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December 2012 Archives

The Toyota settlement, widely reported (here's the WSJ take) is remarkable in many ways.

To recap: there was unintended acceleration in some Toyota vehicles. In every single case that could be verified, by private and government sources, the unintended acceleration had one of two causes: 1) the driver stepped on the accelerator pedal when he wished to brake; or 2) the driver had had the car washed, the driver's side mat had been removed by the car wash attendants and not rebuttoned in place, and it had scrunched up and was inadvertantly pressed against the gas pedal while the car was being driven.

Plaintiffs' lawyers tried to take down Toyota as they had Audi in years past, but this time government studies exonerating the manufacturer did not wait until the company was bled dry. Nonetheless, plaintiffs persisted. The Toyota cars were defective in design, they claimed, as they did not have a brake override (a mechanism that overrides the accelerator and applies only the brake when the driver presses on both pedals simultaneously). Of course a brake override prevents heel-and-toe driving, which requires some simultaneous braking/accelerating, and Toyota was prized among manufacturers for having resisted this dumbing down of its cars. Too bad, the cars will now be retrofitted with a brake override, and future models will be so equipped.

The class action that was settled mostly involved people who had never had an incident of unintended acceleration, but who were suing because the resale value of their vehicles was allegedly diminished by the (false) belief in the market that Toyotas could accelerate all by themselves. That ground of suit is nowhere legally accredited, and is baseless on several grounds: Toyota does not guarantee nor is there any legal right to any given resale value; the mistaken market belief about Toyotas, if it existed, was caused by misleading press reports and not by Toyota; etc.

Nonetheless, Toyota has decided that its future buyers are in large part too uninformed to understand these "complex" issues, and that public relations requires that the litigation end. The firm has made the problem going away with this mammoth payout, which includes a whopping $200,000,000.00 to the law firm that launched the suit. The payout of course makes future shakedown suits much more likely.

And that is what a $1.1B class action settlement has in common with Gilad Shalit's rescue -- both were done with the best of intentions, and both virtually guarantee that those who flout the law will recidivate in the future.

The Second Circuit upheld the settlement approval in Blessing v. Sirius XM in a non-precedential ruling Thursday. The Second Circuit refused to analyze the objections on appeal, holding that the perfunctory and conclusory statement of the district court that it had "considered the[] oral and written submissions" of the objectors was enough to survive abuse-of-discretion review. This contradicts the Ninth Circuit, which requires a "reasoned response" to objections; how do we know whether the district court abused its discretion when there is nothing in the record explaining why it rejected particular objections? The Court also bootstraps reasoning why it need not consider whether the district court erred in failing to apply CAFA standards to the settlement, contradicting the Seventh Circuit.

On top of signing off of a settlement that literally made class members worse off (my client would have overpaid Sirius by $200 if he had accepted the coupon relief instead of better offers available to class members), the Second Circuit refused to address whether Judge Baer's demand of particular racial composition of class counsel was illegal, holding the lack of proof of injury ended the inquiry. This contradicts the Supreme Court's holding that racial bias in court proceedings is per se injury, and we will seek further review. [Reuters via Bashman]

The Lawyer as Racketeer
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Two Pennsylvania attorneys and a West Virginia doctor they hired to read clients' X-rays have just been found liable by a federal jury in Wheeling, WV for violating the (federal) Racketeer Influenced and Corrupt Organizations Act, and for (state-law) fraud, in connection with asbestos claims made against CSX Transportation. The jury awarded $429,240.47, which was the amount CSX said it had spent to defend the 11 claims, against Pittsburgh attorneys Robert Peirce and Louis Raimond and Bridgeport, WV radiologist Ray Harron.

Peirce had filed more than 14,000 asbestos cases against CSX. Harron had diagnosed tens of thousands of asbestos claims for the attorneys. Harron's diagnoses were first called into question in 2005 by a judge in Texas that heard cases involving the lung disease silicosis. CSX filed its lawsuit later that year, claiming Kentucky railroad worker Earl Baylor was fraudulently diagnosed with asbestosis. At the trial, CSX attorneys argued that Harron had initially found hundreds of patients clear of asbestosis, but later switched his diagnosis. It presented only 11 of those cases, likely because of statute of limitations or solvency issues.

The West Virginia verdict follows a May 2012 federal appeals court ruling upholding a $420,000 fraud verdict against two Mississippi lawyers, William Guy and Thomas Brock, for committing fraud during an asbestos lawsuit they filed in 2001.

Still more on Bork
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Santa's liability issues
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Facebook Disappointments
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Everything about the Facebook initial public offering was disappointing. This week's action by the Massachusetts securities regulator is no exception. Massachusetts entered into a $5 million settlement with Morgan Stanley, the lead underwriter of the Facebook IPO. The basis for the settlement was Morgan Stanley's alleged violation of the terms of the 2003 Global Research Analyst Settlement. The 2003 settlement--entered into with the Securities and Exchange Commission, the New York Attorney General and other regulators--involved research analyst conflicts of interest at ten Wall Street firms. There were concerns that research analysts were doing the bidding of investment bankers.

