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September 2012 Archives

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

In a surprising decision in March, the Fifth Circuit upheld judgments against the Army Corps of Engineers seeking to hold them liable for damages from levees that failed during Hurricane Katrina. This did not stand: on a petition for rehearing, the panel reversed itself and threw out the claims against taxpayers. [In re Katrina Canal Breaches Lit. (5th Cir. Sep. 24, 2012) via Bashman link roundup]

What the frack?
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Hollywood was all ready to capitalize on the fracking controversy—until it turned out that most of the sensational anti-fracking claims were based on nonexistent evidence or, worse, entirely faked. Never you mind: just rewrite the script to blame the bogus environmental claims on an oil-industry false flag operation. Larry Ribstein would have had a field day.

For all the complaints about the politicization of the Bush Department of Justice, what the Obama Department of Justice is doing is simply unprecedented. Take the case of the City of St. Paul. St. Paul was ready to challenge the DOJ's thoroughly bogus disparate-impact theory of fair lending in the Supreme Court, where it was surely doomed. DOJ pulled out all the stops, engaging in a quid pro quo of agreeing to drop an unrelated False Claims Act case against the city worth perhaps as much as $186 million—over the recommendation of career prosecutors—if the City would drop its Supreme Court case. [Congressional letter; American Banker; WSJ]

Aside from the bad public policy and questionable legal theories, there are many many unseemly things about the DOJ's fair lending program that really bear further investigation.

As California complains about the problems of financing its university system without increased taxes, one has less sympathy when one examines how UCSD is spending lavishly on paper-pushers for its diversity office—far more than it spends on, say, a professor who might actually contribute to education. [Mac Donald @ City Journal]

12-year-old Dominic Choate decided to impress his friends and jump aboard a slow-moving freight train, despite their yelling at him to get away from the train. After two unsuccessful attempts, he made a third attempt that was not just unsuccessful, but disastrous: he fell, the train wheel ran over his foot, severing it above the toes, and resulting in an amputation below the knee. This was, he alleged in a lawsuit, the railroad's fault. Defendants asked for summary judgment, noting that not only was jumping on a train obviously dangerous, but Choate admitted he knew it was dangerous, but the trial court refused, and a jury held the railroad 60% liable for what it computed to be $6.5 million in damages. An intermediate appellate court affirmed, despite a WLF amicus brief. The Illinois Supreme Court reversed last week: a landowner owes no duty to trespassers, and while it owes a duty to children to warn them of latent harms that a child might not reasonably apprehend, it owes no duty with respect to obvious harms. [WLF]

We earlier noted the absurdity of the idea of the "farm labor shortage": "as any economist can tell you, there's no such thing as a 'shortage,' only an unwillingness of purchasers to pay a market price that may have previously been artificially depressed." Ilya Somin is more economically savvy than most law professors, but buys into the idea of a shortage of farm-workers, because there are "crops rotting in the fields." But as Steve Sailer notes, a profit-maximizing farmer will always have "crops rotting in the fields"; there's always going to be last dregs of produce that are economically infeasible to harvest. We tolerate (indeed insist upon through such mechanisms as expiration dates) food waste at home, at restaurants, at grocery stores; why is it a surprise that farmers don't have 100% yields?

But John Carney blows away the notion that there's any labor shortage at all. Even as profits went up, farm labor expenses went down:

It's just basic economics. The overall cost of labor on farms is falling. The cost of seasonal labor is rising but at a rate far less than revenues. That implies that supply of labor is outstripping demand. Which is to say, farmers may be screaming about labor shortages but their checkbooks are telling a very different story.

Over at Ricochet, we've launched a new podcast series on the Constitution, hosted by yours truly. It's called "The Naked Constitution" because our goal is to discuss the original public meaning of the framers' words without the "help" of later academic encrustations. Episode One is: The Living Constitution vs. The Naked Constitution. I'm joined by Ed Whelan, the president of the Ethics and Public Policy Center, and host of NRO's Bench Memos Blog, and by James Poulos, producer at HuffPost Live and a contributor to Forbes and Vice. In this wide-ranging discussion, the danger of the Living Constitution is exposed with references to Napoleon Bonaparte, flogging, and the "metaphysical aromatherapy" of Planned Parenthood v. Casey. You can subscribe to this podcast through iTunes here. Direct link here.

