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March 2013 Archives

The securities class action In re Citigroup, Inc. Bond Action Litigation has settled for $730 million, much to the ridicule of Dealbreaker, which notes that the bondholders were already bailed out by taxpayers, and that the settlement bails them out a second time by shareholders—which include taxpayers once again.

But that's just arguably a flaw of the PSLRA; if there was securities fraud, a bailout is largely irrelevant to whether there's a legal cause of action.

Dealbreaker misses the most offensive aspect of the settlement, which is that Bernstein Litowitz plans to ask for $146 million in fees, when it's legally entitled to at most in the $70 million range for a settlement of this size, and perhaps even less depending on the conduct of the litigation. We can tell what a bad job lead plaintiff Louisiana Sheriffs' Pension and Relief Fund is doing controlling their attorneys, because Bernstein Litowitz is asking for "only" $150 million in the $2.43 billion Bank of America settlement—suggesting that Bernstein thinks attorneys are entitled to 0.2% for amounts won over $730 million. If the related Citigroup Securities litigation is any indication, that eventual $146 million fee request is hiding tens of millions of dollars of overbilling. And that's what my shoestring three-lawyer shop discovered while maintaining a big docket of other cases. Imagine how much more a better-funded law firm operating on a contingency-fee basis and willing to invest in a larger investigation could dig up.

Somewhere out there there's a pension fund or hedge fund or mutual fund that is a class member in this lawsuit. They are doing their investors a huge disservice if they don't hire contingency-fee attorneys to intervene early to challenge this abusive fee request.

Ezra Klein unfair to Scalia

Ezra Klein complains that Scalia commented from the bench that "there's considerable disagreement among sociologists as to what the consequences of raising a child in a single-sex family, whether that is harmful to the child or not." According to Klein, Scalia should've been disabused by this notion because the American Sociological Association filed an amicus brief taking a definitive position on the question.

But Scalia's comment surely was prompted by page 12 and footnote 5 of the National Association of Evangelicals amicus brief.

Now, without reading the underlying cited studies, on a question of sociology, I'd be personally inclined to favor the ASA over the NAE, though both are far more politicized bodies than either would care to admit. On the other hand, sociology isn't an especially hard science. That said, if one side says "There's no disagreement" and the other side says "There's disagreement," complete with cites to disagreeing studies, it would seem to me that the side claiming disagreement is technically correct, even if one side of the disagreement has a stronger argument.

Frankly, given the very short history of gay adoption, it seems very improbable that anyone has a definitive answer on the effects of gay adoption. My null hypothesis is that two well-adjusted gay parents are going to do just as good a job as two well-adjusted heterosexual adoptive parents and better than a single-parent household or an orphanage. The gay parents I know are well above average. But there simply isn't any legitimate long-term empirical data on the question one way or the other—especially given that the gay couples who have adopted in the last twenty years are likely to have considerably different demographics than the straight couples who have adopted, making ceteris paribus judgments difficult.

Klein complains that "Scalia offered no details or evidence of this considerable disagreement among sociologists" which is a ludicrous standard for a comment from the bench during oral argument. Klein's attack on Scalia for disagreeing with Klein's opinion and the ASA is entirely unfair.

The existence of disagreement is relevant if the question is whether anti-gay-marriage laws have a "rational basis." One can legitimately question whether that should be the legal standard for evaluating laws discriminating against gays; there's a good argument for what is known as heightened scrutiny. One can also dispute (as some libertarian lawyers do) whether courts should be so deferential to legislatures in conducting rational-basis review—though Klein and liberals would surely throw a fit if the Supreme Court favored economic thought in striking down minimum-wage and rent-control laws as lacking a rational basis the way Klein asks the Supreme Court to give the American Sociological Association veto power over a legislative judgment. Simply put, under normal "rational-basis review," if conducted as it would be under any other constitutional challenge to any other kind of statute, anti-gay-marriage laws are constitutional. Lots of dumb laws I don't like are constitutional when subjected to existing rational-basis review doctrine.

Disclaimer: as you know, I support legislative initiatives for marriage equality, and have otherwise spoken out in favor of gay rights.

Update: Walter Olson @ IGF on how the attack on gay adoption is an attack on adoption.