As part of the settlement, the firms agreed to a number of undertakings that fundamentally changed research analysis about companies. In an unfortunate instance of backdoor rulemaking, the regulators changed the industry's regulatory structure without going through the procedures required for agencies conducting rulemaking.

Morgan Stanley allegedly broke the undertakings it agreed to in 2003 when the investment banker managing the Facebook IPO apparently got too involved in the company's discussions with research analysts. As a result of those discussions, research analysts modified their forecasts for Facebook revenue downwards. Regardless of what one thinks of the 2003 settlement, an investment banker's attempt to get updated information to research analysts so they could appropriately downgrade their revenue forecasts in advance of the IPO does not seem to be the type of scenario the settlement was intended to cover.

The Above the Law blog is filled with complaints about the legal job market. It's too hard to find a high-paying job; the high-paying jobs require a lot of unpleasant unenjoyable time-consuming work. I may have had some sympathy for this a few years ago. Today, I just don't want to hear it.

I started the Center for Class Action Fairness in 2009 on a whim, with the vague goal of racking up some court experience that might let me establish a law-school clinic and sneak onto a tenure track at an advanced age, and maybe do some good in the process. Then I discovered how much I like litigation when I have autonomy and don't have to make arguments I don't believe in, and discarded the idea of writing law-review articles no one would read. Today I have two attorneys working for me, a fascinating docket, and get to argue more appellate cases every six months than I did in my entire ten-year BigLaw career. Every month, I'm presented with class action settlements where class members have legitimate objections and want to object, but my attorneys don't have the time because of other opportunities or commitments. Every month, I'm presented with still other class action settlements where class members would have legitimate objections, but no class member ever approaches me. If I were more gregarious and extroverted and proselytized for my cause better (and if I wasn't burdened with a right-wing resume that has the consumer blogs skeptical of my motives and refusing to write about me), I'd be even more utterly overwhelmed with these opportunities. I don't have a monopoly on class action objections or helping consumers and shareholders. At the risk of creating competition that cannibalizes my donors, go do what I do, maybe you'll do it better. You'll certainly make more money than me and my attorneys do if you don't handcuff yourself with a non-profit structure; this year alone, we've sacrificed hundreds of thousands of dollars of legitimate attorney-fee requests because we would have exceeded IRS limits if we asked for everything we were legally entitled to.

Ivy League schools have been discriminating against Asian-Americans for years; affirmative action programs produce illegal racial discrimination and entitlement to attorneys' fees in places other than New Haven; the Obama administration is engaging in any number of lawless counterproductive activities that could be stopped by litigation; there's a potential opportunity to profitably advocate on behalf of mass-tort clients victimized by their attorneys. Mad at your law school? Find a friendly tenured law professor and bring an antitrust class action against the AALS. Sue telemarketers that violate the TCPA: be the one who takes down those bastards at Card Services. Go, find clients, toil in obscurity and poverty for a few years, come out millionaires.

And these are just some of the things I would do if I didn't have to sleep or if there were 144 hours in the day or I could clone myself five or six times. And it drives me nuts because nobody's doing them!

Even if all you're looking for is money, the plaintiffs' mass-tort bar charges their clients 35-40% of recovery and flies around in Gulfstream jets. Be the one to charge clients 20-30% and settle for flying in first class.

On the defense side, does BigLaw really add enough value to justify $2M PPP partners—who make that money after the overhead of expensive offices in the middle of the city? Perhaps in mass-tort cases mobilizing hundreds of attorneys, but there's lots of other low-hanging litigation fruit for the picking. You don't need to be physically near the courthouse; everything's electronically filed these days. Get together with three of your law school friends, find a loft on the cheap side of town, bill lower rates for fewer hours, and make more money, or at least "enough" money to enjoy your newfound leisure and autonomy.

Your career ideas don't have to be my ideas. You went to law school for a reason; find a cause you love, and advocate for it, and, to the extent it's not entirely crazy, the money will follow; even if it doesn't, you'll be happier. Tikkun olam, even if your goals aren't mine. (From July 1, 2011, to June 30, 2012, class action settlement objectors won a grand total of seven federal appeals. I won four of those cases. If you're a regular reader of mine, you know more about this area of the law than I did when I started. How many other areas of the law are there that have gotten corrupted and could be meaningfully moved in the right direction with a little effort? Go find them.)

Want to know a secret that will help you even if you stick around in (or decide to go into) BigLaw? The law is big. Really big. Too big for anyone to learn completely. There are millionaire lawyers who barely understand civil procedure, but they hire someone who sort of does or fake their way through it. Pick an area of the law and learn it thoroughly, thinking hard and skeptically about it. There's no barrier to entry to reading cases and law review articles. Just by doing that, you'll become one of the top fifty attorneys in that area, and the other 49 are earning good livings. If it's a minor area of the law (like, say, class action settlement objections), and you put a couple of thousand hours into learning it and thinking about ways to make it better, you'll become one of the top five attorneys in that area before you know it.

