June 17, 2010; March 4. The culpable doctor and entities are bankrupt, so lawyers have been going after the deep pocket, aided by judges that refuse to apply federal law barring such lawsuits or to permit the corporate defendants to defend themselves by letting juries know the real facts of the case. As we noted in November, procedural shenanigans have promoted the scheduling of a case involving a plaintiff-friendly judge making improper rulings while staying a related case in another courtroom where the judge is following the law.

Over the last week, a jury in the Sacks v. Endoscopy Center of Southern Nevada LLC case found the pharmaceutical defendants liable again: $20 million in "compensatory" damages, and $162 million in punitive damages. A third jury awarded $14 million in compensatory damages to another plaintiff, and is considering punitives. None of the press or blog coverage adequately indicates how scandalous and abusive these verdicts are. [LVRJ; Reuters/Frankel; AP/WaPo; Pharmagossip; Pharmalot]

(I'll be at UNLV Law in February discussing the propofol litigation.)

Some appearances

In defense of Eric Holder

One of the standard tricks of the trial lawyer litigating against a corporation is to cherry-pick a single email or memo, and attribute its information to the collective knowledge of the corporation. Years later, with 20/20-hindsight, trial lawyers tell a jury that the top executives and decision-makers should have known about the napkin-scribblings and stray emails of the mid-level engineers.

This is a naive (or disingenuous) way of understanding how corporations, or any other bureaucracy, work. Organizations are made out of individual people, and knowledge gets transmitted up or down the chain inconsistently. The government, and the Department of Justice, is certainly no different. Hundreds of thousands of decisions are delegated by statutory law to the attorney general, who necessarily delegates them down the chain to lower-level attorneys. Lots of attorneys and staffers are writing memos about the hundreds of thousands of cases and programs in dozens of different divisions in the Department of Justice, and these are filtered up the ladder by intermediate staffers and attorneys, and the attorney general is hearing about a small fraction of them. So it's entirely plausible when Eric Holder says that he did not know about the ludicrously irresponsible "Fast and Furious" program, a horrific example of governmental incompetence that provided guns to Mexican drug cartels in the hopes of generating some prosecutions of legitimate gun sellers in the United States. It's too easy to confuse the accusation "Holder received information and updates" with the more conservative and precise statement "there was a memo addressed to Eric Holder." The latter is true, but it doesn't necessarily mean the former is true.

Threatening elected officials with a perjury trap using this sort of abusive tactic is not just bad policy (the politics of personal destruction is a way to reduce the number of qualified individuals who go into government), but it's bad politics for Republicans. These cases are prosecuted in the District of Columbia, and it's much harder for a Republican facing perjury charges on this sort of attenuated claim to get a fair jury trial than a Democrat: just ask Scooter Libby. And at the end of the day, the Left has more targets to use this sort of unfair tactic against than the Right does.

Now, whether Eric Holder should be taking more responsibility for Fast and Furious is different than whether he should be criminally prosecuted for it. As the late Steve Jobs once said, that's the difference between a janitor and a vice president:

One such lesson could be called the "Difference Between the Janitor and the Vice President," and it's a sermon Jobs delivers every time an executive reaches the VP level. Jobs imagines his garbage regularly not being emptied in his office, and when he asks the janitor why, he gets an excuse: The locks have been changed, and the janitor doesn't have a key. This is an acceptable excuse coming from someone who empties trash bins for a living. The janitor gets to explain why something went wrong. Senior people do not. "When you're the janitor," Jobs has repeatedly told incoming VPs, "reasons matter." He continues: "Somewhere between the janitor and the CEO, reasons stop mattering." That "Rubicon," he has said, "is crossed when you become a VP."

Troy Davis execution

With the case over, the prosecutor can now speak out, justifiably critical of the lack of media skepticism of the Davis claims of innocence. Earlier.