Commenters note that it's possible for one side of a disagreement to be inherently bogus. This is correct. But as much as I want it to be true, it's simply not the case that "Gay adoption is harmless" is at the level of scientific truth of "The earth revolves around the sun" or evolution. Neither side has definitively proven its case. Over time that will mean we can be more and more confident that the null hypothesis is correct. If I can place a wager where the social science will be in fifty years, I'd certainly lay odds that the null hypothesis is correct. But it's simply not the case that, because of a handful of studies subjectively measuring a few dozen children without adequate controls, we know for a fact that there's no long-term effect.

I'm sympathetic to an argument for requiring legislatures to be forbidden from creating restrictions on freedom of choice in the absence of scientific truth, but the simple reality is that, under current law, states have that right to ban sports betting and poker, to ban prostitution and Four Loko, to require a $9/hour minimum wage, and to restrict gay marriage--assuming that current Supreme Court precedent that laws discriminating against homosexuals need only meet rational basis review hold. We presume as a matter of legal review that the legislature knows what it is doing. I certainly don't agree with the proposition that legislative bodies always know what they're doing; I don't like these laws; other people like some of these laws and not others; but, in the absence of reversing existing precedent, all of these laws are currently within the range of constitutional state regulatory power as a positive matter.

I'm comfortable with the legal argument that the premise and existing precedent is mistaken, and that courts as a normative matter should, under the Equal Protection Clause, give more scrutiny to discrimination against homosexuals. I'm open to the argument that courts should have the power to use rational basis review in a more searching fashion, though it would be a big shift in the separation of powers and would politicize our courts far more than they are politicized now. And I disagree with Scalia. But he's not being intellectually dishonest to come to the opposite conclusion within the existing legal framework and precedent. The case for stare decisis in this area is far stronger than the case for stare decisis in any number of areas where liberals insist conservative justices cannot act because of earlier decisions.

96% of mergers result in litigation alleging breach of fiduciary duty. This isn't because there are widespread breaches of fiduciary duty; it's because strike suits threatening to generate litigation expenses relating to the merger are highly profitable. The case settles with a tweak to the disclosures, and the attorneys walk away with over $1000/hour for agreeing to stop trying to hold up the merger. Courts are beginning to see through this.

Today, the Center for Class Action Fairness won a victory in the Texas Court of Appeals: the appellate court zeroed out attorneys' fees in a shareholder derivative suit settlement that added largely meaningless disclosures to the proxy statement in Kazman v. Frontier Oil. I argued the case, but D. Wade Carvell, our pro bono local counsel, really deserves the credit as the principal author of the briefs and the man who came up with the winning argument. We discussed the case on January 18 and October 10. It's CCAF's sixth appellate victory. (CCAF is not affiliated with the Manhattan Institute.)

(Update: Reuters press coverage.)

And earlier this week, the Ninth Circuit affirmed an award of sanctions against Joseph Alioto for violating 28 U.S.C. ยง 1927 in challenging a merger of Southwest Airlines. Alioto is unrepentant. [Reuters] Little wonder: the $67 thousand sanction isn't even 1% of the $308 million requested in the pending LCD settlement, two to three times the normal rate for settlements of that size. Sadly, the attorneys general participating in the litigation are failing to protect their citizens and have not objected to the outsized fee.

Comcast v. Behrend
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A bitterly divided Supreme Court ruled 5-4 to reverse the Third Circuit and decertify a class in Comcast v. Behrend (SCOTUSblog; How Appealing news roundup) yesterday. Trask has a good summary. Skadden reports that the

decision is welcome news for defendants given the recent weakening of class action standards by some federal courts. By clarifying that a trial court must apply a "rigorous analysis" to each of the Rule 23 prerequisites, including predominance -- even where such analysis entails an overlap with the merits underlying the plaintiff's claims -- the Court has indicated that lax class certification standards have no place in federal class action practice. In addition, those lower courts that have resisted the Supreme Court's recent class certification decisions may be more inclined to deny class certification in cases involving individualized damages determinations.

See also WLF. But plaintiffs' lawyers are telling Reuters that decision won't make much difference and can be readily evaded in future cases. We'll know more what the Supreme Court thinks about the scope of Comcast when they take action on the pending Whirlpool v. Glazer cert petition.

