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December 2011 Archives

An irreplaceable loss: RIP Larry Ribstein

I cannot begin to say how devastated I am at the sudden death of Larry Ribstein this morning, just two days shy of his fortieth wedding anniversary. Larry was so creative and innovative in so many fields (this is just how many times we cited to him since February, including just this week), I often found myself wishing that there were several Larrys because everything he wrote had such opportunity cost for other things he didn't have time to write. I was always begging him to write for me when I was at AEI, and the time he said yes, he (with Henry Butler) turned out the important The Sarbanes-Oxley Debacle, a devastating and persuasive takedown of the new law. I'd end up plagiarizing Professor Bainbridge's summary of the rest of Ribstein's body of work to discuss the rest of it, so I'll refer you to his thorough post. In area after area—overcriminalization, overregulation, popular-culture portrayal of business, the cartelization of legal practice and education—he was often close to alone in taking important contrarian positions. If I found myself disagreeing with Larry, I knew it meant I'd better put some soul-searching and analysis into my own position; if I hadn't already thought about an issue of corporate law or federalism, I knew I could scan Ribstein's work on the subject to have a good starting point. So not only do we not have the three or five Larry Ribsteins we needed, we now don't even have the one, and we're poorer for it.

But beyond the loss to legal scholarship is the loss of a good person. Larry was also a friend, but an intellectually honest one who wouldn't hesitate to tell you when he thought you were wrong (which happened several times a year to me). But that made it all the more flattering when he demonstrated support, and he was an early supporter of mine when it was far from clear that my hare-brained quixotic scheme would accomplish anything. I'm going to miss him a lot. Condolences to his family and friends.

More: Lipshaw; Manne; Wright; Henderson; Solum; Leiter; and a long list of others at TaxProf.

Update: also Kirkendall.

Hans Bader, senior attorney and counsel for special projects with the Competitive Enterprise Institute, discusses David Segal's recent article in the New York Times on the law school accreditation framework.

The article debunked the self-serving claim of the chairman of the ABA's legal education section that onerous accreditation standards are necessary to give students "what they have a right to receive in terms of education" and "protect the public." It examines the experiences of a start up law school in Tennessee, the Duncan School of Law, which is seeking ABA accreditation. The school must have an unnecessarily big library and professors with tenure and time to write law review articles. These requirements enrich law professors at the expense of their students and the public. So, as a couple of former law deans tell Segal, the professors exert their power through the accreditation process to maintain the status quo. In the end, the Duncan School of Law's advocates had to fly to a beachfront Ritz-Carlton in Puerto Rico to meet with the ABA to make a 15-minute argument for provisional accreditation. The ABA's questions showed they were interested in the lawyer market in east Tennessee, suggesting that lowering clients' costs mattered less to them than threatening lawyers' income -- an anti-competitive animus against new, low-cost law schools.

Larry Ribstein, Mildred Van Voorhis Jones Chair and Associate Dean for Research at the University of Illinois College of Law, also analyzes Segal's article in his entry on the Truth on the Market blog and then more substantively explores the problems facing legal education in his paper, Practicing Theory: Legal Education for the Twenty-First Century.

In his blog post, Professor Ribstein calls for a deeper analysis of U.S. legal market:

The NYT article typically fails to articulate the causes and cures of our over-priced legal system beyond the commonplace that the ABA somehow manages to restrict competition. Segal blames the law professors, finding comfort in the scam-bloggers' simple-minded denunciation of high-priced legal scholarship. But since Segal doesn't explain how a bunch of eggheads sitting around writing useless articles came to control the ABA, he sounds like he's blaming the mosquitoes for banning DDT. This narrow focus isn't surprising given Segal's mission, which not to analyze or educate, but to entertain with simplistic narratives and pithy quotes.

So what's really happening? The cause of the current situation, as I make clear in my Practicing Theory, is obviously the practicing bar, a powerful lawyer interest group with an incentive to keep the price of legal services high. Lawyers operate not only through the ABA but also local bar associations. Legal educators (law professors, law school and university administrators) come into the picture because they manage the key instrument for doing so -- the academic institutions that keep the price of entry high. If the lawyers really wanted to make law school cheaper and more "practical" they could do it in an instant.

Frankel on Baer race quota orders

I'm interviewed about the Blessing v. Sirius XM appeal. Earlier.

Once the subject of an inspiring tale of recovery in the context of civil justice reform, Madison County, Illinois has found itself yet again featured in the American Tort Reform Association's annual 'Judicial Hellholes' report. Ranked fifth on ATRA's list, Madison County has unfortunately reclaimed its reputation as the nation's "epicenter" for asbestos litigation.

ATRA's report cites some alarming statistics:

In 2003, asbestos filings in the county peaked at 953. After Judicial Hellholes reporting spurred public scrutiny of the magnet jurisdiction, judges became more serious about transferring cases that belonged in other areas. By 2006, asbestos filings in Madison County reached a low point of 325. Since then, however, the number of such filings has increased each year to 455 in 2007, 639 in 2008, 814 in 2009, and 840 in 2010, as documented by Illinois Lawsuit Abuse Watch (I-LAW). Only about 1 in 10 of Madison County's asbestos cases are filed by people who actually live or work there, or have any other connection to the area, according to an Illinois Civil Justice League study. According to one local defense lawyer, asbestos claims account for nearly 60 percent of Madison County suits seeking more than $50,000, eclipsing the claims of local residents.

Defendant companies and other legal observers note that plaintiffs' lawyers flock to Madison County because the court sets aside about 500 trial dates for asbestos cases. The trial dates provide a steady stream of business for favored local law firms, with whom out-of-state lawyers must work to pursue their cases. Defendants are placed at a disadvantage given the expedited treatment of cases and the power given to plaintiffs' lawyers to set the trial schedule. Because defendants may not know which cases will go to trial until the last minute, they often prepare for multiple cases simultaneously, pay for expert reports they do not need, and must travel across the United States to take depositions.

As if in anticipation of ATRA's report, only days before the release of 'Judicial Hellholes', news broke that Circuit Judge Barbara Crowder of Madison County, assigned to oversee the circuit court's asbestos docket, was to be removed to civil assignments. Chief Judge Ann Callis filed the order after discovering that attorneys of three plaintiffs' firms donated, in sum, $30,000 to Judge Crowder's campaign fund only a few days subsequent to being chosen by Judge Crowder to receive a majority of the trial slots on the 2013 asbestos docket.

Judge Crowder denied a connection between the donations and her "activities on the bench", but, there was no denying the appearance of impropriety especially in light of Madison County's notoriety with regard to asbestos litigation. Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform, called on the court to "fix the fundamental flaw of Madison County's asbestos docket calendar system that in effect puts court time up for sale."

The Chamber's Institute for Legal Reform called for this and more in a report in 2010 focusing solely on reforming Madison County's warped asbestos litigation system, concluding even then:

The solution to this problem is simple: apply the law as written. If venue rules are enforced, fair procedures for trial allocation and scheduling adopted, discovery of the bankruptcy trusts provided and the Lipke rule regarding alternative cause implemented as mandated by the Illinois Supreme Court, the jurisdiction would return to normal and appropriate operations.

It was hoped that Judge Crowder would clean up the asbestos litigation abuse mess when she took over last year, however, it seems that fundamental procedural changes have to be implemented to effectively repair Madison County's civil justice system.