But stop whining. The minute you become a member of the bar, you're a member of a cartel that permits extraordinary rents. And with 21st-century technology, you don't need a lot of help to make it out on your own.

More on Bork
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Must-reads from Walter Olson and Michael McConnell. Earlier.

Update: more from Andrew Grossman. Can we partially credit Bork with the 1980s turnaround in the American economy?

Robert Bork, 1927-2012
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I didn't agree with him on the First Amendment, or some of the positions he took in his last 15 years, but if he did nothing but revolutionize antitrust, Dayenu. The injustice and character assassination done against him in 1987 was a watershed moment that changed American history and government for the worse, I fear irrevocably. A great man. [Podhoretz @ Commentary; Adler @ Volokh; Fed Soc Blog; Reuters; Steyn; Whelan]

I disagree with Steve Hayward that Bork's death today is ironic defeat for the left because it would have meant an Obama appointment instead of Justice Kennedy still sitting there occasionally voting for conservative principles. After all, a Court that had Bork instead of Kennedy would have gone the opposite way on 5-4 issues like capital punishment. Moreover, in the alternate history where President Reagan is able to muster Judge Bork to a confirmation notwithstanding the unfair attacks on him is the alternate history where President George H.W. Bush nominates Frank Easterbrook or Edith Jones to the Court instead of David Souter, and we see different results in some cases that went 6-3—perhaps even results that satiate the Christian right and galvanize the Democratic left, and swing the 2000 and/or 2004 elections for Al Gore. (Or maybe Clinton nominates Larry Tribe instead of Breyer, and his decisions move the Court left? A butterfly flaps its wings...)

Oddly, it is impossible to find The Antitrust Paradox on Amazon. Google searches lead to a completely different 1923 book on Huguenot emigration to America, though the reviews are for Bork's book. I hope some programmer didn't spitefully bury the book there so it wouldn't sell. (Update: available if you search Amazon for "Robert Bork." Very odd.)

(Updated to respond to Steve Hayward and add links.)

O'Quinn silicosis clients sue
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I was the first to report when John O'Quinn's breast-implant clients successfully sued his firm for tens of millions of dollars of improper overbilling. [April 2007; June 2007; July 2007; Olson follow-up December 2009]

Now a group of O'Quinn's silicosis mass-tort clients allege similar overbilling and double-billing, including the pass-along to clients of referral fees paid to medical testing companies; document destruction and coverup is also alleged. A former O'Quinn partner denies everything, and claims a state probate court already rejected the allegations. [Alison Frankel @ Reuters]

Garance Franke-Ruta has a rule regarding married politicians' affairs: paraphrased, it's "It's never two. It's either one, or many." It would seem probable that the same principle is true for mass-tort lawyers: why would an attorney who skims tens of millions of dollars of recovery from breast-implant clients suddenly turn ethical and fastidious when it comes to similarly situated silicosis clients? And if the silicosis allegations are true, perhaps fen-phen and asbestos clients of O'Quinn's might want to look at their bills a bit more carefully? Another question that comes to mind is whether O'Quinn was especially aggressive when it comes to mass-tort billing, or whether other mass-tort settlements from other attorneys have similar skimming. Every once in a while there's a news story that suggests this could be a fruitful line of inquiry. Dickie Scruggs was reckless enough to attempt to bribe judges to get an upper hand in fee-splitting disputes with fellow attorneys; is it possible that he also took advantage of less-sophisticated clients in easier-to-hide ways? And the thing that has surprised me most in my work with the Center for Class Action Fairness is how the Ted Frank of five years ago wasn't cynical enough in anticipating the ways class action counsel unfairly treat their clients. Scrutinizing the recovery of mass-tort settlement plaintiffs seems like it would be a potentially profitable niche for entrepreneurial attorneys. Though, in general, the legal system protects its own.

We complained when "the federal government added cancer to the list of sicknesses covered by the $4.3 billion World Trade Center fund"; now a JAMA study of 55,700 people with Ground Zero exposure finds, not unexpectedly, no link to cancer. [NYT]

The question now becomes whether the fund will waste only $3-4 billion of taxpayer money or whether future Congresses will be bullied into a giveaway of tens of billions of dollars to people based on geographic proximity when the fund is scheduled to close in 2016. I warned precisely against this inevitable waste, but Jon Stewart and Democrats politicized the issue into "Republicans don't care about NYC first responders," media bias failed to tell the other side of the story, and Republicans caved after some minor changes to make the bill a bit less worse.

I've noted that the "disparate impact" policies/litigation-strategy of Obama administration and of the NAACP will have the effect of increasing actual racial discrimination against Asian-Americans. Ron Unz and Charles Murray have a wealth of data to suggest that the Ivy Leagues are already engaging in explicit racial discrimination against Asians, with what appears to be a de facto cap on Asian-American admissions, even as the percentage of Asian-Americans goes up, and the percentage of high-achieving American students who are of Asian descent rises even higher.

Some day a lawyer is going to be the first to start bringing these cases and make himself very rich. But left-wing legal entrepreneurs will be uncomfortable about the politics of these cases, because they undermine the disparate-impact paradigm; and right-wingers with the entrepreneurial spirit tend to go into business, rather than law or policy.