The Bureau of Consumer Financial Protection released an expanded consumer complaint database today. It contains more than 90,000 complaints made to the Bureau about credit cards, mortgages, bank accounts and services, student loans, and other consumer loans. The database includes basic information such as the affected product (mortgage, bank account, etc.), the issue (for example, "problems caused by my funds being low," loan modification), the name of the financial institution, and the disposition of the complaint. These complaints are not verified by the Bureau, and there is no way for a database user to assess whether the complaints have merit.

The Bureau, nevertheless, treats the list of complaints as if it is a key data set for understanding the financial markets and "support[ing] innovation in the consumer finance space." It has created a handful of charts and graphs based on the data and encourages members of the public to do the same. For example, the Bureau created a bar graph to show the top ten companies by number of complaints received. As a note at the bottom of the chart indicates, the chart is meaningless because "The data has not been normalized . . .companies with more customers could be expected to have more complaints." The release of unfiltered complaint data by company is misleading and indicative of an approach to regulation that is rooted in sensationalism, not careful analysis.

Citigroup Securities update
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You may recall my objection to the $100M fee request in the Citigroup Securities case. (Jan. 2; Jan. 7; Jan. 25.)

On February 28, the district court granted in part and denied in part my request for discovery, and ordered the production of the contract attorneys' timesheets and resumes; this generated some not-quite-accurate press coverage from reporters who didn't read the order. Contrary to what the ABA Journal and NALFA said, the plaintiffs' attorneys were allowed to hide what they paid the contract attorneys, what the contracts with the vendors said, and were able to shield everyone—including expert witnesses, contract attorneys, and witnesses submitting declarations—from deposition. [Reuters; Law360]

The discovery was telling. Only two of the contract attorneys were doing substantive work; most of the others had no relevant legal experience, and were billed the same for their time since graduation whether their "experience" involved being unemployed for years because of failure to pass the bar or work at securities litigation forms. (One, being billed at $425/hour, was clearly supervising the so-called experienced "$550/hour" contract attorneys.") The overwhelming majority of contract-attorney time was billed without any contemporaneous description of work: the attorneys hand-wrote the daily hours on the job, and nothing else. The ones who did write descriptions were doing such menial tasks as coding and deposition summaries, and inefficiently at that—one attorney billed 239 hours and over $90,000 to summarize a one-day deposition transcript of under 400 pages. And an extraordinary 30% of the contract-attorneys' lodestar was billed after the case settled—about twenty attorneys didn't even start work on the case until after settlement, and that work didn't change the value of the settlement one iota. I filed a supplemental objection on March 15. We've also moved to strike the expert reports that assert a 16.5% fee is commonplace for a settlement of this size. The actual figure is substantially smaller than that.

Meanwhile, on March 15, the Association of Corporate Counsel submitted an amicus letter brief, noting that the vast majority of corporate counsel pay cost for contract attorneys, and do not tolerate $550/hour markup rates for such low-level work in this legal economy.

Coverage: Fisher @ Forbes; Reuters; ACEDS; Toothman (whom I hired as an expert witness after that blog post); Law360 ($); Law360 ($). In that last story, note how Joanne Doroshow dishonestly misrepresents the question in dispute rather than fairly addresses the actual argument that I make: that lodestar reflects prevailing market rates, and the prevailing market rate for contract attorneys is not $550/hour, much less greater than $1000/hour after a multiplier.

I'll be on WYNC today from 9:30 to 9:40 am to discuss the practice of hiring line-sitters to attend Supreme Court arguments and other court and federal hearings.

A Jada Smith piece discusses the decades-old practice of paid line-sitters holding places in line for the fifty seats open to the public for Supreme Court hearings.

Adam Liptak tweets that the idea of seats going to the highest bidder violates the concept of "Equal Justice Under Law." But just because the Supreme Court doesn't charge for seats doesn't mean that the seats aren't going to the highest bidder: the "first-come, first-serve" rule (which doesn't apply to journalists like Liptak, who get a guaranteed front-row seat in press gallery) just charges by the bidders with the most time, rather than the most money: over 24 hours for the most popular arguments. It's hardly a surprise that the result is that there's room for a deal, since one can pay people for their time. It's not free for someone with a job to sit in line for days, especially if they don't live in Washington to begin with. (If the Supreme Court simply gave out 50 tickets for free to each argument, one would quickly see those tickets on Ebay or Craigslist or StubHub.)