James Copland, director of Manhattan Institute's Center for Legal Policy discussed the release of Proxy Monitor 2012: A Report on Corporate Governance and Shareholder Activism on NYSE-Euronext's This Week in the Boardroom, a weekly on-demand webcast program "designed to educate board members and C-suite executives on topics/issues that impact their operational and strategic decisions." Reviewing the recently expanded ProxyMonitor.org database of shareholder proposals from Fortune 200 companies, Copland revealed that almost all shareholder proposals are being sponsored by a small number of investors, predominately labor union pension funds and social/religious activists, whose motivation appears to deviate from concern over share value. Copland also finds that the proxy advisory firm ISS substantially influences shareholder votes but that its recommendations are systematically biased toward shareholder proposals, relative to shareholders' actual voting patterns.

Overall, Copland finds that the shareholder proposal process may be oriented toward influencing corporate behavior in a manner that generates private returns to a subset of investors while harming the average diversified investor, which amplifies concerns about whether shareholder proposal voting is an effective tool for improving share value.

Additionally, the Manhattan Institute hosted an event for the release of the report featuring many prominent corporate governance experts including Harvey Pitt, former chairman of the SEC, and Paul Atkins, former commissioner of the SEC.

Abuse of Computer Fraud and Abuse Act
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Orin Kerr has long warned of the dangers of aggressive prosecutorial interpretation of the Computer Fraud and Abuse Act, and the criminal prosecution of Harvard Safra Center fellow Aaron Swartz over a civil breach of the terms and conditions of an MIT academic-article database where he had an account seems just such an abuse. [Wired]

The Baby Products $35 million antitrust settlement approved by the district court will pay $14 million to the attorneys, and we still don't know where the other $21 million will go, other than that the class will get less than $8.1 million of it. Third Circuit oral argument on the CCAF appeal is this afternoon in Philadelphia. [Briefing]

Something you didn't read in the New York Times this weekend, as it lobbies for clemency for convicted murderer Terrance Williams:

Williams retrieved a nearby baseball bat, chased after [Herbert] Hamilton, and beat him with the bat until Hamilton was bloody and severely wounded. Williams then recovered the butcher knife and stabbed Hamilton approximately twenty times--twice in the head, ten times in the back, once in the neck, four times in the chest, and once each in the abdomen, arm, and thumb. Finally, Williams drove the butcher knife through the back of Hamilton's neck until it protruded through the other side. He then doused Hamilton's body with kerosene and unsuccessfully attempted to set fire to it.

Williams v. Beard, 637 F.3d 195, 199 (3d Cir. 2011). But Williams was only 17 when this murder happened (and 16 when he fired a shotgun three times during a home invasion and robbery of an elderly couple); this isn't why he got the death penalty. This is:

On Friday, a state court judge in Wisconsin struck down virtually all of Scott Walker's collective bargaining reform as a violation of both the US and Wisconsin constitutions.

The decision is a thinly veiled piece of judicial activism by Judge Juan Colas, who was appointed by the former Democratic Governor, Jim Doyle. How exactly does Governor Walker's reform infringe the "associational and speech rights" of municipal union members? Well, it prohibits municipal unions from collectively bargaining on non-wage benefits (they can still bargain on wages); it prohibits unions from forcing non-union members to pay part of the union's expenses (for the privilege of being represented by a union they want no part of), and it prohibits unions from automatically deducting union dues from payrolls. Got that? It's a violation of free speech to make the union ask its members for their dues.

I confess, I had to read Judge Colas' opinion several times to discover his rationale. The heart of the decision appears to be this single sentence on page 15: "Although the statutes do not prohibit speech or associational activities, the statutes do impose burdens on employees' exercise of those rights when they do so for the purpose of recognition of their association as an exclusive bargaining agent."

What a gloriously convoluted sentence! The reality is: the law dethrones municipal unions in Wisconsin from their former status as all-powerful closed shops, and finally gives employees the freedom to join, or not, municipal unions. Judge Colas casts this not as a burden on the unions, but on employees' right to associate for the purpose of forming an "exclusive bargaining agent." By this logic, every "right to work" law in the country violates the First Amendment. Judge Colas also held that the reform law violates the Equal Protection clause of the Fourteenth Amendment, but that holding was predicated on the asserted First Amendment violation.