The U.S. Securities and Exchange Commission announced last Friday that it would charge six former Fannie Mae and Freddie Mac executives with securities fraud. The complaints against the Fannie and Freddie executives allege that "they knew and approved of misleading statements claiming the companies had minimal holdings of higher-risk mortgage loans, including subprime loans."

Robert Khuzami, director of the SEC's enforcement division, issued the following statement:

Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was. These material misstatements occurred during a time of acute investor interest in financial institutions' exposure to subprime loans, and misled the market about the amount of risk on the company's books. All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country's investors.

Hans Bader, senior attorney and counsel for special projects with the Competitive Enterprise Institute, in his recent entry on OpenMarket.org, discussed Fannie and Freddie's dishonesty about their culpability for the mortgage crisis and additionally, cited the legislature's failure to hold the two large government-sponsored enterprises responsible, choosing to instead deal with the financial crisis by passing onerous regulations.

Recently, Congress passed a confusing, 2,315 page law to regulate the financial industry called the Dodd-Frank Act. But it does absolutely nothing about Fannie Mae, which it left completely unreformed despite the fact that taxpayers will end up paying over $100 billion to bail out Fannie Mae. Instead, the Dodd-Frank Act delegates to largely-unaccountable agencies the power to write innumerable new regulations restricting the economy, violating the constitutional separation of powers, equal protection, and property rights.

The SEC charges serve as an affirmation to many who did not buy the claims that Fannie and Freddie were not involved in the subprime mortgage market. Fannie and Freddie each entered into non-prosecution agreements with the SEC in which each company agreed "to accept responsibility for its conduct and not dispute, contest, or contradict the contents of an agreed-upon Statement of Facts without admitting nor denying liability."

Last week on PointofLaw.com, we featured a post discussing H.R. 2572, the Clean Up Government Act of 2011 which passed through the House Judiciary Committee unanimously in early December. The main objective of the new law generally, is to "amend the federal criminal code to revise and expand prohibitions against bribery, theft of public money, and other public corruption offenses."

In that entry, we included excerpts from the written testimony before the House Judiciary Subcommittee on Crime, Terrorism, and Homeland Security of Timothy O'Toole, attorney with Miller Chevalier and board member of the National Association of Criminal Defense Lawyers. In his statement, Tim expressed legitimate concern with regard to a renewed effort by Congress to pass robust public corruption legislation which, among other things, seeks to redefine the explicitly limited definition of honest services fraud as articulated by the court in the 2010 case, Skilling v. United States.

Our own James Copland, director of the Center for Legal Policy at the Manhattan Institute, had the opportunity to discuss with Tim these concerns about "overcriminalization."

Tim defines overcriminalization as:

...the rapid expansion over the last forty years of a host of criminal laws, many of which are vague, many of which overlap. Those same laws have decreased the intent requirements that traditionally were the foundational principle of criminal law that is, for the most part, [that] the criminal law would punish people when they did things with a bad intent, when they knew what they were doing was wrong and they did it anyway. Now a lot of these new expanding criminal laws, and most of them are federal criminal laws [which] reach into traditional state concerns, eliminate intent requirements. Then on top of that, they contain ever-increasing sentences.

The concern about overcriminalization in the context of the new Clean Up Government Act, as identified by Tim, is that the new law:

...tries to fix a problem that doesn't really exist. Most conduct that people would consider public corruption, virtually all conduct, is governed by the federal laws already. When we had the hearing on this, no one from the Department of Justice, none of the witnesses, could put their finger on any of sort of conduct that hadn't been punished because of the elimination of the honest services fraud law or at least parts of it by Skilling. I think that this just shows that there really isn't any conduct, [more specifically] public corruption, that is not punished now that was properly punished before Skilling.

Listen to the full podcast and send your comments and questions via #PoLforum on Twitter.

James Copland and Timothy O'Toole by Manhattan Institute

Where Newt's wrong--and where he's right

Newt Gingrich's attack on the judiciary is doubly unfortunate. It would be bad enough if it were simply wrong, but it's worse than that because there are kernels of legitimate grievances in Gingrich's critique that are buried in a decidedly radical view of the Constitution that would obliterate checks and balances and the ability of that document to protect limited government.

Let's start with the more wrongheaded aspects of the Gingrich analysis. Why attack Cooper v. Aaron, of all cases? That's a simple application of the Supremacy Clause: when the states and the federal government conflict, the federal government wins. That's before you get into the political problems of being perceived as defending racial segregation and opposing the Fourteenth Amendment powers of the federal government to end it. Whatever dog whistle advantage one is hoping to gain in the primaries will be more than overwhelmed by the soundbites used to alienate independents against you in the general election.

Ed Whelan and Matthew Franck have more than adequately refuted Gingrich's idea that Congress can remove judges by defunding judgeships; that's just incorrect as a Constitutional matter.

The "two out of three" rule—whereby Congress and the Executive could collude to override a Supreme Court decision—would have extraordinary consequences. A Democratic Congress and President want to ban guns? Any willingness of the Supreme Court to preserve the Second Amendment would have no effect. Congress wishes to pass the Elena Kagan Memorial Eat Your Vegetables Law? If the president signs it, what could the Supreme Court do? Beyond that, Congress could vote dictatorial powers for the president, cancel elections, bar speech criticizing incumbents (or just one political party)—two-out-of-three, so Congress passing, and the president signing gives the Court nothing to say about the matter. That's a lot of protection against Leviathan to give up just for the momentary satisfaction of overriding First Amendment protections against mandating that minorities participate in Christian school prayer.

What Gingrich doesn't understand is that the Constitution requires three-out-of-three agreement before limited government can act: Congress has to pass a law, the President has to sign it (with some rare veto override exceptions), and the judiciary has to be satisfied that the law is not outside the scope of the government's limited powers. As Roger Pilon points out, when Gingrich expresses upset at the overaggressive New Deal laws the Supreme Court signed off on, it was Congress and the President who acted outside their powers, and the Supreme Court that failed to act.

Where we need to distinguish is between legitimate judicial action—the exercise of the Article III judicial power to protect the citizenry from unconstitutional exercises of government power—and judicial activism, the misuse of the judicial power to act as a superlegislature to create new causes of action or to overrule legislation or constitutional provisions thought unwise. Part of the problem is Congressional laziness, a tendency to punt issues to the Supreme Court with poorly drawn legislation that grants large swaths of judicial discretion to interpret Congressional commands; for that, see Nick Rosenkranz. But the larger problem is judicial aggrandizement: courts dictating how prisons or school systems are to be run, finding ways to thwart the popular will for capital punishment, engaging in other social engineering outside of the legitimate judicial power. There, Gingrich has a smaller point: the original constitutional checks and balances have dissipated. He's correct that part of the solution is the appointment of judges that respect the rule of law, though that is an unfortunate uphill battle, given the enmity of much of the legal academy and one of the political parties to that position. But the other is to end the Congressional abdication of its impeachment authority.