Now, one can complain that line-sitting companies are capturing rents from scarcity that would be better served in the judicial coffers: at $50/hour for a line sitting company, it appears that this argument could have raised $100,000 or more for the courts if the Supreme Court had simply sold tickets.

It's worth noting that the Supreme Court is already the most open of the branches. Unlike the legislative and executive branches, when the Supreme Court makes a decision, it is immediately public, and when it's precedential, they explain their reasoning. Lobbyists have secret conversations with legislators and regulators, but lawyers' arguments to the Supreme Court are constrained by public briefing. The argument may not be contemporaneously available to the entire public, but the oral argument is the least important part of the process and is, in any event, available in transcript form same day, and audio recording not much later. Where's the real harm?

As "outrages" go, let's take a look at PACER, where the judiciary overcharges by over $100 million over costs for documents available in public court dockets and provided over the Internet—and that was before PACER raised its prices 25% this year. (For a non-profit like the Center for Class Action Fairness, PACER charges are a non-trivial part of our annual spending.) And don't even get me started about the waste of money of over a hundred separately designed and programmed and inconsistent ECF filing systems for each of the courts.

Point of Law's very own Ted Frank testified before the House Subcommittee on the Constitution and Civil Justice as they examine litigation abuses. Ted's testimony starts around the 31 minute mark. For further reading, see Ted's recent report for the Manhattan Institute's Center for Legal Policy titled Class Actions, Arbitration, And Consumer Rights: Why Concepcion Is a Pro-Consumer Decision.

SEC's Resource Misallocation
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Today's Wall Street Journal includes a story about the SEC's new focus on private fund investment advisers' expenses. The agency is said to be looking into whether advisers to hedge funds and other private funds are disclosing to investors all the types of expenses they are charging to funds. Are investors being told that their fund is paying for first-class air travel and fancy meals? Hedge fund adviser expenses are attracting the SEC's interest now because Dodd-Frank subjected private fund advisers to SEC registration and routine examination.

SEC staff examiners are undoubtedly having fun with the project and compiling some great stories of unusual adviser expenses. Nevertheless, the agency ought to think carefully about the expenses it is incurring in conducting these exams. After all, according to an SEC staff report, the SEC examined less than ten percent of registered investment advisers in 2010, which was before Dodd-Frank's private fund adviser mandate took effect. SEC examiners should be looking at funds that cater to retail investors, not those that serve wealthy investors--the only investors permitted by law to invest in hedge funds. Those investors can afford to hire experts to help them figure out how and where to invest their money. As pointed out to the Journal by the director of hedge fund research for one asset manager--"At the end of the day, it's my job to ask the right questions." The SEC should concentrate on more important tasks and let private market discipline handle hedge fund advisers' golf outings.

Zippers and McDonald's hot coffee

Defenders of the appalling McDonald's coffee case such as Susan Saladoff like to point to the fact that McDonald's previously had 700 complaints about the temperature of its coffee, and had paid settlements when it was at fault for injuries for hot coffee, such as when an employee spilled coffee on a customer. Thus, she says, a jury was entitled to inflict punitive damages on the company, because they had notice that their product could cause injury.

With that background, it's interesting to see this Atlantic Wire report: 17,616 men went to the emergency room between 2002 and 2010 for zipper-related penis injuries, nearly 2000 a year. By the Susan Saladoff standard, there should be a gigantic MDL involving every zipper manufacturer facing thousands of claims for punitive damages because pants don't come with warnings to be careful with a zipper. (Recall that even Stella Liebeck's cup of coffee had a warning.) After all, zipper manufacturers surely have notice that zippers "could cause injury," yet continue to subject consumers to a product that could cause injury. According to Saladoff, that alone entitles someone to a jury trial.

Of course, even leaving aside that 700 injuries over all of McDonald's restaurants works out to one in 23 million cups of coffee, "could cause injury" is not the legal standard for liability. The question is one of whether a product is "unreasonably dangerous." Coffee is supposed to be hot. Zippers, even though they cause more injuries than buttons, have some risk associated with them. In neither instance should a court let a product-liability claim ever get to a jury when a user's carelessness with a product imposes injury upon the user.

The vast majority of courts facing hot-coffee claims throw these things out early. I'm not aware of any lawyer with the chutzpah to bring a zipper product liability suit, though the legal theory is the same as that with McDonald's coffee. Yet we see all this propaganda from the trial bar and increasingly from the legal academy that the hot coffee suit was legitimate, and tort reformers are evil for suggesting otherwise. Don't be confused: it's an argument for substantial expansion of the tort system, and at great social cost.