This decision (and another recent one by an Obama-appointed federal court overturning parts of the Wisconsin law) are desperate rearguard actions by Democratic partisans. Under Walker's reforms, more than half of the Wisconsin members of the American Federation of State, County and Municipal Employees union have dropped out. So have a third of the American Federation of Teachers members in the state. This is terrible news for the Democratic Party. According to the National Right to Work Legal Defense Foundation, compulsory unionism allows unions to collect $4.5 billion annually in dues "and funnel much of it into unreported campaign operations." And now, those employees who have been forced to subsidize Democratic campaigns are heading for the exits.

The idea that Walker has violated workers' rights by giving them a real choice as to whether to join a union is preposterous. The Wisconsin Attorney General has vowed to appeal this decision -- let's hope reason prevails in the higher courts.

The case is Madison Teachers, Inc. v. Scott Walker: http://www.scribd.com/doc/105950737/Wisconsin-Collective-Bargaining-Ruling

This claim is a big part of Obama re-election advertising (most notably a Bill Clinton ad), but, as Caroline Baum points out, it's fictional: what got us into this mess was a chain reaction from banks overinvesting in bad home loans to borrowers who didn't have the wherewithal to pay for mortgages without the opportunity for refinancing from increased equity. Once the housing bubble burst, everything else followed. The Bush tax cuts and lack of regulation had nothing to do with it (indeed, regulation increased dramatically during the Bush administration).

And Baum doesn't go far enough: as we've documented, the Obama Department of Justice is punishing banks that have returned to sound lending practices by claiming that having tighter lending standards disparately impacts minorities. For some reason, banks haven't been willing to litigate this nonsense. Steve Sailer documents one settlement with a Beverly Hills bank where the DOJ required the bank to funnel $900,000 to third parties to promote minority lending. Conservative journalists looking for Obama administration scandals should analyze these settlements; leaving aside the questionable constitutionality of the DOJ legal theory of liability, it is hard to see where DOJ has the legal authority to settle cases by payments to parties unrelated to the litigation (as opposed to the supposedly injured), and one can almost guarantee that this money is going to Friends of Obama. Wouldn't it be interesting (and corruption of Nixonesque, and perhaps Putinesque, proportions) if it turns out the DOJ is misusing its power to ensure that certain community activists have "walking-around money" on election day?

No, the mess we're in comes from a $1-trillion/year increase in government spending. And at some point George Soros is going to find it profitable to start betting against Treasury bonds, interest rates will spike, and we're going to be Greece, and facing necessary austerity measures that makes Paul Ryan's plan look like Paul Krugman's.

The FDA approved Wyeth's hormone replacement therapy drug Prempro after its standard overrequired testing, but an expert witness testified in a Pennsylvania state court that Wyeth's failure to do "more" testing entitled a plaintiff to punitive damages, and a jury awarded a $10.1 million jackpot to plaintiff Mary Daniel, who implausibly blamed her breast cancer on 18 months of Prempro use. (Courts in places that aren't judicial hellholes throw cases like that out, since there's no competent scientific evidence that short-term Prempro use causes breast cancer.)

The trial judge did throw out $8.6 million of punitive damages on the grounds that Wyeth can't be blamed for making the same mistake the FDA supposedly did; but an appellate court reversed that decision and reinstated the jury verdict, and it's now in front of the Pennsylvania Supreme Court on a third level of review. Can courts apply a certain level of plausible common sense to the punitive damages inquiry, or is it sufficient for the testimony of a single expert gun for hire to expose a defendant to random punitive damages? Note that punitive damages here cannot affect pharma manufacturer behavior other than deterring new drugs in the aggregate: if punitive damages can be imposed because an expert says that the defendant should have done "more" testing, then plaintiffs will always find an expert willing to say another test should have been run in hindsight. [Legal Intelligencer via Bashman, who, alas, is arguing on the wrong side; Drug & Device Blog]

Drug & Device Blog notes further hellhole-ish shenanigans:

The basis for punitive damages was apparently failure to test - which doesn't even rate as an independent cause of action in Pennsylvania. Not only that, the plaintiff in Daniel got away with playing "hide the expert," resulting in the jury hearing the recorded opinion of an expert that the expert later testified he had recanted. Beneath all this was a moot footnote (choice of law not being disputed) that the law of the defendant's principal place of business (Pennsylvania has no tort reform whatever concerning punitive damages) should control for punitive damages purposes over the law of the plaintiff's state of residence, a distinct minority position.