For $1600-$3000 or so, it's possible to buy a top-of-the-line table saw with "SawStop" "flesh detection" technology—if you don't mind paying $175 every time a false positive mistaking a wet pocket in wood for flesh drives an aluminum block into the blade and cartridge. Or you can simply buy a relatively high-quality table saw for less than half that price and be more careful. Of course, if lawyers have their way, you won't have that choice: the First Circuit has upheld a $1.5 million verdict on behalf of a plaintiff who lost his finger in a cheaper saw, theorizing that the absence of the top-of-the-line technology was a product defect. The CPSC is proposing regulations that would take away the consumer choice to buy cheaper saws without flesh-detection technology, pushed in part by lobbying by the inventors of the SawStop. [Osorio v. One World Tech. via Torts Today via Torts Prof; CPSC press release; Fine WoodWorking; Overlawyered coverage of trial-court verdict]

Some follow-up

Trademark claims against Getty Images

Getty Images offers 80 million stock images for sale. Eleven of those images such as this one include a picture of a tree-shaped air freshener. Car Freshner, which claims exclusive rights to the marketing of air fresheners in this shape, has sued Getty Images for trademark violations. The Northern District of New York has refused to dismiss the complaint, which if viable, suggests that perhaps all non-nature photography requires licensing of some sort. Can I sell a photograph of someone drinking Coca-Cola? Can Abercrombie & Fitch sue MTV for broadcasting a show where someone unsavory wears the clothing?

You may remember the incident where KFC decided to advertise with the help of Oprah, and was overwhelmed with customers demanding more free chicken sandwiches than the chain had available to offer. The company voluntarily replaced the coupons with rainchecks, 2.7 million of which were redeemed for free sandwiches, but there was still a class action demanding other recompense.

That other recompense is now available in a class action settlement. (There is the pleasant irony that class members will be turning in coupons in exchange for cash. It usually goes in the other direction.) The millions of class members who downloaded a coupon on May 5 or May 6, 2009, but didn't bother to get a free sandwich or other compensation from KFC have a second bite at the apple in the form of a settlement fund that reserves less than $678,000 for the class. If, given the hoop-jumping required to make a claim, the settlement fund is not exhausted by claims, the remainder goes in "cy pres" to local Illinois charities, despite it being a nationwide class. The attorneys are asking for $515,000 for themselves and $25,000 for their clients.

The case is in the Northern District of Illinois (In re Kentucky Grilled Chicken Coupon Marketing & Sales Practices Litigation, No. 1:09-cv-7670), and the Seventh Circuit does not look kindly on class action settlements like this one.

One hopes that there is a class member willing to come forward to object to the settlement and that they take advantage of their ability to access one of the pro bono attorneys who represents such class members for free.

"NLRB Postpones Worker-Notification Rule"

In the face of a lawsuit from NAM challenging the law under the APA, the NLRB backs off of immediate implementation of a wrong-headed and one-sided proposal that exceeded their authority. [BLD; Shopfloor; Hayes dissent; earlier]

Update: earlier on Overlawyered.

In a brief full of ad hominem attacks on me and my client, class counsel asked for an $8.3 million appeal bond, requesting millions of dollars of expenses that the D.C. Circuit had held were unavailable under Fed. R. App. Proc. 7. We noted the class counsel's omission of binding precedent and other misleading citations in opposing the request and asked for sanctions. Yesterday, the district court denied the motion, and asked class counsel to submit declarations on the question of whether sanctions were appropriate: "the plaintiffs' motion and reply brief go beyond fair advocacy and border on misrepresentation." [McClatchy; earlier]

Johnson & Johnson lawsuit thrown out

Alison Frankel finds it problematic that a derivative shareholder suit against the Johnson & Johnson board was thrown out before it could incur millions of dollars of discovery costs and an extortionate settlement. I'm more sanguine.

Let's leave aside the fact that the underlying allegations are mere piling on: the lawsuit stemmed from the settlement of criminal allegations over Risperdal marketing and similar problems. Let's also leave aside the fact that every major pharmaceutical company is entirely at the mercy of prosecutors, and thus a criminal settlement is evidence of nothing other than ambitious prosecutors: given the fact that any criminal sanctions would cost the company tens of billions of dollars, no global pharmaceutical company is ever going to risk defending itself when prosecutors come after it, and the only question is the terms of surrender, given that even a risk-neutral set of executives would refuse to go to trial on criminal charges that they had a 95% chance of winning.

The issue is this: first, any corporate law is going to have to balance false negatives (valid suits against directors being thrown out prematurely) and false positives (invalid suits against directors costing tens of millions of dollars in time and money to resolve). Any opening up of the courtroom doors to challenge directors will reduce false negatives at the expense of more false positives; any increase in the burden to bring suit will reduce false positives at the expense of more false negatives.