Update: coincidentally, the debate is joined today in the New York Times.

James Copland and Adam Freedman, author of "The Naked Constitution," discuss the Supreme Court's ruling on the 5th amendment takings case, Arkansas Game and Fish v. United States.

"Two cheers for the Supreme Court for a vote of common sense -- a pretty good win for those of us that want a robust takings clause." - Jim Copland

Listen Here

Zywicki on Skeel on Dodd-Frank
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"[David] Skeel is withering in his assessment that the legislation itself will likely be a complete failure in attaining its intended objectives. In fact, not only does Skeel conclude that Dodd-Frank will largely fail in accomplishing its central objectives, it will create additional unintended consequences that will result in substantial economic, financial, and even political harm." [Zywicki @ Liberty & Law; The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences]

The CFTC garnered a win in the Dodd-Frank litigation saga. On Wednesday, federal district court Judge Beryl Howell, in a nearly hundred-page opinion, supported the CFTC's expansive interpretation of its post-Dodd-Frank mission and its lax interpretation of its cost-benefit analysis mandate. The decision came in response to a joint challenge by the Investment Company Institute and the Chamber of Commerce to a rulemaking that broadens the CFTC's regulatory oversight over investment companies already registered with and regulated by the Securities and Exchange Commission.

I have written about this from the beginning (just search for "Engle" and you'll get the low-down), but here's a recap:

1. In 2006, the Florida Supreme Court quashed a Miami-Dade County jury that had leveled a $145 billion verdict -- the largest punitive damage award in American legal history-- against five tobacco companies in so-called Engle class action. The Florida Supremes correctly found that each smoker's situation was unique, and so a class action was inappropriate. But they also found that the Miami-Dade jury's finding that the five tobacco companies had misrepresented the addictive nature and health dangers of cigarettes was supported by the evidence. Thus, they held, all the individual lawsuits to be expected (and which had to be filed by January 2008) need not re-litigate that issue.

2. The slow drip-drip-drip of litigation against "Big Tobacco" then began. Millions at a time were adjudged to individuals, and the prospect that many billions might eventually have to be paid became real.

3. The biggest single verdict of all in these individual suits was in November 2009, a suit filed by the sister of former Ft. Lauderdale mayor Jim Naugle, against Philip Morris. Plaintiff Lucinda Naugle was awarded a whopping $300,000,000.00, 81% of which was a punitive award. Ms. Naugle had allegedly smoked Benson & Hedges cigarettes, a Philip Morris brand, for 25 years (starting, significantly, before strong mandated government warnings in 1986). She developed emphysema, and alleged she would never have started smoking and become addicted to nicotine had the defendant not committed the fraud and misrepresentation found by the Florida Supreme Court.

4. The trial judge in the Naugle case reduced the award to $36.8 million, an 88% reduction, on the grounds that the jury award was based on anger and passion, not on the evidence.

5. This week, the Fourth District Court of Appeals in West Palm Beach struck even that reduced award, on the grounds that the judge should have ordered a new trial (i.e., declared a mistrial) once he found that the jury award was tainted by passion and prejudice. The Court of Appeals ordered a new trial, but only to determine damages, not to determine liability to Ms. Naugle.

Here's a link to a synopsis of the original $300 million trial verdict. And here is this week's decision by the Fourth District Court of Appeals.

The beat goes on!

Electronic Arts was facing a great deal of competition for its Madden NFL games from Sega and other video game makers, and was forced to lower its price. So it purchased an exclusive license to make games using NFL logos, essentially creating a monopoly, since few would spend development money to create a game without the ability to sell the realism of an NFL experience. This may or may not be actionable under antitrust laws, but it did result in a class action. The resulting settlement has gotten much criticism from the technology and gaming press for letting EA keep its exclusive license, but the settlement is even worse than they report. When all is said and done from the claims process, consumers will likely end up with under a million dollars, while the attorneys are requesting $9.2 million for themselves. Even if we were to assume the entire $27 million settlement fund is "class recovery" (and how can we when over 95% of it is going to people who aren't class members?), the $9.2 million is over 34% of the fund, several million dollars higher than the Ninth Circuit benchmark. As a member of the class who got his inspiration for my current gig when I objected to a similarly bad video game class action settlement, how could I ignore such unfairness? The Center for Class Action Fairness filed an objection Monday.

David Larcker, James Irvin Miller Professor of Accounting at the Stanford Graduate School of Business and senior faculty of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University, and his colleague Bryan Tayan, released an article this week titled - Union Activism: Do Union Pension Funds Act Solely in the Interest of Beneficiaries? The piece explores the shareholder activism engaged in by labor unions in their capacity as pension plan administrators, most specifically focusing on the question of whether that activism conflicts with the fiduciary duties owed to the plan beneficiaries.

To examine just how active labor-union-affiliated funds have been in the shareholder proposal process and what type of changes they seek, visit the Manhattan Institute's Proxy Monitor database which tracks such data for America's largest public companies.