The Pennsylvania Supreme Court is only reviewing the FDA defense, however.

On the other hand, if Pennsylvania courts are going to insist upon holding defendants to unreasonable standards at the same time that they're applying unreasonable choice-of-law standards, one wonders why pharmaceutical companies tolerate having their principal place of business in Pennsylvania when states like Texas or Michigan would be willing to accommodate them. Perhaps some companies find that the occasional arbitrary $10.1 million liability (combined with the expense of defense costs and multiplied over millions of potential plaintiffs who will forum shop for Philadelphia juries) is all worth it for the convenience of having offices in King of Prussia, Pennsylvania, and just views it as an odd local tax that largely benefits wealthy trial lawyers at the expense of the citizenry.

Around the web, September 16
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  • Michael Carvin testimony defends Citizens United and criticizes DOJ's attacks on Texas over redistricting; meanwhile, no one in the media is covering the fact that DOJ's litigation against South Carolina was politically motivated, brought over the objections of liberal career staff. [Senate Judiciary Committee; Adams]
  • SCOTUSblog symposium on the Fisher case.
  • Our vulnerable embassies. [City Journal; Steyn]
  • Did the NCAA exceed its powers to shake down Penn State for tens of millions of dollars? [Little]
  • Is the Committee on Foreign Investment in the United States an agency beyond judicial review? [Elwood @ Volokh]

  • "If At First You Don't Succeed As A Patent Troll, Just Sue Again" [TechDirt]

  • "Ambassador's murder fuels calls for hate-speech bans" [OL link round-up]
  • Calls for a new Glass-Steagall are political posturing and misguided. [Wallach]
  • A small number of studies report positive results for childhood early intervention programs; most do not. [Murray]

  • "Obama skirts rule of law to reward pals, punish foes" [Barone]
  • Epstein on the Obama DNC speech. [Epstein]

The case of Bradley Birkenfield
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Holman Jenkins:

Is there anything redeeming to be found in the adventures of Bradley Birkenfeld, the UBS whistleblower whose tale is sordidness piled on sordidness?

Mr. Birkenfeld is the soon-to-be-paroled felon on whom this week was bestowed a $104 million IRS bounty for exposing the activities of his former employer, the giant Swiss bank UBS, in helping Americans dodge U.S. taxes.

Mr. Birkenfeld got his reward not because he discovered tax evasion going on at UBS. He was a prime instigator of it, trolling the watering holes of North America for the rich and nervous. His now-famous exploits include delivering diamonds to one client concealed in a toothpaste tube. ...

The author of the whistleblower law that so benefited Mr. Birkenfeld was none other than prairie populist Sen. Charles Grassley, who issued a statement this week: "An award of $104 million is obviously a great deal of money, but billions of dollars in taxes owed will be collected that otherwise would not have been paid." ...

Need we add that Mr. Grassley's longtime aide, who actually drafted the whistleblower law, now represents Mr. Birkenfeld and stands to collect an interesting percentage of the award Mr. Grassley so obligingly applauds?

Read the whole thing. More on whistleblower laws.

Chipotle pinches pennies, gets sued

Chipotle's made-to-order meals sometimes result in long lines that waste customers' time and cost it business, and sometimes the backup is at the cash register. So a number of Chipotles started rounding total costs to the nearest nickel so that the registers wouldn't have to deal with pennies. Some customers complained that they were overcharged two cents (and it is legally problematic to charge customers more than a stated price), so Chipotle immediately changed the policy so that receipts are rounding down and Chipotle eats the extra 1-4 cents (though they can more than make up for this by raising prices a nickel across the board). Nevertheless, a consumer-fraud class action has been filed that will surely cost more in attorneys' fees for everyone concerned than the conceivable damages to the class for the few weeks that a handful were overcharged. But save your month-old Chipotle receipt if you want to put in your claim for two cents. (The suit asserts Chipotle has been doing this since August 2008; it is wildly implausible that no attorney or consumer noticed for four years; the class representative doesn't even identify a single instance where he was personally overcharged.) [Courthouse News via LA Weekly; Star-Ledger]

It's worth noting that if class-action lawyers are finding something this ludicrous this a worthwhile use of their time, it puts the lie to the claim that the lodestar reflects real opportunity costs to the lawyers for litigating.