As I pointed out five years ago, the 21st-century notion that "judicial independence" meant that judges were above Congressional criticism is a recent invention. The Founding Fathers anticipated that judges would get too big for their britches, and further anticipated that the check on such judicial aggrandizement was Congressional investigation and impeachment. As Alexander Hamilton wrote in Federalist No. 81:

It may in the last place be observed that the supposed danger of judiciary encroachments on the legislative authority, which has been upon many occasions reiterated, is in reality a phantom. Particular misconstructions and contraventions of the will of the legislature may now and then happen; but they can never be so extensive as to amount to an inconvenience, or in any sensible degree to affect the order of the political system. This may be inferred with certainty, from the general nature of the judicial power, from the objects to which it relates, from the manner in which it is exercised, from its comparative weakness, and from its total incapacity to support its usurpations by force. And the inference is greatly fortified by the consideration of the important constitutional check which the power of instituting impeachments in one part of the legislative body, and of determining upon them in the other, would give to that body upon the members of the judicial department. This is alone a complete security. There never can be danger that the judges, by a series of deliberate usurpations on the authority of the legislature, would hazard the united resentment of the body intrusted with it, while this body was possessed of the means of punishing their presumption, by degrading them from their stations. While this ought to remove all apprehensions on the subject, it affords, at the same time, a cogent argument for constituting the Senate a court for the trial of impeachments.

This is an important potential reform that could do much to solve the problems of overreaching judges were it to become a once-again accepted mechanism. (That's quite some time away: there's not even a substantial minority, much less a two-thirds majority, of Congress that buys into this aspect of the constitutional structure.) It's a crying shame that that signal is being buried by the noise of the rest of Gingrich's wrongheaded proposals and the way he's selling these issues. Judge Mukasey is right: the Gingrich proposal needs a red pen taken to it.


Sen. Ron Johnson (R-Wis.), along with two dozen co-sponsors, has authored a bill that would bar all federal agencies from finalizing any pending rules or voluntary guidance documents that could significantly impact the economy. The moratorium would remain in place until unemployment returns to the level it was when the President took office (7.7%).

The Regulation Moratorium and Jobs Preservation Act of 2011 (S. 1438) would apply to any "significant regulatory action," meaning any regulatory action that is likely to result in a rule or guidance that may have an annual effect on the economy of $100,000,000 or more, or adversely affect in a material way the economy, or jobs, or materially alter the budgetary impact of entitlements, grants, user fees, or loan programs, or raise novel legal or policy issues.

Alas, nothing has happened since the bill was referred to committee in July.


How biased is the legal academy? Caroline Forell, who teaches torts at the University of Oregon Law School, has published a paper (h/t Torts Prof via Situationist) that discusses the McDonald's hot coffee case for several pages without once acknowledging the arguments against liability. At least when I give my Law of McDonald's talk, I give both sides of the story. Forell is in such a bubble that she thinks she can premise her argument on the idea that the Liebeck case is aspirational and tort reformers are wrong and "fictionaliz[ing]" by merely asserting it. And none of her editors would think to ask if she's being one-sided and two law blogs can link to it without even thinking about being a wee bit skeptical about what most people would correctly consider an outlandish argument.

Needless to say, Forell also defends the bogus obesity suits against McDonald's.

Life imitates parody department

In October 2006, I wrote in the Wall Street Journal:

The trial lawyers have now enlisted themselves in the war against terror. One can imagine a parody -- a team of wing-tipped attorneys parachuting into the wilds of Afghanistan, armed with subpoenas forcing Osama bin Laden to produce all relevant documents and secure his attendance at a 20-day videotaped deposition (damn the Geneva Conventions against torture). The legal and photocopying bills alone crush al Qaeda.

Today, a federal court awarded a $9.3 billion default judgment against al Qaeda over the September 11 attacks. My money is still on SEAL Team Six to be more effective. At least the lawsuit was against al Qaeda instead of Motorola or Boeing or the airlines or the Port Authority.

In a settlement of antitrust litigation against Sirius XM that paid law firms like Milberg $13 million, the class got only a promise to freeze list prices for five months. The Center for Class Action Fairness argued below that that could hardly be a benefit to the class, since a class member could instead purchase the same service at a substantial discount from list price; the class notice and relief effectively constituted a marketing program for Sirius. Indeed, if Sirius instead emailed class members a coupon for a dollar off of the service, it would be clearly a coupon settlement worth only a dollar/class member. So how can it be worth $180 million, as the court found, when Sirius wasn't even offering the $1 discount coupon? CCAF's objection also addressed the race-based class certification order of the type previously criticized on this site by Professor Michael Krauss. Nevertheless, the district court approved the settlement.

Wednesday, CCAF filed its opening brief on behalf of Nicolas Martin in the appeal of the court's decision approving the settlement.

Svorny says "Farber and White's evaluation of the tort system suggests it is well-situated to make judgment calls."

Svorny looks at the Farber-White study and sees a medical malpractice system that's working. I look at that exact same study, and see a world where medical malpractice law are so vague and indeterminate that in over 30% of the cases, internal experts hired by the defendant can't consistently determine whether legally-actionable malpractice has occurred; a regression model with the advantage of hindsight predicts only 40% of variation of settlement amounts even with the artificial kluge of regressing on a logarithm to depress variance; and the majority of malpractice cases brought are not good cases. That's aside from the fact that Farber-White had such a small sample that it didn't even include a single jury verdict for plaintiffs, much less one of the uncapped multi-million-dollar variety that can be so distorting. That level of randomness and indeterminacy demonstrated by Farber-White is not at all inconsistent with anything I've said, since, once again, I'm not claiming that the malpractice system is as random as a coin toss, just that it is sufficiently haphazard that the system does more harm than good at the margin.

Hans Bader, senior attorney and counsel for special projects with the Competitive Enterprise Institute, examines the potential for a student loan debt crisis that could be more severe than the burst of the housing bubble.

In a post featured on OpenMarket.org, Hans explains the perverse incentives created by higher education subsidies:

Subsidies for colleges divert some young people away from vocational training that would lead to more useful, better-paying jobs. Joel Kotkin describes the rising demand (and pay) for trained manufacturing workers who need vocational training instead. While spurning vocational training, states spend billions on lousy colleges that graduate few students -- like Chicago State, "which has just a 12.8 percent six-year graduation rate." "Our colleges and universities are full to the brim with students who do not really belong there, who are unprepared for college and uninterested in breaking a mental sweat." "Nearly half of the nation's undergraduates show almost no gains in learning in their first two years of college, in large part because colleges don't make academics a priority," according to experts like NYU's Richard Arum. "36% showed little" gain after four years. Students "spent 50% less time studying compared with students a few decades ago."

According to his recent article, David Segal of the New York Times would seemingly advocate for broad sweeping reform of law school curriculum. The centerpiece of the suggested overhaul would be to replace the emphasis on theoretical-driven coursework with courses emphasizing practical training or "lawyering."

David brings up an example of new associates at a law firm who couldn't answer the question "...when you close a merger, how does the deal get done?" The answer to that question was to draft a certificate of merger which then must be filed with the secretary of state. The author attributes this "deficiency" partially to the experience and focus of law school professors citing a 2010 study which found that the median amount of practical legal experience among law school faculty was only one year, and nearly half of those faculty members never even practiced law.

The NYT article explained:

Law schools know all about the tough conditions that await graduates, and many have added or expanded programs that provide practical training through legal clinics. But almost all the cachet in legal academia goes to professors who produce law review articles, which gobbles up huge amounts of time and tuition money. The essential how-tos of daily practice are a subject that many in the faculty know nothing about -- by design. One 2010 study of hiring at top-tier law schools since 2000 found that the median amount of practical experience was one year, and that nearly half of faculty members had never practiced law for a single day. If medical schools took the same approach, they'd be filled with professors who had never set foot in a hospital.