Speaking of judicial hellholes
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It's that time of year for ATRA's annual entertaining report of magic jurisdictions. California leads the list, and Philadelphia drops from #1 to a "watch list."

New Jersey only made the "watch list" despite Judge Higbee's best efforts.

Isaac has already mentioned and linked to the motion, but it's worth noting that we were pointing out the plaintiff-friendly rulings of Judge Higbee back during the Vioxx litigation. E.g., October 2005, December 2005, April 2006, April 2006, August 2006, March 2007.

In the long run, it didn't make much of a difference in the results (Merck settled the Vioxx cases for a nuisance sum, and New Jersey appellate courts reversed the more ludicrous judicial rulings), but the good publicity from enormous jury verdicts helped attract thousands of new plaintiffs hoping for jackpot justice, ultimately adding to Merck's legal bills and the nuisance value of the set of cases. Hoffman-La Roche can't move to disqualify a judge just because the vast majority of her legal errors and rulings on discretionary questions favor plaintiffs, but Judge Higbee's lack of discretion in her extrajudicial comments may provide the hook they need to get fair trials in the future.

It's also worth noting that the Accutane cases are meritless. Yet oddly, when the pundits talk of a "War on Science," it's always in reference to a politic answer a Senator Rubio gives that acknowledges the religious faith of his constituents (and the vast majority of Americans), rather than junk-science litigation like this that actually interferes with science.

The Lawsuit Reform Alliance of New York reports that the local lobbying arm of Trial Lawyers Inc. and lawyers and law firms affiliated with it spent $3 million in this year's legislative session. It's a good return on investment that the legislature has blocked much needed civil justice reform in the state, and has even expanded the ability of trial lawyers to extract wealth from taxpayers. More: NY Post.

Breaking news from the blog of the New Jersey Lawsuit Reform Alliance:

Among other things, Judge Carol Higbee appeared alongside plaintiffs' attorneys mid trial at a public event and commented on pending litigation. Repeatedly calling it a "burden" to hear cases involving its Accutane product doesn't sit well with Roche, nor should it sit well with any defendant that's been embattled in litigation for the past 9 years.

Roche - a world leader in innovative cancer drugs - is taking the bold and unprecedented step of asking the Superior Court to relieve her of this "burden."

Read here: Download Memorandum of Law in Support of Defendants' Motion to Recuse

By Richard A. Epstein

A Four-Part Saga The recent decision of the Supreme Court of the United States in Arkansas Game and Fish Commission v. United States represents a victory of sorts for the property rights movement. I have already provided an earlier analysis of the underlying issues in this case, which stresses the need to clarify the relationship between common law tort actions that are subject to the defense of sovereign immunity and government takings for which the government is obliged to provide just compensation. While the Court passed by that question in silence, it fortunately did give, the Arkansas Game and Fish Commission (AGFC) a second chance to make a case for compensation on remand, in a unanimous decision (Justice Kagan recused). That door had previously been slammed shut by a divided Federal Circuit, which had adopted a per se rule denying compensation in all cases in which the government invaded property by temporary flooding. (The Circuit Court decision had overturned an excellent decision in the Court of Federal Claims by Judge Charles Lettow.) But what should have been a clean victory for the Arkansas Game and Fish Commission (AGFC) has turned into a messy remand to an unfriendly Federal Circuit for further proceedings. Three chapters of this saga have now been completed. A fourth remains.

In the opening chapter of this extensive litigation, the AGFC brought a suit against the US for its flood-control operations in Missouri during the years 1993-2000. The U.S. Army Corps of Engineers (Corps) was keen to provide farmers in Missouri with a longer growing season, and did so by ordering timed releases from behind its Clearwater Dam. In order to slow up releases during the growing season, the Corps had to release large quantities of water thereafter. Eventually, these reached the AGFC's Dave Donaldson Black River Wildlife Management Area, located 115 miles down stream. The waters did not permanently remain there, but even after they receded, the accumulated moisture destroyed or degraded some 18 million board feet of timber located on some 23,000 acres to the tune of $5.7 million. The Court of Federal Claims accepted the AGFC's claim that the Takings Clause embraces the principle that destruction of property by flooding is the same as its occupation by the government.

Continue Reading at Point of Law Columns

The House Financial Services Committee will hold two hearings this week on Dodd-Frank implementation--the first on derivatives and the second on the Volcker Rule, which limits banks proprietary trading and private fund activities. Both portions of Dodd-Frank have proved more difficult to implement than their Pollyannish proponents envisioned. The Commodity Futures Trading Commission came out of the gate quickly with its derivatives rules, but market realities have forced it to moderate the pace of the implementation process through a series of staff guidance documents. The Volcker Rule regulators have issued a proposal, but apparent inter-regulator struggles have delayed a final rule.