The return of private banking?
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Today's Wall Street Journal has an interesting story about an ice cream parlor in Pittsburgh that operates a small "banking" business on the side. The shop owner, Ethan Clay, accepts deposits and offers 5.5% monthly interest, paid in the form of store credit, redeemable in ice cream, coffee, waffles, etc. He'll extend small loans for a flat rate and will cash checks. It's an honest business and his customers, are delighted to participate.

Naturally, the State of Pennsylvania is doing everything it can to shut him down. The Journal quotes Ed Novak, a spokesman for the Pennsylvania Department of Banking: "We are going to do something. You can't mess with people's money." It's hard to beat the irony of a banking regulator complaining about "messing with people's money." How, one wonders, would Mr. Novak describe what his overlords at the Federal Reserve have been doing? Flooding the market with dollars, artificially levitating the stock market and depressing interest rates -- does he imagine that none of this (all brought to you by the unelected mandarins at the Federal Reserve) has "messed" with the value of everybody's money?

As the Journal reports, the big problem is that the State isn't exactly sure how to shut down Mr. Clay. The article quotes Richard Sylla, financial historian at NYU, who observes that there is a common-law right to engage in banking. But private banks have fallen out of favor because they lack government-backed insurance. Fair enough, but if the customers are willing to take a chance in return for 5.5% monthly interest, payable in ice cream, why should the State intervene? Mr. Novak warns that a return to the "private banks" of the nineteenth century is too risky. "Banking in the 19th century was a hit-or-miss proposition," he says.

Worse than today? Consider this report from Cato, which examined the history of nineteenth century banking, in which both state-chartered and unchartered "free" banks issued their own banknotes without any central coordination from the federal government.

By 1860 there were more than 1,600 private corporations issuing banknotes and an estimated 8,370 varieties of notes "in form, color, size, and manner of security." . . . The U.S. economy grew at an average rate of 4.4 percent per annum over this period, while prices fell at an average annual rate of 0.1 percent. GDP was 20 times higher at the end of the period, while the price level remained roughly constant, indicating that competing banks provided neither too many nor too few notes during this period of strong economic growth.

One might argue that the economy could use more entrepreneurs like Mr. Clay "messing" with people's money.

Veteran appellate judge Richard Posner recently took to the pages of The New Republic to trash - there's no other word for it - the new book by Justice Antonin Scalia and writing guru Bryan Garner: Reading Law: The Interpretation of Legal Texts.

Posner's critique generated exultation on the left - after all, here was Justice Scalia getting a public smack-down from a fellow conservative! Whether Posner can still be called a conservative - he recently refused the label in an interview with NPR's Nina Tottenberg - his criticisms consistently miss the point of Scalia's and Garner's book. But, to be fair to Posner, what he lacks in the way of analytical skill, he more than makes up for in gratuitous ad hominem attacks.

Reading Law is a robust defense of "textualism," i.e., that doctrine that judges must interpret statutes (and constitutions) to give effect to the meaning that the text reasonably conveyed at the time of its adoption. In the realm of constitutional law, this is also known as the "original public meaning" theory; namely, that constitutional provisions should be applied as they were understood by the public that ratified them. Textualism does not seek to divine the "legislative intent" from the self-serving statements made in the course of "legislative history" (committee reports, floor speeches, and the like). Rather, the point of textualism is that the legislators' intent emerges from the text they adopted.

The FDA has suffered another setback in its relentless campaign to turn every cigarette pack into a "mini-billboard" for its anti-smoking agenda. The US Court of Appeals for the DC Circuit has upheld a lower court decision striking down the agency's rules that would require cigarette makers to include certain government-approved "graphic warnings" against smoking. Nothing too extreme, mind you, just a man blowing smoke out of a tracheotomy hole and similar pictures.

As reported last November, U.S. District Judge Richard Leon initially granted a preliminary injunction against the FDA rules. In February of this year, he issued a final ruling striking down the graphic warning requirement as unconstitutional "compelled speech." The DC Circuit affirmed on August 24.

The Supreme Court has long recognized that the First Amendment right to say what you want would be meaningless if the government could force you to say things you don't want. In Wooley v. Maynard, for example, the Court affirmed that Jehovah's Witnesses in New Hampshire could not be forced to use license plates with the State's motto: Live Free or Die.