In both a commentary piece and podcast (approx. 41:00 minute mark) on ricochet.com, Richard Epstein, Laurence A. Tisch Professor of Law at NYU School of Law and visiting scholar with the Manhattan Institute, defended traditional theoretical teaching, arguing that in many practice areas and work environments "the only way to be successful as a lawyer is to know [a] large amount of material that the Times would think irrelevant."

Professor Epstein also disagreed with UC Berkley School of Law Professor John Yoo's assessment in his own commentary (which also mostly disagreed with the NYT piece) on the subject, that:

First year law students mainly focus on classic common law cases-in contract, torts, property, and criminal law, among others-in subjects that have not changed in decades. These are cases where judges have the power to "make the law" and the main method is using human reason to arrive at a correct result. The world, however, is increasingly dominated by statutes and regulations, where careful reading of texts passed by legislatures and administrative agencies is just as important as reasoning one's way to the "right" answer. Lectures on bargaining theory and negotiation could help in classes on contracts and on criminal law. Moreover, economics should become a more important feature in many classes, as it already has become in legal scholarship.

Epstein in his rebuttal stated:

These courses have evolved enormously over the 43 years that I have taught. The types of cases we teach have migrated from traffic accidents to mass torts, from simple contracts of sales to large cooperative arrangements and the like. The tools from law and economics, legal history and comparative law have reshaped the discourse. The constant need to show how statutes influence the formation and enforcement of contracts also takes a larger amount of time. These courses have been cut back, and that may be strictly necessary with the larger statutory courses. But it is also deceptive. One cannot teach environmental law without knowing the common law of nuisance well, and one cannot teach securities law without knowing about common law rules of misrepresentation and fiduciary duty.
Some put more emphasis and blame on student behavior. Commentary featured on Above the Law bluntly concluded:
Maybe law is the red-headed stepchild of American professional schools because law attracts the weakest applicants. Medical schools attract people committed to years of rigorous training, long hours, and low pay. Even business schools at least attract "bros" who are not afraid of "math."

Who does law school attract? Everybody else.

On November 28th, U.S. District Court Judge Jed S. Rakoff, in a 15 page opinion, rejected the proposed agreement between Citigroup and the Securities and Exchange Commission to settle charges filed by the SEC against Citigroup accusing the company of "selling investors slices of a $1 billion mortgage-bond deal called Class V Funding III, without disclosing it was betting against $500 million of those assets." The bulk of Judge Rakoff's criticism was aimed at the SEC's standard settlement practice of permitting agreements where the accused company does not deny nor admit wrongdoing.

The SEC filed a notice of appeal yesterday, seeking appellate review in the Second Circuit of Judge Rakoff's order rejecting the settlement.

The SEC also released a statement:

We believe the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits. For this reason, today we filed papers seeking review of the decision in the U.S. Court of Appeals for the Second Circuit.

We believe the court was incorrect in requiring an admission of facts -- or a trial -- as a condition of approving a proposed consent judgment, particularly where the agency provided the court with information laying out the reasoned basis for its conclusions. Indeed, in the case against Citigroup, the SEC filed suit after a thorough investigation, the findings of which were described in extensive detail in a 21-page complaint.

The court's new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country. In fact, courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide.

The case is SEC v. Citigroup Global Markets Inc, No. 11-07387 (S.D.N.Y).

I'd encourage everyone who hasn't done so to read in full my exchange with Cato adjunct scholar Shirley Svorny discussing her recent policy analysis, Could Mandatory Caps on Medical Malpractice Damages Harm Consumers?

In her final comment, Svorny says "[w]hether the costs of the [medical-malpractice tort] system are greater than the benefits is not something we have a handle on." But that is the wrong question, since no one is feasibly advocating eliminating medical malpractice liability altogether: the policy question, as any economist should know, is whether the marginal costs of the system exceed the benefits. If so, then reforms at the margin that reduce liability will have benefits exceeding the costs. As I explained in my contributions to the debate, I believe that such marginal cost-benefit improvements do in fact flow from medical malpractice caps for noneconomic damages: such caps reduce inaccuracy of the system, reduce the incentive to bring low-merit cases, and send a better signal to doctors about the relative likelihood of being sued for malpractice versus being sued for malpractice wrongfully. (Thus, Svorny misstates my position when she says "Frank is convinced that the costs of the current system outweigh the benefits"; I am only claiming that this is the case at the margin.)

But Svorny's concession that she doesn't know even as an absolute matter whether the benefits of liability in toto exceed the costs is really extraordinary. In this debate, she says she cannot opine whether we would be better off if we abolished malpractice liability altogether. But abolishing medical malpractice altogether is a cap of zero, a far more radical cap than the one she condemns in her paper and in the Huffington Post, where she made widely-repeated claims that non-economic damage caps for medical malpractice cases were a bad idea. In this exchange, she has effectively acknowledged she has no basis for that unequivocal policy prescription that has headlined the discussion of her paper. I hope Cato prints a retraction, given that without it, that paper's non sequitur conclusion is destined to be misused to distort the debate for years to come.

Trask on Prakash

A missed opportunity in Snigdha Prakash's All the Justice Money Can Buy:

Prakash turns a series of trial transcripts into a high-school soap, where the cool kids try to take the Honors Society down a peg, and kind of succeed, but kind of don't. By the time she reaches the end of the trial, she is recounting a scene that could literally take place in a classroom, where a member of the trial team passes her a note mocking defense counsel and she laughs out loud, attracting the woman's attention. (Page 244.)

That attitude is endemic to Prakash's book. Her verdict at the end is not that the plaintiffs made a mistake in structuring the trial as they did or presenting the evidence as they did, but that the jury made a mistake in not believing the story as the plaintiffs presented it. There are some interesting nuggets along the way--Mark Lanier is clearly a talented storyteller, and provides some worthwhile analysis on day-by-day trial presentation--but the fact that the plaintiffs appeared to make such a large blunder at either the beginning or the end of the case, and that blunder goes unexamined for the two hundred thirty pages in between, or the twenty pages afterward, mean that they're not quite worth the slog through the shallow cheerleading that takes up the remainder of the book.

Earlier and see also.

Around the web, December 15

  • Our coverage of (and my litigation against) coupon settlements earns Missouri an dishonorable mention in the 2011-12 Judicial Hellholes report. Philadelphia gets the #1 spot. [Report; website]
  • Thom Lambert is skeptical of the American Antitrust Institute's jury instruction project, given that institution's poor track record in favoring plaintiffs' lawyers over consumers. [TOTM]

  • Engineer criminally prosecuted under Clean Water Act without mens rea for mistakenly diverting sewage from flooding a military retirement home into waterway. [WSJ via Right on Crime]
  • Republican legislators tied to trial bar blocking needed tort reform in North Carolina and Pennsylvania. [Armstrong Williams @ WaTi]
  • Arkansas Supreme Court turns itself into legislature, strikes down 2003 legislative cap on punitive damages. [Times Record]
  • New York City elevator fatality will likely result in liability (as it should), but let's remember that elevators are much safer than they used to be despite the product liability system. [NYT; earlier on POL]
  • Was going to cover this, but already well-covered: "Posner: lawyers appeared more likely to run junk-fax suit for own interests than clients'." [OL; Beck; Trask]
  • Speaking of Philadelphia, Pfizer will settle jackpot justice Philadelphia HRT verdicts for undisclosed amounts rather than risk punitive damages. [law.com; earlier]

Introduced in July of this year, H.R. 2572, the Clean Up Government Act of 2011 passed through the House Judiciary Committee unanimously with the objective of among other things to "amend the federal criminal code to revise and expand prohibitions against bribery, theft of public money, and other public corruption offenses."