If a customer ordering on line at Red Envelopes or ProFlowers or some related sites wasn't unusually careful, he or she might find themselves checking boxes to join and be billed monthly for Easy Saver Rewards, a service that wouldn't have been able to obtain subscriptions through normal channels. This resulted in a class action that has settled, but the vast majority of the benefits to class members are coupons of limited application. Though the parties claim the coupons to be worth $20 face value, the reality is that they're not stackable with standard discounts the defendant uses. Thus, someone buying a $70 jewelry order from Red Envelope has a choice of a 30%-off coupon or a $20-off coupon—making the $20 coupon worse than worthless for that particular purchase. Nevertheless, the class counsel is requesting a 25% award—double their lodestar—based on the face value of the coupons, rather than the redemption rate. This artificial inflation of the settlement value swipes millions of dollars that would otherwise go to class members. Class counsel try to get away with this plain violation of the Class Action Fairness Act restrictions on coupon settlements by never using the word "coupon" in the settlement agreement, instead calling the coupons credits.

Furthermore, despite the instruction in Nachshin v. AOL that cy pres in a national class go to national charities, cy pres is instead allocated to local universities, including the alma mater of several of the attorneys involved.

The Center for Class Action Fairness has objected on behalf of a class member. The case is In re EasySaver Rewards Litig., No. 09-cv-2094 (S.D. Cal.).

As always, the Center is not affiliated with the Manhattan Institute. Earlier.

More on Caronia
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Scott Gottlieb notes the chilling effect of current DOJ policy. I still think he underestimates the incentives facing prosecutors and pharmaceutical companies in hoping for internal reform or successful pharmaceutical-company challenges; reform is going to have to come from the legislature or from higher up in the executive branch, and neither is likely in this administration or in a media environment that views pharmaceutical companies as evils to be barely tolerated rather than the major driver of healthcare innovation.

Earlier on POL; Bloom @ MPT; Pharmalot comes to the same conclusion I do: Caronia by itself won't change how pharma handles the issue; WSJ.

Gene Weingarten has won two Pulitzer Prizes in the last five years for his powerful and all-too-rare feature writing. He has another un-put-downable feature in the upcoming Washington Post Sunday magazine on the Jeffrey McDonald case, with some implicit criticism of the unskeptical coverage of Errol Morris's "A Wilderness of Error" positing a conspiracy theory to railroad MacDonald. It's an extraordinary tale not just of a prosecutor who devotes his career to seeing justice done, but of the amazing smoke screens that can be woven by defense attorneys working decades after the fact as memories fade and peripheral (or even uninvolved) witnesses appear who are willing to lie for ulterior motives—and of a media eager to consume and repeat such stories, all over the backdrop of a chilling crime and a glamorous sociopath.

The story is important for three additional policy reasons beyond the obvious ones about media bias (ironic, given the controversy over "Fatal Vision," another book about the case). First, a Salon/Alternet story (also gullibly credulous of Morris's book) asserts as "never in doubt" that if a different attorney on MacDonald's team had given the opening and closing argument at his murder trial, MacDonald would have walked. I don't know if that's true; the jury that convicted them took only six hours to do so, and Weingarten quotes one of the jurors relaying the strength of the presumption of innocence they had given a citizen with MacDonald's upstanding record; it's hard to believe that what made the difference was the long-haired Jewish lawyer who did speak the most. But if it is, it shows the degree to which jury trials are contests of "game show" tactics rather than effective truth-finding mechanisms—and the degree to which we as a society find that acceptable.

Second, the sort of nonsense of manufactured claims of innocence that we see in this murder case is not unlike that we see in other murder cases. Decades after witnesses die and evidence is discarded, private investigators looking hard enough can find someone willing to change their story or invent an entirely new one. Most people are honest, but it takes only a couple on the periphery to create an alternative scenario that results in a best-selling book. And most murder cases don't have someone as meticulous and with as much institutional knowledge as Brian Murtagh, willing to spend decades on a single case finding outside-the-box ways of refuting every new conspiracy theory that arises. (And luck played a role in this case. Indeed, a major witness apparently planned the timing of his lie around the scheduled destruction of the documents that would have refuted him; by happenstance, the documents hadn't been destroyed.) The Innocence Project has done a lot of good springing convicts through documentation of decades-old DNA evidence that was unable to be contemporaneously considered, but I hadn't realized that they're also involved in cases like MacDonald's based entirely on improbable witnesses (the DNA evidence, according to Weingarten, is entirely consistent with MacDonald's guilt), and makes me very much rethink my willingness to endorse them in the future. I will be more skeptical of decades-old innocence claims in the future—and I was already far more skeptical than most.

Third, the case and the story shows the importance of statutes of limitations in holding accurate civil trials. Witnesses die; memories fade; physical evidence is destroyed naturally or in the regular course of business; grudges and motives to lie multiply. Only an accident of fate permitted the prosecution here to rebut a 2005 fiction told about 1979 events where most of the witnesses had died.

Earlier on statutes of limitations and on game-show litigation tactics.

McDonald's coffee is still 190 to 200 degrees. Which is the way consumers like it. Earlier on McDonald's hot coffee.

Timothy P. O'Neill has an interesting piece on the "Thayerism" school of heavy deference to legislative judgments that may have motivated Justice Roberts's opinion in NFIB v. Sebelius. One can disagree with it, but it is a fundamentally conservative form of jurisprudence; as I argued in June, you can be unhappy that Roberts takes judicial restraint to such levels, but you can't accuse him of being a Souter.