Standard Fire v. Knowles
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In a unanimous decision, the Supreme Court rejected the most notorious tactic for evasion of federal jurisdiction under the Class Action Fairness Act. More: Olson @ Cato; OL; earlier at POL.

Brian Wolfman complains that this is a "pro-defendant" decision and it will certainly be spun that way. But it's important to recognize that it's also a pro-consumer decision. The same hellhole judges that ignore due process concerns of defendants when refusing to rule on personal jurisdiction issues or countenancing abusive expensive discovery or improperly certifying classes (on which, see this great Roger Parloff article) go on to ignore due process concerns of absent class members when the defendants facing this barrage of litigation pay Danegeld to go away. Miller County trial lawyers had collected hundreds of millions of dollars of legal fees from forum-shopped class-action settlements; the class members whom they purportedly represented likely didn't even get 10% as much. We'll never know because judges approved these settlements without inquiring into that figure, and refused defendants' attempts to conduct discovery in that area. It was the pro-consumer aspect of CAFA that led the Center for Class Action Fairness to file an amicus brief. Defendants win and consumers win; the only losers are rent-seeking plaintiffs' attorneys that had been running roughshod over the rights of both.

Andrew Trask has good analysis and points out that the Supreme Court has once again rejected the entity theory of class actions. As I note in my MI white paper, the class action is a procedural device that can't be used to affect individuals' substantive rights. It makes a difference: given that the Supreme Court has repeatedly rejected an "entity" theory of class actions, it implies that class action settlements that favor third parties—i.e., cy pres recipients, or non-class-beneficiaries of future injunctive relief—over class members are inappropriate.

Colin Hedrick
Legal Intern, Manhattan Institute's Center for Legal Policy

Tuesday, March 4, 2013: the day freedom died in New York City! That was going to be the original title of this post. While it may seem hyperbolic, it would have been true, at least symbolically, for those who like to make their own choices in life without government interference.Those choices were to be limited by Mayor Bloomberg's ban on sugary drinks over 16oz. that was set to go into effect on March 4.

Originally, this post was going to examine both the legal and policy reasons against the ban, but a last minute reprieve from this task and the ban itself came in the form of a decision overruling the ban handed down by Supreme Court Justice Milton Tingling. Justice Tingling's ruling is sweeping in its denunciation of the Mayor's proposal and is based on the very same arguments that would have been articulated in the previously planned posting.

The Justice was specifically concerned that enforcement of the ban would be "fraught with arbitrary and capricious consequences" due to the wide range of businesses exempted from the ban and the ill-justified exceptions for some drinks but not others. In reality, the uneven enforcement and loopholes in the rule would "effectively defeat the stated purpose of the rule."

The Chamber of Commerce released a new report on Tuesday on the importance of cost-benefit analysis in financial regulation. It makes the point that such analysis is essential in the context of the massive Dodd-Frank rulemaking effort:

Cost-benefit analysis provides a regulatory template designed to ensure that, despite the accelerated pace, regulators will not cut corners but will engage in more rational decision-making, will produce better regulations, and will promote good governance.

I made a similar point in a recent paper about the federal financial regulators' failure to use economic analysis. Economic analysis is not, I explained, a burden, but an important tool for regulators to think about and convey to the president, Congress, and the public the problems regulators are trying to solve, the alternative solutions they are considering, the costs that society will bear under each alternative, and the benefits society can expect to enjoy as a result of regulatory actions.

Colin Hedrick
Legal Intern, Manhattan Institute's Center for Legal Policy

Should doctors and pharmaceutical companies be liable to patients who become addicted to habit-forming drugs they prescribe/manufacture? If State Sen. Tick Segerblom (D-Las Vegas) has his way, they will be. Segerblom recently introduced SB 75, which would make doctors and drug makers liable for the treatment costs of those who become addicted to legally prescribed pain medications. The bill would also open up doctors and drug makers to potential punitive damages as well.

Thankfully, this rather ridiculous idea is starting to draw national attention and if the overwhelmingly negative response at a recent senate hearing on the bill is any indication, it has little chance of passing. Doctors, drug makers and experts of all varieties lined up to speak out against this proposed law. Most are concerned that it will do little to curb addiction and will negatively impact many who have a real need for these pain medications.