The bill has garnered bi-partisan support and the support of many good-government groups advocating for tougher anti-corruption efforts. And who could really argue against legislation aimed to curb public corruption? But while we hear justified support for the sentiment of taking a tough stance against corruption among public officials , it is important to consider the manner in which the problem is addressed.

In a written statement before the House Judiciary Subcommittee on Crime, Terrorism, and Homeland Security, Timothy O'Toole, attorney with Miller Chevalier and board member of the National Association of Criminal Defense Lawyers, articulated his concern with the criminal provisions of the proposed law which could create conflict and confusion.

The broader concern is the overcriminalization of conduct that may not comport with our traditional notions of criminal justice.

Timothy O'Toole describes it best in his opening argument of the aforementioned written statement,

But I am here today, as a practicing lawyer who is actively working in this area of the law, to remind the esteemed Members of this Subcommittee, and the general public, that we already have a very powerful set of federal laws that prevent and punish those public officials who trade on their public office for private gain. There are, in fact, over 20 federal statutes that are currently very effectively used by prosecutors to curtail suspected public corruption and fraud. These statutes impose stern punishments against those found guilty of these corruption offenses. I write to illustrate to you that H.R. 2572 represents a number of unnecessary changes to the law that will create additional confusion, cost, and potentially unintended consequences, while at the same time having no appreciable affect on curtailing public corruption.

In many ways, the proposal reflects a disturbing trend that we, along with organizations on the right and the left, have labeled overcriminalization--a public policy phenomenon that has drawn the attention of a growing number of groups including the Heritage Foundation, the Federalist Society, the ACLU, and Families Against Mandatory Minimums (FAMM). A variety of political, economic and corporate scandals have graced the front pages of our newspapers, and over the past 30 years, Congress has responded to the public‟s sense of outrage at these events by adopting more and more overlapping laws, often usurping areas that have been competently handled by state and local jurisdictions, ignoring legal safeguards such as criminal intent requirements that limit the criminal law to specific cases of criminal wrong-doing, and incrementally toughening the penalties without regard for cost or even any sense of normative justice. But as Justice Scalia recently noted, that trend must come to an end: "[W]e face a Congress that puts forth an ever-increasing volume of laws in general, and of criminal laws in particular. It should be no surprise that as the volume increases, so do the number of imprecise laws. And no surprise that our indulgence of imprecisions that violate the Constitution encourages imprecisions that violate the Constitution. Fuzzy, leave-the-details-to-be-sorted-out-by-the-courts legislation is attractive to the Congressman who wants credit for addressing a national problem but does not have the time (or perhaps the votes) to grapple with the nitty-gritty. In the field of criminal law, at least, it is time to call a halt."

There are over 4,450 federal crimes scattered throughout the 50 titles of the United States Code. In addition, it is estimated that there are at least 10,000, and quite possibly as many as 300,000, federal regulations that can be enforced criminally. The truth is no one, including our own government, has been able to provide an accurate count of how many criminal offenses exist in our federal code. This is not simply statistical curiosity, but a matter with serious consequences.

We will follow the progress of H.R. 2572 and continue to convey the concerns that the bill has raised with regard to overcriminalization.

The expense of the death penalty

One of the arguments one regularly sees against the death penalty is its supposed cost, which we can paraphrase as "It's cheaper just to hold a convicted murderer in prison for life than to spend money on lawyers handling the litigation over his death sentence."

There's a certain chutzpah to this: after all, it's the very people arguing against the death penalty who are forcing governments to waste millions of dollars dealing with collateral attacks on death sentences, in conjunction with judges that ignore the law in assisting that effort through multiple levels of appeal. (Here, I'm distinguishing between those who challenge death penalties on technicalities and public-interest firms like the Innocence Project that are usually acting to exonerate the incorrectly convicted.)

But I've always thought that the cost argument just simply wasn't true. If the death penalty disappeared tomorrow, the hundreds of lawyers who fight the death penalty wouldn't rest on their laurels. They'd simply shift their focus to other attacks on the use of criminal justice to punish criminals. Governments would still be spending the same millions of dollars defending against collateral attacks on convictions; they'd just be spending it on a different set of convicted criminals. Any monetary savings from abolishing capital punishment would be illusory.

Hans Bader's recent post (discussed below) suggests my theory is not only true, it's producing accurate predictions: this term's Court will decide Miller v. Alabama and Jackson v. Hobbs, cases involving life sentences without parole. As some states have moved against the death penalty, the anti-punishment wing of the bar has now opened a second front against life sentences, already with some success in Graham v. Florida.

Spirited med-mal debate complete!

Last week, PointofLaw launched a featured discussion with MI adjunct fellow and PoL editor, Ted Frank and Shirley Svorny, professor of economics at California State University, Northridge and adjunct scholar with the Cato Institute. Central to this discussion was a study authored by Professor Svorny claiming that existing empirical evidence suggests that "medical malpractice awards do track actual damages" and that noneconomic damage caps and other "policies that reduce liability or shield physicians from oversight by carriers may harm consumers."

Ted Frank articulated his dissent in the first comment of the discussion stating, "Shirley Svorny's paper for Cato arguing that caps on medical malpractice damages hurt consumers got a lot of attention. I found the paper very disappointing, however: it cherry-picked studies and ignored real-world practices by largely assuming away the problem. As such, it was not just contrarian, but counterproductive."

Throughout what manifested itself into a six-day debate, Ted made very compelling arguments to support his opposing viewpoint, for example:

Closer to home, Professor Svorny's students are not allowed to sue her for any alleged educational malpractice, another cap of zero. I trust that Svorny's lack of incentives created by liability do not reduce her efforts in teaching, even though she does not have an educational malpractice insurer charging her a quarter of her salary to work with her to minimize the risk of a student not being taught properly. How much more would Svorny demand in pay to keep teaching if she were exposed to potential liability, even if she believed the system was 100% rational and had no risk of haphazard false positives? (Even if the system never fails, Svorny would face real insurance costs, assuming she's not a perfect teacher. And note that even meritless claims properly dismissed by the courts would be costly to insure, because under the American system the winner of a lawsuit does not recover costs from the loser.) How many fewer students would take Svorny's classes because they couldn't afford to pay that marginal increase in cost? Would that be a social cost militating against liability for educational malpractice or not? Why is it inappropriate to apply the same analysis to doctors?

Professor Svorny then responded:

There are real benefits to liability that cannot be swept under the rug by laws that limit liability. Just because my students cannot sue me for educational malpractice, it does not mean it does not exist and that students are not harmed. If students could sue their professors, the outcome would probably be a lot like that for medical malpractice, but even fewer cases would move forward as educational malpractice would likely be harder to prove than medical malpractice. But, in a liability regime, education would be more expensive, many professors would take greater care in preparing their courses, and the most egregious teachers would be out of a job.

This debate was one of the most lively featured discussions we've hosted on PoL and we are very interested in your feedback.

Who do you think had the better argument and why? Please send your feedback and commentary via Twitter, #PoLdiscussion.