Which brings us to my second point: the fact of the matter is that being a shareholder is a voluntary transaction. Different corporations can incorporate under different state laws that balance the interest of preventing false positives against the interest of false negatives. Shareholders can vote with their feet. If Frankel or other shareholders feel that New Jersey law is too protective of corrupt or incompetent directors, they can readily vote with their checkbooks to instead invest in companies incorporated in states that allow Bernstein Litowitz and Robbins Geller fishing expeditions. Such capital flows create premiums for incorporating in states that strike a good balance and penalties for incorporating in states that make it too easy or too hard to sue. Even if the legal standard here produced a false negative (and it's hard to say that it did if one believes that federal prosecutions of pharmaceutical companies are frequently just a lawless arbitrary expropriative tax that can strike good companies as easily as bad ones), it's good for New Jersey corporations in the systemic sense that the legal gatekeeping standard for such derivative suits is upheld.

See also Larry Ribstein and Erin O'Hara, The Law Market.

Gryphon on Prakash on Vioxx

In Washington and Idaho October 4

I'll be discussing class action settlements at Gonzaga University School of Law October 4, and then on to University of Idaho School of Law later that evening as part of a debate on overregulation for those schools' Federalist Society chapters. Come stop by and say hello.

Obamacare SCOTUS-bound?

The government surprised some people by not trying delay Supreme Court consideration of the Eleventh Circuit decision holding PPACA partially unconstitutional, but I think Todd Gaziano has it right: the government couldn't expect a better result from the Eleventh Circuit, and, with the 2012 election up in the air, the administration may well have preferred to have its own solicitor general arguing the case than risk the sort of shenanigans created by this administration's politicized decision to sabotage the defense of DOMA in pending constitutional litigation. Cert petitions: NFIB; DOJ; Thomas More; DOJ response to Thomas More; Florida and other states.

To this, we can add the cynical Mickey Kaus analysis: the administration may well prefer to have Obamacare struck down before the 2012 election. Not only does an adverse decision diffuse one of the strongest sources of anger against Obama, as Kaus notes, but any reversal would be 5-4, and permit Obama to run against the Supreme Court the way he attempted to do in 2010 over Citizens United. And the more likely scenario of a Supreme Court win would likely have a politically mollifying effect on independent voters who are generally indifferent about Commerce Clause issues; voter ignorance about the role of the Supreme Court (combined with the media's general laziness in reporting Supreme Court jurisprudence as a political decision) would result in the majority of voters treating the Supreme Court decision as a ratification of the underlying PPACA policy decisions, making it an unprofitable issue for Republicans in the election. (Which may well already be true if Romney is the Republican nominee, given that Romneycare inoculates Obamacare from criticism.

Meanwhile, the DC Circuit heard argument on PPACA on the 23rd; the DC Circuit can't resolve the circuit split, so its decision will be little more than amicus briefs by the various opinion-writing judges, and it got little press coverage. But for some interesting examples of eye-of-the-beholder observation, compare the liberal Simon Lazarus to the libertarian Randy Barnett covering the same argument.

The D.C. Circuit argument presents two questions that neither side has adequately answered. First, how can the claim PPACA is unconstitutional be reconciled with Wickard v. Filburn, the Supreme Court case exemplifying the high-water mark of Commerce Clause jurisprudence? Randy Barnett certainly has a creative theory, but the better answer may well be Richard Epstein's: Wickard is wrong. But given that Gonzales v. Raich was 6-3, I don't see five (or even four) votes for reversing Wickard. But the government may just be able to pull defeat from the jaws of victory, because, when asked to define a limiting principle for the Commerce Clause, the government has steadfastly refused to do so (much as Justice Kagan refused at her confirmation hearing). While there are likely four votes on the Court for unlimited congressional Commerce Clause powers, the government needs a stronger argument to guarantee a fifth vote.

That said, I count the four Democratic noses to uphold PPACA against any challenges, only two votes (Thomas's and Roberts's) that are very likely to vote against doing so, and three votes—Scalia's, Alito's, and Kennedy's—whose view of the Commerce Clause question that Randy Barnett presents will be completely unknown. Add to that the possibility that you could find five votes to punt the question entirely by holding early challenges barred by the Anti-Injunction Act (imagine how that decision will be covered by the news media), and it seems the odds are against this Supreme Court striking down PPACA in 2012.

I discussed these issues with Vicki McKenna on WIBA on September 27.

More: Ilya Shapiro.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.