As the 2013 proxy season kicks off--most U.S. public companies will hold their annual shareholder meetings between April and June--the Manhattan Institute is releasing its third annual proxy season preview in a series of reports and findings tracking shareholder proposal trends. Using vote results from the Manhattan Institute's unique, publicly available database that tracks shareholder proposals in real time, James Copland, director of the Manhattan Institute's Center for Legal Policy, identifies what hot button issues to watch for in the 2013 proxy season, including ISS recommendations, and proposals on political spending, "Say-on-Pay", and board declassification.

The report employs new data on shareholder activism from the Proxy Monitor database, now expanded to include the largest 250 U.S. public companies, as ranked by Fortune Magazine, in addition to new survey data tracking proxy proposal information at these companies, conducted by the Society of Corporate Secretaries and Governance Professionals at the Manhattan Institute's request.

Gabelli v. SEC
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Last week's unanimous Supreme Court opinion in Gabelli v. Securities and Exchange Commission marks the agency's latest judicial reprimand. Many of the agency's most notable recent court losses have come in the context of rulemaking, but this case was an enforcement matter. It dealt with mutual fund market timing, a widespread practice in the fund industry. Sophisticated mutual fund shareholders had figured out how--sometimes with the help or purposeful blindness of fund managers--to make mutual funds' once-a-day-pricing work in their favor at the expense of other shareholders. The practice came to light a decade ago and resulted in a string of cases by the SEC and state attorneys general.

The SEC waited until April 2008 to bring its action against Gabelli. The SEC entered into a settlement with Gabelli Funds, which agreed to pay $16 million, and sued two individuals, Marc Gabelli and Bruce Alpert. In district court, these individuals successfully moved to dismiss the civil penalties portion of their case on statute of limitations grounds, but the Second Circuit reversed. The SEC argued that "the limitations period in a suit for fraud does not begin to run until the plaintiff discovers, or in the exercise of reasonable diligence could have discovered, the facts underlying his claim." The Supreme Court distinguished the SEC--with its mission of "root[ing] out" fraud and its "many legal tools at hand to aid in that pursuit"--from everyday people who "do not typically spend our days looking for evidence that we were lied to or defrauded." The fraud discovery rule applies to the latter category, not to civil penalty actions brought by government agencies like the SEC.

The Supreme Court's decision was an important reminder to the SEC of the importance of carrying out its enforcement mission within the confines of established and predictable rules of law. Only by doing so will the agency be able to build a reputation as a regulator that holds the industry--and itself--to high standards.

Floods of "floodgates"

In a Adam Liptak NY Times article (via ABAJ) about a forthcoming University of Chicago Law Review paper, Duke Law Professor Marin Levy complains about the increasing use of the "opening the floodgates of litigation" metaphor in Supreme Court decisions. "Barring a true flood of tens or hundreds of thousands of cases," she wrote, "no evident principle exists to support the court taking workload concerns into account when engaging in interpretation of the law."

But that's not even remotely true. For example, imagine a court faced with an interpretative choice of applying a bright-line rule that creates certainty (but reduces some accuracy in close cases) or permitting a broad range of judicial discretion with a multi-factor balancing test. The longtime debate between rules and standards is surely informed by the inquiry whether the multifactor balancing test creates so much unpredictability that it "opens the floodgates of litigation" over that uncertainty, and thus social costs that far exceed any benefits from resolution of unfairness in the marginal case.

And, as Levy herself notes, the floodgates argument is often phrased in terms of whether a proposed interpretation creates incentives for meritless litigation. But what she doesn't discuss is some of the social costs of such litigation (her analysis focusing on habeas), which is, again, a perfectly evident principle for expressing concern about a potential decision. If a procedural interpretation creates profitable incentives for meritless litigation by making it easier for a plaintiff to impose litigation expense on a defendant and thus leverage to extract rents even when a case is without inherent factual or legal merit, a court can and should be concerned that that interpretation opens "floodgates" for such socially wasteful rent-seeking.

Levy's search focuses purely on the word "floodgates," rather than on the nature of floodgates arguments that don't use the word floodgates. So, for example, Dura Pharmaceuticals goes unmentioned in the article, though the Court's concern about a plaintiff's "tak[ing] up the time of a number of other people, with the right to do so representing an in terrorem increment of the settlement value" was a substantive part of the majority's reasoning in that case. Yet Levy makes broad generalizations about floodgates arguments affecting substantive law without addressing these concerns. And the Liptak article also misses this.