While O'Neill focuses on Justice Harlan, Justice Roberts's own jurisprudence already gave hints of this approach: Free Enterprise Fund, NAMUDNO, and Wisconsin Right to Life, in hindsight, show the same tendency to err on the side of deference to the legislature. (See also Adler @ Volokh.)

(Apologies to Professor O'Neill for originally misspelling his name.)

In his recent article, New Pressure On Schools To Adopt Quotas, Speech Codes, And Low Standards?, senior attorney at the Competitive Enterprise Institute, Hans Bader, sheds a light on the recent effort by the Senate to expand the scope within which colleges, schools, and recipients of federal funds can be sued for "disparate impact."

Lawsuits against schools and colleges have nothing to do with our troops and their needs. But that didn't stop Senators from seeking to add a harmful provision long sought by trial lawyers to the 2013 Defense Authorization bill last night. The provision, proposed in Senate Amendment 3215 by Senators Sherrod Brown (D-Ohio), Al Franken (D-Minn.), Bernie Sanders (Vt.) and Sheldon Whitehouse (D-R.I.), would dramatically expand the reach of a federal statute, Title VI, to allow colleges, schools, and recipients of federal funds to be sued for "disparate impact." Disparate impact is a race-neutral practice that weeds out more minorities than whites despite having no discriminatory motive behind it -- like a standardized test that more minorities fail than whites. The provision would also allow colleges, schools, and other institutions to be sued for unlimited punitive damages.

Currently, disparate-impact lawsuits against colleges and schools are barred by the Supreme Court's decision in Alexander v. Sandoval, 532 U.S. 275 (2001). Punitive damages under Title VI are barred by the Supreme Court's decision in Barnes v. Gorman, 536 U.S. 181 (2002), where even liberal Justices like David Souter concluded that punitive damages are inappropriate under spending clause legislation like the Rehabilitation Act and Title VI.

The specter of liability for disparate impact could make schools get rid of standardized tests designed to ensure that students are really learning, and detect failing schools, since all but the easiest standardized tests arguably have a racially "disparate impact."

Continue reading on openmarket.org.

Does Fisher matter?

The recently-argued Supreme Court case of Fisher v. University of Texas has many people believing that the Court is likely to strike down the explicit use of racial preferences by governmental institutions in the name of "diversity." [MI podcast; earlier at POL; Cato event; Bader; SCOTUSblog]

But given the institutional support for racial preferences, it seems far from clear to me that even the broadest possible 5-4 Supreme Court decision in Fisher will be effective.

Take, for example, Ricci v. DeStefano. As Jim Copland predicted at the time, the Supreme Court's command against explicit racial preferences was all but nullified by non-Asian minority plaintiffs arguing that any testing regime more strenuous than a lottery where nearly everyone passed violated disparate impact: the Vulcan Society decisions came down shortly thereafter.

Title VI of the Civil Rights Act doesn't permit disparate impact theories in litigation over education discrimination under Alexander v. Sandoval, 532 U.S. 275 (2001). But that hasn't prevented the Department of Education from threatening school boards with such theories, and many liberal school boards are happy to comply at the expense of student discipline. Similarly, we see complaints being brought against magnet schools that seem indistinguishable from "disparate impact" complaints; Thomas Jefferson High School in Fairfax is 26% white, less than the rest of the school district, but the NAACP has brought a suit complaining that the magnet school admits too many Asians and not enough non-Asian minorities, and appears to be getting federal assistance. And Hans Bader reports that Democratic senators are proposing legislation to undo the small fig-leaf of protection Alexander v. Sandoval provides.

Bader notes that Title VI does not currently permit punitive damages under Barnes v. Gorman, 536 U.S. 181 (2002). But as I've noted elsewhere, the absence of punitive damages is largely irrelevant in a world with uncapped non-economic damages. We see this in yesterday's case of Zeno v. Pine Plains Central School Dist. where, because somewhat above-run-of-the-mill bullying of a special-education student had a racial component (the school was almost entirely white, the plaintiff half-Latino, and the n-word was used), the plaintiff was able to obtain a $1 million judgment consisting of noneconomic damages. Who needs punitive damages when that's possible?

Perhaps Asian-American students can strike back against the Department of Education's attempt to impose discipline quotas by Title VI racial harassment claims against all-too-typical racial bullying. (If I could clone myself and open a second law firm, there's an underserved niche of Asian-American students who aren't being represented against the widespread institutional discrimination against them; it's odd to me that most plaintiffs challenging illegal racial preferences are white, when Asian-Americans are the largest victims.)