In an interview with Jim Blasingame of The Small Business Advocate radio program, Jim Copland, director of Manhattan Institute's Center for Legal Policy, addressed the Consumer Financial Protection Bureau in light of the Senate's recent rejection of an up-or-down vote for Richard Cordray's confirmation as the director of the CFPB.

In one of several segments, Jim tackled the question, "How will the CFPB affect small business? He replied:

Credit has really dried up for small businesses. This is really the lifeline for small business; small banks making small loans to small businesses to go and invest. Of course, some of these small businesses are going to keep going, individuals will take out their personal credit lines, their credit cards. People running small businesses will find ways to get credit. But, the unavailability of low-cost credit for small businesses is one of the biggest, if not the biggest, problem right now in the economy.

The concern the Republicans have is that this bureau, while in concept defensible, was written into this law where there is basically no check on the power of the person running the bureau.

...And this person can effectively make unilateral decisions. No question that person is going think that these are intended to help consumers, but, they also might have massive implications for the broader economy, the ability to generate credit and the ability to generate financing mechanisms. This could have dramatic ripple through effects on the broader economy.

So I think that their concerns are well founded and what they're basically saying is, before we take one of these up for a vote, we've got to restructure this so that it is structured more like most of these federal agencies. Where there is some congressional oversight, some sort of bi-partisan commission, something so that you don't have one individual acting basically as a czar for the country's consumer finance because that's very, very dangerous if you get the wrong person in there. And I'd argue that Richard Cordray is exactly the person you have to worry about.

Jim wrote an op-ed piece published in the Washington Examiner on this topic months before the rejection of Cordray's confirmation, expressing similar views with a focus on Cordray's record as Ohio's Attorney General.

Courts still ignoring cy pres requirements

Not even three weeks after Nachsin v. AOL, California federal courts continue to designate cy pres recipients entirely unrelated to the class—but perhaps related to the defendant? In re Accuray Sec. Lit. (N.D. Cal. Dec. 8, 2011) calls for residual amounts of the settlement fund to be paid to St. Jude Children's Research Hospital. Fortunately, it is unlikely there will be residual amounts of a settlement fund in a securities case.

On the Competitive Enterprise Institute's blog OpenMarket.org, senior attorney and counsel for special projects Hans Bader asks, Will "International" Norms Override Civil Liberties and Protections Against Violent Crime?

Hans makes a compelling case (extended article) that the Supreme Court sets a dangerous precedent when it relies on "international opinion" in deciding a case. The risk according to Hans, is that these "international norms" are usually hostile to our basic civil liberties and are "vague and manipulable" and therefore, can be applied selectively to push a particular ideology/agenda.

Hans expands on this point,

Courts should not rely on "international opinion" to decide cases, since it is vague and manipulable. So-called international law is applied selectively by lawyers and judges, who cite real or imagined "international law" to push the ideological goals they support, while ignoring actual international court rulings they don't like, like foreign court rulings barring punitive damages or limiting damages under the Warsaw Convention (as in Olympic Airways v. Husain).

Left-wing lawyers take vague international treaties and interpret them as mandating liberals' ideological wishlists, like restricting criticism of Islam and minority religions as "hate speech," banning Mother's Day as sexist, and mandating quota-based affirmative action. For example, the CEDAW equal-rights treaty has been construed by an international committee as requiring "redistribution of wealth," "affirmative action," "gender studies" classes, government-sponsored "access to rapid and easy abortion," and "the application of quotas and numerical goals." Never mind that most countries don't even have affirmative action.

But left-wing lawyers ignore foreign law and world opinion when it calls into question liberal policies in the United States. One classic example is the horror that most countries' courts have for the American practice of letting virtually unguided juries award punitive damages. In most of the world, punitive damages are forbidden. But you will never see a liberal Supreme Court justice talk about "international law" or "international opinion" when it comes to punitive damages, which are sacrosanct in the eyes of some liberal judges.

What do you think about courts relying on "international norms"? Join the discussion on Twitter via #PoLforum

In an article in The Economist, adjunct fellow with the Manhattan Institute's Center for Legal Policy, Marie Gryphon, is cited for her work exploring the likely effects of adopting a loser-pays rule for attorneys' fees. In a loser-pays system, the losing party is responsible for reimbursing the winning party's legal expenses, including attorneys' fees.

The Economist piece examined loser-pays rules as implemented in their respective customized forms in Texas, Alaska and Florida (1980-1985) and also discussed medical-malpractice caps on noneconomic damages, the central theme of Ted Frank's most recent debate with Cato's Shirley Svorny.

The article cites Marie's advocacy for the development of a litigation insurance system:

Marie Gryphon of the Manhattan Institute, a centre-right think-tank, who is author of a loser-pays proposal, says that Texas got "much less than half a loaf", and that Florida was spooked too quickly. She argues that loser-pays countries need legal insurance, which can be bought (for example) in England for just £100-200 ($150-300) after an alleged loss, but before a suit is filed. Lawyers can advance the premiums and add them to their bills. In other countries, such as Germany, many households carry standing legal insurance with a small monthly premium. Ms Gryphon argues that in such a mature loser-pays market more small-value but high-merit cases would be brought, while both small "nuisance" suits and big "lottery" suits would be less attractive to lawyers.

Wow. Felix Gilette in Business Week:

As Las Vegas's housing supply exploded, so did the competition among lawyers and contractors to represent new homeowner associations in so-called construction-defect lawsuits. It was in this environment, according to plea agreements recently unsealed in an ongoing FBI investigation, that a shadowy outfit cooked up a brazen scheme.

When a new development was nearing completion, the group would buy a couple of units in the community and then transfer partial ownership of the condos to individuals secretly on its payroll, according to court documents. While pretending to be residents of the communities, these "straw buyers" would run for leadership positions on boards of the new homeowner associations. By paying off community managers, hiring private investigators to find dirt on legitimate candidates, and rigging elections, the documents allege, the straw buyers were able to infiltrate boards at several new developments in Las Vegas from 2003 to 2008. Once in control of the boards, the straw buyers would then use their governing positions to steer millions of dollars in construction and legal fees back to their co-conspirators.

And it gets crazier than that. (h/t A.G.)

Alex Tabarrok on medical patents

On Wednesday, the U.S. Supreme Court heard arguments in the case Mayo Collaborative Services v. Prometheus Laboratories, Inc. on whether "the correlation between blood test results and patient health is patentable." Prometheus Laboratories argues that it should have been allowed to "patent instructions for observing changes in a patient's body to set drug dosages."

Featured on our sister blog Medical Progress Today, Alex Tabarrok, Bartley J. Madden Chair in Economics at the Mercatus Center at George Mason University and director of research for The Independent Institute, explores the problems posed by medical patents.

Tabarrok writes:

Most importantly, patents can reduce innovation and are especially likely to do so in fields where innovations build on innovations. In fields of cumulative innovation, previous patents owners become veto players who can threaten to holdup the new innovation unless they are granted a share of the proceeds. In theory, bargaining can result in an efficient outcome. In practice, it means lawsuits, delay, waste and reduced innovation.

Since a smartphone may rely on many thousands of previous patents, the smartphone industry has heretofore been considered a classic case of how too many veto players can impede innovation. But now consider human metabolism, one of the most complicated systems known to man (just a tiny fraction of that system is shown at right), and note that if Prometheus is successful in this lawsuit that any correlation in that system can be patented. This is a recipe for disaster.