Although commercial speech often merits less protection under existing precedents, there is clearly a liberty problem with forcing manufacturers to do everything possible to dissuade potential customers from buying their product. As the DC Circuit points out, manufacturers have been compelled to include certain information on labeling or other advertising if the information is (1) strictly factual, and (2) without the information, the company's advertising would be misleading. In this case, however, the FDA doesn't argue that current cigarette labels are misleading -- they include all the textual warnings. The FDA just thinks that the packages aren't scary enough; thus, they would require that 50 percent of the front and back panels of every cigarette pack contain pictures, e.g., of women crying, small children, and the guy with the tracheotomy. As the DC Circuit concluded, the images do not convey factual information, but are "unabashed attempts to evoke emotion (and perhaps embarrassment) and browbeat customers into quitting.

And yet, the government would have the courts review its rules under the weakest form of scrutiny available. By the FDA's logic, the government could dictate that every stick of butter be wrapped in images of open-heart surgery, that every candy bar be emblazoned with pictures of rotting teeth, and every sugary drink carry images of obese children -- and these rules would be virtually unreviewable.

The FDA could not even produce evidence that the graphic images would be effective -- the agency estimated a mere 0.088 decrease in smoking rates as a result of the shock-and-awe campaign. Ultimately, the agency seems to want the graphic warnings because "everybody else is doing it." The FDA cited a "strong worldwide consensus" based on the actions of various countries, including Mongolia, Venezuela, Singapore, and Iran. " It is worth noting," the Court said, "that the constitutions of these countries do not necessarily protect individual liberties as stringently as does the United States Constitution." You can say that again.

The case is R.J. Reynolds Tobacco Co. v. FDA, No. 11-5332, slip op. (DC Cir. Aug. 24, 2012).

Texas has a unique solution to the problem of coupon settlements: if the lawyers settle for coupons or non-cash relief, they have to be paid in coupons or non-cash relief. [Tex. CP. Code Ann. § 26.003(b)]

The Center for Class Action Fairness has a $0 shareholder derivative strike suit settlement case pending on appeal in Texas where we make this argument, but another objector has gotten there first. In Rocker v. Centex Corp. (Tex. App. Aug. 10, 2012), the court held §26.003(b) prohibited a $1.1 million fee in a $0 settlement over immaterial merger disclosures.

Ronald Barusch has a good piece in Deal Journal on this case and on our victory in Robert F. Booth Trust v. Crowley:

These junk settlements, as I refer to them, do nothing to incentivize corporations and their advisors to produce better disclosure. In fact they do the opposite because, as everyone involved in this process knows, the plaintiffs' bar essentially sells insurance policies to public companies. For a bit of additional disclosure or other minor hassle and a small payment to the other side's lawyers, broad releases are available.

I have no objection to generous compensation for plaintiffs' lawyers who uncover significant wrongdoing, particularly if they obtain large payments for shareholders. That is what directors and their advisors fear, and fear is a great motivator.

But lawyers who want a fee award should have to produce results to earn their money. A substantial monetary judgment would be a good indication of such a result. The Texas cash only rule might be a bit harsh in that an injunction which forces a deal to be restructured in a way with material tangible financial benefits to the plaintiffs might be another. But judges in other jurisdiction following the lead of these two recent cases on junk settlements would be a good first step towards a better system.

See also.

Best thing Obama's ever done
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Congratulations to Josh Wright, expected to be named to one of the two Republican seats on the Federal Trade Commission. His excellent work in antitrust and consumer protection law, which we've frequently covered, is sure to improve the quality of the work of that agency.

"Maryland Democrat quits congressional race amid vote fraud allegations." [WaPo]

A federal judge in Oklahoma held that the trial failed to demonstrate that the Louisville Slugger in question was any more dangerous than any other baseball bat, and the jury verdict could not stand. The fact that Oklahoma caps noneconomic damages surely made a difference here: without the threat of jackpot justice, the defendant could defend itself without fear of disproportionate liability. In contrast, a New Jersey case against the same defendant resulted in a multi-million-dollar settlement divorced from any showing of culpability. [Fisher via @overlawyered]