Given the degree to which the Obama administration has been pushing destructive disparate impact policies, I am disappointed that it was not an issue in the 2012 election. The media certainly makes it difficult to criticize racial preferences (witness the MSNBC-stoked faux racism outrage over Republican senators that supported Condoleeza Rice but oppose Susan Rice or the Houston Chronicle smear of plaintiff Deborah Fisher), and I've certainly been attacked in briefing over my litigation challenge to racial preferences. But the issue seems to me a winner—are Republicans really worried about losing that last 2% of the African-American vote? Wouldn't it be nice to give more than 30% of Asians a reason to vote Republican? (One reason I'm inclined to think an attack on the unfairness of racial preferences would have electoral salience in addition to being good public policy: the untenably ludicrous Sixth Circuit 8-7 en banc decision striking down Michigan's ban on racial preferences was delayed until after the election, though the timing could have been a coincidence.) But it's hard to see how we can move past a world where any criticism of racial preferences is ironically called racist if politicians cower instead of standing up for what's right. And if disparate impact theory isn't more effectively challenged, it will do the country little good if or when Fisher v. University of Texas ends a shameful endorsement of racial preferences by the Supreme Court.

United States v. Caronia

The FDA approves drugs only for particular uses, but once a drug is approved as safe, doctors can use their medical judgment to prescribe them for whatever therapeutic purpose they wish. (Network newsmagazines sometimes try to pretend that this is a scandal, running fifteen-minute stories on the issue without once mentioning that it's entirely legal rather than the equivalent of a campus drug ring selling Ecstacy.)

Pharmaceutical companies sometimes run into trouble as a result; the FDA only allows them to advertise the drug for approved uses (accusing them of "misbranding" otherwise), and sales representatives earning commissions have the incentive to go outside of those regulatory bounds. Prosecutors strike hard when that happens, and the threat of debarment can extract billions of dollars from pharmaceutical companies whether or not they are culpable. The public policy problem is especially vexing when medical science is ahead of the regulatory decisionmaking. A pharmaceutical company is, according to the government, breaking the law if it truthfully states "Medical journal M published a study showing that drug D is effective in treating problem X," or even just distributes a copy of the published study. Forbidding the dissemination of truthful information has obvious First Amendment implications, but no pharmaceutical company dares litigate the issue: even aside from the possible consequences of bureaucratic retaliation by speaking out against regulators' power, the same threat of debilitating debarment makes it economically irrational to risk the randomness of the civil justice system, even if the drug company thinks it has a 95% chance of prevailing. This costs lives, as medicine moves faster than the over-cautious regulators do.

Until now. Alfred Caronia, a pharmaceutical sales representative, promoted the narcolepsy drug Xyrem to doctors for unapproved uses and subpopulations, such as "extended daytime sleepiness"—a use later approved by the FDA. His, employer, Jazz Pharmaceuticals, quickly settled for a $20 million fine, but Caronia faced criminal prosecution. He fought the law, was convicted, and appealed.

On appeal, argued in 2010, the Second Circuit reversed yesterday on First Amendment grounds in a 2-1 decision. Beck has thorough analysis that we won't repeat. Also: Gottlieb @ AEI; Bashman link roundup; and I'm sure MI's Medical Progress Today will have something to say.

Gottlieb writes that the decision "should prompt FDA to come up with a more balanced approach that allows findings from scientific studies to be disseminated even if these results aren't in the FDA-approved label and haven't met the agency's high bar." "Should," perhaps, but I'm skeptical about "will." The DOJ and FDA will fight Caronia through at least two more levels of appeal, and the economics of pharmaceutical companies refusing to fight the question means that the FDA and federal prosecutors have no incentive not to continue to overreach: they'll just bring their cases in one of the 47 states not bound by the Second Circuit.

The DOJ shut down the American operations of three major online poker sites: PokerStars, Full Tilt Poker, and Ultimate Bet. Though the Department announced that it intended to reimburse American players that had money deposited at the sites, the government stands to make over $100 million by discouraging anyone from actually making a claim; even those who do make claims will see much of the money eaten up by attorneys. [Buzzfeed via Tabarrok]

In other news, state governments sold $260,000 of Powerball tickets a minute in last week's lottery, keeping a much larger chunk for themselves than any honest online gambling site charges.

The Reluctant Regulator
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Securities and Exchange Commission Chairman Schapiro made headlines today because of the agency's failure to move forward with changes that were mandated by the JOBS Act. At the time Congress voted on the JOBS Act, I made the point that the SEC had fallen down on the job. The SEC's failure to undertake, on its own initiative, a modernization of its regulations created the need for the JOBS Act in the first place. Once Congress took up the task, the SEC--too busy voicing its distaste for innovation in capital formation--failed to offer productive help to Congress in drafting the Act.

The provision at issue--Section 201 of the JOBS Act--is practically self-executing because it partially eliminates the existing prohibition on general solicitation. Had the SEC simply put out a proposed implementing rule immediately after the passage of the JOBS Act, it would have had time to consider public comments (as opposed to the back-channel comments that seem to have scared Ms. Schapiro into inaction), and to finalize the rule in a timely manner.

Ms. Schapiro apparently chose inaction in order not "to be tagged with an Anti-Investor legacy". In reality, it was the SEC's failure to act that hurt investors. Investor protection does not mean protecting investors from hearing about investment opportunities. Investors benefit from having access to information about a broad range of potential investments, which is all the offending provision of the JOBS Act was intended to accomplish.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.