PointofLaw returns to its coverage of the Richard Cordray confirmation standoff. In a 53-45 vote, Senate Republicans effectively blocked the confirmation of Richard Cordray, former Ohio attorney general, nominated to serve as the first director of the Consumer Financial Protection Bureau. While the CFPB can currently regulate the nation's banks, without a director, the new agency cannot assume its arguably most important role of regulating non-bank institutions that can offer loans to consumers.

In a subsequent press conference, President Obama pledged that this was not the end of the road and that, "we are not giving up on this... we are going to keep at it." Some Senate Democrats are urging the President to make a recess appointment of Cordray when the Senate adjourns as expected at the end of the month. The President has not ruled that option out. Republicans however, can avert such appointments by preventing the Senate from adjourning and holding short sessions during the vacation periods. Such a stalemate, we would hope, will force the Senate to engage in a real and honest debate focused on the structure and regulatory authority of the CFPB.

In the meantime, both parties will appeal to the public by accusing each other of unprecedented partisanship; the Senate Democrats pointing to the first time in Senate history that a candidate of an agency has been blocked because of opposition to the agency itself and Senate Republicans citing an unparalleled grant of absolute unchecked authority to a regulatory agency.

Neither party has questioned Cordray's qualifications which are at issue in Jim Copland's op-ed in the Washington Examiner and Manhattan Institute's Trial Lawyers Inc.: Attorneys General report.

Reuters has created a cool new Supreme Court tracking tool they call, Case by Case: The U.S. Supreme Court 2011 - 2012 Term.

Cases are displayed featuring the legal issue(s) to be considered by the Court, a brief summary of the facts and procedural history, information about the lead attorneys, links to briefs, related materials and more helpful resources. Users can also filter cases via 12 color-coded categories such as business, criminal, First Amendment, etc.

This looks like a great tool for those interested in keeping track of Supreme Court arguments and decisions with the additional option of using categories to keep tabs on particular legal issues.

Supreme Court TV?

The decision by the United States Supreme Court to review the constitutionality of Obama's healthcare reform law has reinvigorated fiery debate in the public forum. Part of the debate generated by the Court granting cert however, has had nothing to do with the Patient Protection and Affordable Care Act itself or the legal merits of the case(s).

Instead, a re-energized campaign to bring cameras into America's highest court has manifested itself into Senate Bill 410: Sunshine in the Courtroom Act of 2011 sponsored by Sen. Chuck Grassley (R. Iowa). Advocates of televising oral arguments at the Supreme Court claim [that] "it would enhance accountability, transparency and public understanding of the judicial system." Opponents respond [that] "it would only tempt attorneys to play to the cameras, allow video clips to be taken out of context, and possibly mislead the public."

Supporters point to the established practice in Canada and individual states like Iowa where they say the presence of cameras has become commonplace and "pretty much a non-issue." Even after conceding these arguments, some would like this decision to be made by the Supreme Court rather than by Congress.

The Senate Judiciary Subcommittee on Administrative Oversight and the Courts held a hearing to discuss the bill on Tuesday.

Do you think oral arguments before the Supreme Court should be televised, let us know on Twitter via #PoLforum?

On Tuesday, Senate Republicans (with the exception of Sen. Lisa Murkowski of Alaska) voted against an up-or-down vote for President Obama's nominee Caitlin Halligan, chosen to fill one of three vacancies on the U.S. Court of Appeals for the D.C. Circuit. The rejection of Halligan, general counsel with the New York County DA's office and former NYS solicitor general, is the second by the Senate who rejected Goodwin Liu's nomination to the 9th Circuit in May.

This raises an interesting question about the future of the judicial nomination process. Before a bi-partisan agreement was reached in 2005, there was a real legislative push mounting by Senate Republicans to eliminate the ability to filibuster judicial nominees. Will Senate Democrats now mount a similar effort? Will a new bi-partisan solution be reached? Or will the Obama Administration continue to face a Republican wall of opposition to its judicial nominees?

The WSJ states the following on the matter:

Again, in our estimation, all of this blocking is so much petty politics, the type of which both parties engage in regularly, to the detriment of the U.S. people. Call Republicans obstructionists, however, and they get defensive, arguing that Democrats did plenty to try to block Bush nominations. Ask Dems about the Bush years, and they'll refer to tactics taken up by Republicans under Clinton. And on and on -- all the way back, it seems, to the Supreme Court confirmation hearings of Robert Bork in 1987.

Yet, nearly a quarter-century later here we are: History proving, once again, to be a nightmare from which we have yet to awake.

What do you think about filibustering judicial nominees? Should there be a legislative fix? Let us know what you think on Twitter via #PoLforum

The odd assault on Amazon

A high-school classmate links to this Gawker story about how Amazon is incentivizing customers to provide competing price information, and announces on Facebook that he is going to boycott Amazon over this because of its competition with local businesses.

We'll set aside the irony of complaining about it on Facebook, who has successfully competed Friendster and Classmates.com and Myspace into dated punchlines, not to mention (along with Gawker) is part of the trend of people getting news from the Internet that is hurting local newspapers.

Do all of these people boycott Netflix because they've driven local movie theaters and video stores out of business? Refuse to listen to iPods because of Apple's successful redefinition of the music business? Only shop at mom-and-pop groceries rather than the national chain supermarkets that have driven a lot of them out of business? Boycott television and movies because they've driven local vaudeville and traveling bards out of business? Refuse to purchase automobiles because of their effect on local buggy-whip manufacturers? I honestly don't understand this mentality. Competition that provides higher-quality service at a lower price is generally thought to be a good thing, even as it leads to Schumpeterian disruption.

Tuesday, junk science led a Philadelphia jury to award three women (ages 66 to 68) verdicts ranging from $20M to $28.75M in suits alleging that Pfizer's Prempro caused their breast cancer. [Bloomberg; Phil. Inquirer]

Pfizer has won over 3000 of these cases, including 44 that were set for trial, but when juries can award $20M/plaintiff (plus potential punitive damages: Bloomberg discusses a "second phase" of the trial without being clear what that means), it's still profitable to bring long-shot cases like these were, especially when the state courts are less skeptical than federal courts about allowing experts to quack-ily apply one study's results to disparate facts. Which is perhaps why plaintiffs' lawyers have twisted themselves in knots to avoid federal court. Coincidentally, Monday's WSJ discusses the problem of forum shopping for the Philadelphia judicial hellhole.

Since it first opened its doors in July, the Consumer Financial Protection Bureau has been unable to exercise its full authority as promulgated under Dodd-Frank. Without a confirmed director, the CFPB cannot extend its oversight to non-bank consumer lenders, arguably the most essential to its intended role.

The White House's greatest obstacle has been trying to convince a block of 44 Senate Republicans who have written a letter pledging to filibuster the confirmation of Obama's nominee, former Ohio Attorney General, Richard Cordray. Despite Cordray's alarming record as Ohio's AG, more specifically his contracts with private attorneys on a contingency-fee basis to handle the state's lawsuits, Senate Republicans refuse to confirm Cordray because of concerns about the CFPB's leadership structure, authority and funding.

In response, the Obama administration has decided to take its message to the people via media, public appearances and an information campaign targeting seven states in particular: Alaska, Indiana, Iowa, Maine, Nevada, Tennessee and Utah. The goal is to lobby the Senators deemed most likely to change their minds by encouraging public pressure from constituents.