The Institute for Legal Reform released its annual Harris Interactive poll of business perceptions of state lawsuit climates, with the usual suspects—West Virginia, Louisiana, Mississippi, California, and Illinois—bringing up the rear. ILR says that 70% of survey respondents consider litigation environment in choosing where to do business, but I'd be curious if economic numbers bear that out: ceteris paribus, do poor showings in the ILR survey predict relatively poor economic growth, as ILR claims in an advertisement? [Sac Bee; Monroe News Star; Orlando Bus. J.; CBS Philly; WV Record; BLT]

Salmonson v. Bed Bath & Beyond
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If you have access to a residential mailbox near a major metropolitan area, you've surely been blizzarded with enough "20% off" non-expiring coupons from vendor Bed Bath & Beyond to wallpaper your bathroom; you likely feel like an idiot if you ever pay full price there.

So you'll be amused to learn that a California-state class action settlement entitles those who remember that they made a purchase between January 1 and January 14, 2011 to a—wait for it—15% off coupon, albeit one only good for 180 days. This is a settlement of a Song-Beverly Act claim for $1000. Related: Overlawyered; Stoll.

The $2 million moon
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This post has nothing to do with Neil Armstrong.

Jason Selch expressed dissatisfaction over a co-worker's compensation negotiations by mooning Columbia Management executives in a conference room. For this he was fired after some hemming and hawing, which, because he was terminated for cause, cost Selch a multi-million dollar bonus that would have vested a few months later. Selch sued under his contract, arguing that the termination was not for cause; an Illinois state appellate court has affirmed a trial court grant of summary judgment, making it safe to say that mooning superiors is indeed a firing offense. [Selch v. Columbia Management (Ill. App. 2012); Dealbreaker]

Police union abuse
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A scary tale at Reason that is no doubt just the tip of the iceberg. Earlier on POL.

Overcriminalization sale on Amazon
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Harvey Silverglate's Three Felonies A Day: How the Feds Target the Innocent is available for $1.99 on Kindle this month. Read some of our earlier coverage of Silverglate on criminalization: February 2008; June 2010; August 2011.

No comment needed
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Headline: "Federal judge orders sex-reassignment surgery for Mass. prisoner." And "prisoner" is perhaps less descriptive than "convicted murderer serving life sentence without possibility of parole."

(I actually talked about an earlier iteration of this litigation in my 2008 critique of civil Gideon: when this is what BigLaw firms are expending "pro bono" resources on, it is obscene to demand taxpayers subsidize other civil litigation because some cannot afford attorneys. The law firm apparently has put another four years into the case since.)

Actually, some comment is needed. If regular citizens can't get taxpayer-paid sex-reassignment surgery, but convicted murderers can, is this a good incentive structure? And keep an eye out for whether Bingham McCutcheon asks for attorneys' fees.

Alison Frankel recently asked whether it's the end of "money-for-nothing" class actions. The Center for Class Action Fairness is putting that question to the test in In re Johnson & Johnson Shareholder Derivative Litigation by asking the District of New Jersey to dismiss shareholder litigation that makes cosmetic changes to corporate governance, and then presents a $10.45 million bill to shareholders—150% of the already high "lodestar"—for the involuntary consulting arrangement. As in Robert F. Booth Trust v. Crowley, the suit "serves no goal other than to move money from the corporate treasury to the attorneys' coffers.... It is an abuse of the legal system to cram unnecessary litigation down the throats of firms ... and then use the high costs ... to extort settlements (including undeserved attorneys' fees) from the targets." As I noted there:

Under FRCP 23.1(a) and its state-law equivalents, a shareholder derivative suit isn't supposed to proceed unless the shareholders bringing the suit adequately represent the shareholders. If the suit is meant to profit the plaintiffs' lawyers at the expense of the corporation (and thus the shareholders), how can the bringers of a strike suit be adequate representatives of the shareholders? I've thus argued that the correct role for courts in such situations is to throw these cases out entirely (or approve the settlement but award only a token amount in attorneys' fees).

Good coverage at Forbes.com (noting that the lawsuits themselves are free-ride piggybacking off of J&J self-disclosure and government investigations) and Reuters (quoting plaintiffs' lawyers calling the motion "frivolous").

As always, the Center for Class Action Fairness is not affiliated with the Manhattan Institute.

A Lilly Ledbetter reminder
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As we've repeatedly pointed out over the years, not only did Lilly Ledbetter deservedly lose her lawsuit, the bill passed in her name has cost jobs and done nothing to reduce the gender gap in wages, which, in the 21st century, is a result of phenomena other than discrimination. Heaven forfend all the fact-checkers incorrectly calling out the Romney campaign on welfare do their jobs in this particular instance.

Around the web, September 5
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A standard argument against illegal immigration crackdowns is the effect on farmers from the resulting "farm labor shortage." Of course, as any economist can tell you, there's no such thing as a "shortage," only an unwillingness of purchasers to pay a market price that may have previously been artificially depressed. In any event, 2011 farm profits were at a record high, despite all the threats of crops rotting in the fields because of the lack of Mexicans to illegally perform farmwork. We can understand why the Chamber of Commerce supports policies that reduce wages. Why do Democrats want to reduce the wages of unskilled Americans and increase inequality? [Carney @ CNBC]

Around the web, September 4
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  • Overlawyered round-up of CCAF victories, plus two more on July 31.

  • Delaware Supreme Court upholds $300 million fee award we criticized; a $35,000/hour payday is nice if you can get it. [ABA Journal link roundup]

  • Complaint to Illinois Department of Human Rights that corporate executive's speech creates "hostile environment" in chain's restaurants. [Volokh]
  • A side-effect of the Obama administration's politicization of the Department of Justice is skepticism when they start investigations of corporations associated with owners critical of the administration. [Naked DC] Separately, Walter Olson looks at Sheldon Adelson's libel litigation record. [OL; Frankel]
  • Kimberly Craven appeals the error-ridden DC Circuit Cobell decision to the Supreme Court. I am no longer Ms. Craven's attorney, and can't comment, so please don't contact me looking for insight or explanations of why she appealed or requesting that she drop her appeal. [ICTMN; Native Sun News; cert petition @ Turtle Talk]
  • China provides the perfect example of ideal Keynesianism in action—and not working. [Cowen]
  • A new North Korean economic policy provides 0% marginal tax rates on farmers' surplus production, but people are skeptical of the reforms because of the lack of rule of law and the government's previous confiscations of reform-generated wealth. But you can ever so briefly complain that your marginal tax rate is higher than that of top North Korean farmers. [Daily NK]
  • Inspiring story of paralyzed Skadden M&A partner and Chicago Law grad. Also, never ski. [WSJ]

In a typical class action settlement, the defendants will often pay as much as a million dollars in notice expenses. One way class action attorneys inflate their fee requests is by claiming these notice expenses are a benefit to the class, and should be counted when calculating "percentage of the benefit" attorneys' fees. This is, of course, utter nonsense. Notice is a benefit to the defendant; any defendant who skimps on the constitutionally-required notice will not get the benefit of the unnamed class members' waiver that the defendant is presumably seeking. And, indeed, that's exactly what happened in the Second Circuit case of Hecht v. United Collection Bureau, where a class action settlement was deemed not binding on a new class of FDCPA complainants who were dissatisfied with that settlement and wished to bring a new action. The case is also important for affirming that Rule 23(b)(2) class certification cannot bind a class on damages claims. More: Wolfman, who successfully argued the appeal; Frankel at Reuters.

If anyone is looking for a free chance at a multi-million-dollar consumer class action, Hecht provides a good cause in a suit against HP and NVIDIA over their misleading notice to the class of a rip-off settlement.

The Class Action Fairness Act was intended to protect consumers against the unfair class action settlements rubber-stamped in state courts by creating federal jurisdiction in nationwide class actions with more than the $5 million jurisdictional minimum at stake. Some plaintiffs' lawyers have attempted to avoid federal court by purporting to limit the rights of their absent clients to less than $5 million, notwithstanding any claims they might be able to make, with the idea of negotiating an attorney-friendly settlement in state court. Most courts reject this tactic, most notably Judge Easterbrook in the 2011 Back Doctors decision, noting that any such disclaimer violates Rule 23(a)(4)'s adequacy requirement. The Eighth Circuit, however, has honored such forum-shopping attempts, resulting in numerous remands to the judicial hellhole of Texarkana, Arkansas.

Friday, the Supreme Court granted certiorari to an Eighth Circuit deny of an appeal of such a remand, The Standard Fire Insurance Co. v. Knowles. The Center for Class Action Fairness filed an amicus brief in support of certiorari, making us one for three in cases where we've filed amicus briefs in support of certiorari.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.