Simultaneously, state AGs and other officials have already joined the effort to gain the 60 votes necessary for a vote that may come as early as Thursday. Even Republican Attorney General Mark Shurtleff of Utah has come forward to support Cordray in this effort.

Coincidentally, both Democrat Cordray and Republican Shurtleff are among the eight "leaders" of state AGs recognized for their unsavory alliances with trial lawyers. The White House seeks to frame this confirmation debate as a choice between either protecting the financial industry or the middle class however, Cordray's record as Ohio's AG and the broad authority delegated to the CFPB director and State AGs by Dodd-Frank may paint a different picture.

On October 20, our friends at the Cato Institute published a study by Cato adjunct scholar Shirley Svorny claiming that existing empirical evidence suggests that "medical malpractice awards do track actual damages" and that noneconomic damage caps and other "policies that reduce liability or shield physicians from oversight by carriers may harm consumers." An economics professor at California State University, Northridge, Svorny has since publicized her findings in outlets such as the Huffington Post, in which she not only argued against the medical-malpractice reform provision of the Jobs Through Growth Act but also suggested that "[r]educing liability, as caps do, is rarely a good idea in any situation."

Needless to say, Svorny's position is at odds with that we've generally taken here at Point of Law (see back posts here), including our former editor, Svorny's Cato colleague Walter Olson (see, e.g., here, here, here, here). (See also this seminal contribution by MI visiting scholar Richard Epstein and this Manhattan Institute study by libertarian economist Alex Tabarrok.)

This week, Professor Svorny has graciously agreed to come to Point of Law to discuss her paper with MI adjunct fellow and PoL editor Ted Frank. The featured discussion will be available here; please check back throughout the week as the discussion continues.

Join the debate! Please send your questions and commentary via Twitter, #PoLdiscussion.

Pricewaterhouse Coopers' 6th Global Economic Crime Survey reports the alarming emergence of cybercrime while bribery and money laundering look to be on the decline.

Samuel Rubenfeld of the Wall Street Journal reports,

Reported incidences of bribery and money laundering declined slightly over the past two years, according to a new survey by Pricewaterhouse Coopers.

Out of about 4,000 responses spread across 78 countries, 24% of respondents said they experienced bribery and corruption at their organization in the past 12 months, down slightly from the 27% who said as much in 2009, the last time the survey was completed. Experiences of money laundering were also down slightly to 9% from 12% two years ago, the survey said.

The survey, Pricewaterhouse's sixth of this kind, looks broadly at all economic crime, and it found "asset misappropriation" to be by far the largest crime faced by respondents, with 72% saying they dealt with it in the past 12 months. The largest growth in economic crime was related to cybercrime, which jumped from a statistically negligible level in 2009 to garnering 40% of responses in the latest report.

Last week, the New York Times revealed the results of a judicial vetting process conducted by the American Bar Association's Standing Committee on the Federal Judiciary consisting of fifteen members. The results uncovered that the committee opposed 14 of the approximately 185 potential nominees that the Obama administration presented for evaluation, declaring them "not qualified."

The NY Times reports that nearly all of the prospects given poor ratings were women or members of a minority group. This particular fact generated some criticism of the vetting process, more specifically the criteria used by and makeup of the ABA's committee. In almost three years, the number of President Obama's potential nominees deemed "not qualified" already exceeds the total number similarly declared by the ABA during the full eight-year administrations of Presidents Bill Clinton and George W. Bush. Though it is important to note, the Obama Administration has decided not to nominate anyone the committee declared "not qualified."

Administration officials are perplexed about the reasons for some of the low ratings, and in discussions with bar panel leaders, they have expressed growing frustrations, people familiar with those conversations said. In particular, they have questioned whether the panelists -- many of whom are litigators -- place too much value on courtroom experience at the expense of lawyers who pursued career paths less likely to involve trials, like government lawyers and law professors....

The chairman since August of the bar association's vetting committee, Allan J. Joseph, would not confirm any negative ratings but defended the panel's work as fair-minded and independent. Its members, he said, are all volunteers who, as a matter of public service, put in long hours reading candidates' writings and conducting confidential interviews about them with dozens of judges and lawyers.

Obamacare oops II

A couple of weeks ago, we discussed how the poorly-drafted PPACA will end up being unworkable, a function of it being passed in a hurry through parliamentary tricks to get the skin-of-the-teeth votes it needed. The next step of that dance is occurring, with the Obama administration blithely claiming that it can ignore the statutory language, and Senator Hatch warning the administration not to act so lawlessly.

In celebration of 20 years of "Litigating for Liberty," the Institute for Justice released a video featuring its growth and influential advocacy. IJ is a public interest law firm focusing on civil liberties matters especially in the context of government overreaching and over-regulation.

IJ's mission statement reads:

Through strategic litigation, training, communication, activism and research, the Institute for Justice advances a rule of law under which individuals can control their destinies as free and responsible members of society. IJ litigates to secure economic liberty, school choice, private property rights, freedom of speech and other vital individual liberties, and to restore constitutional limits on the power of government. In addition, IJ trains law students, lawyers and policy activists in the tactics of public interest litigation.

Through these activities, IJ challenges the ideology of the welfare state and illustrates and extends the benefits of freedom to those whose full enjoyment of liberty is denied by government.

Bone marrow victory in Flynn v. Holder

Congratulations to the Institute for Justice for their Ninth Circuit victory against government prohibitions on compensation for bone marrow donors. [Flynn v. Holder; earlier from Postrel]

Alas, the win was on narrow technical statutory interpretation grounds, rather than broad-ranging liberty-recognition grounds that could be easily applied to other government interferences with voluntary transactions that save lives, but a win is a win.

Steven Wisotsky, a law professor at Nova Southeastern University Law Center, has written an interesting piece, Honest Services Fraud After Skilling v. United States published in the Federalist Society's Practice Groups' Journal Engage, tracking the historical, legal, and judicial developments leading up to Skilling v. United States. Professor Wisotsky then focuses his analysis on post-Skilling jurisprudence and the "unresolved issues" regarding honest services.

Professor Wisotsky writes:

The cycle of the Court imposing limits on the mail fraud statute and inviting Congress to speak "more clearly" may continue. On September 28, 2010, the Honest Services Restoration Act was introduced in the Senate by Senator Patrick J. Leahy. The bill was sent to committee, but it was not passed before the session ended, thereby killing the bill. The bill included both undisclosed self-dealing for public officials and undisclosed private self-dealing for officers and directors. The term "public official" was defined, but "officers" and "directors" were not. The bill also required a mens rea requirement; the individual must "knowingly falsify, conceal, cover up, or fail to disclose material information that is required to be disclosed regarding the financial interest in question by any Federal, State, or local statute, rule, regulation or charter applicable" to the individual.It is unknown whether the bill will be re-introduced.

The Skilling decision did not address important questions regarding honest services and has also created some new ones. For example, it stated that the Court's definition of honest services fraud only reaches serious culpable conduct without defining the term "serious" or explaining whether "minor" frauds can be prosecuted under the honest services statute.Other lacunae relate to the existence vel non of a fiduciary duty, public or private.

Legislative efforts post-Skilling have also been accompanied with suggestions from experts like Elizabeth Sheyn to clarify honest services.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.