Levy thanks dozens of very smart law professors in the front of her paper. Is it really the case that the academy is so divorced from litigation realities and has such an institutional bias to litigation-as-solution that not one of them raised this basic objection to her argument?

Update: Professor Levy responds in the comments, and corrects the sentence I've crossed out above. I apologize for the misunderstanding about methodology, and should have delved more deeply into the footnotes rather than relying on the necessarily abbreviated description in the newspaper. But I disagree with Levy's claim "I never suggest that concerns about litigation (or the greater social costs of litigation) are not hugely important." The line "no evident principle exists to support the court taking workload concerns into account when engaging in interpretation of the law" certainly suggests that concerns about the greater social costs of litigation are not a principle that "support the court taking workload concerns into account when engaging in interpretation of the law." Certainly, that's the takeaway message that was emphasized in the New York Times.

Accutane recusal motion update
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Not a gigantic surprise that the district court denied the motion to recuse in the Accutane litigation (earlier). Also not a giant surprise that Roche is appealing. Judge Higbee didn't help her case of claiming to be impartial by attempting to embarrass a Roche defense firm by incorrectly stating that their pro hac vice admission was revoked; the firm withdrew when it angered Higbee by asking a plaintiffs an embarrassing question about other risk factors for IBD. According to Roche, in fourteen trials over Accutane, plaintiffs are 9-4 with one mistrial, but five of the nine plaintiffs' verdicts have been reversed on appeal; it's unclear how many of the other concluded cases are pending on appeal. [NJLJ ($)]

Pharmaceutical company InterMune performed a study on an FDA-approved drug, Actimmune, to see if it could be used to treat chronic lung disease. The study results were mixed, but if one looked at a subgroup of patients with mild to moderate lung disease, the study showed a statistically significant benefit. CEO Scott Harkonen trumpeted these results in a press release—and faced criminal prosecution as a consequence. A jury agreed that the press release was fraudulent, and convicted him in 2009, though acquitted him on the government's off-label marketing charge. (One suspects this is indicative of a compromise verdict, but the press coverage doesn't say if this was raised at any point.)

On appeal, in an unpublished opinion, the Ninth Circuit refused to hold the press release protected by the First Amendment, pointing out that the jury found the communication false. Harkonen's attorney complains "Allowing the government to criminally prosecute and convict a speaker for expressing a scientific opinion with which the government disagreed represents a real sea change in the law." [Reuters]

The result confirms my fears about the narrow application of Caronia. Who is going to want to risk their freedom on whether a lay jury correctly assesses whether a statistical analysis is intellectually honest? (Most lawyers and judges aren't equipped to evaluate legitimate controversies over statistical analysis.) The effect will be disastrously chilling, and disincentivize the dissemination of scientific knowledge.

FOIA politicization at EPA?
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"Environmental Protection Agency officials are making an 'on-going practice' of 'near-immediate turnaround to provide records to environmentalist pressure groups,' while imposing 'starkly disparate treatment of groups with different perspectives but which are otherwise similarly situated,'" complains a Competitive Enterprise Institute FOIA request seeking data on the practice, as well as on the disparate use of fee waivers to create barriers to transparency. [Wash. Examiner]

So many recruits for this year's FDNY Academy class are unfit and flunking the physical fitness test that the department has had to dip to scores as low as 72 on the written test to keep the class full—normally, anyone below 97 doesn't get admitted. Why is the FDNY dropping its standards so? Because the Vulcan Society disparate impact litigation complained that minorities were underrepresented, so the FDNY only permitted applicants from a gerrymandered pool that had a higher minority percentage than the firehouses currently had. The New York post story focuses on the fatness of the class, but the unfit applicants will likely flunk out; the relaxation of intellectual acuity standards, however, has longer-term consequences and the Post gives short shrift to that aspect. [NY Post]

Note that this test was already watered down considerably because of the Vulcan Society litigation. The court found that the ratio of percentage of whites passing to percentage of minorities passing was too high, even though New York City had spent a small fortune on diversity consultants to make the test racially neutral. Solution? Make the test so easy that anybody can pass! And 97% now do, leading FDNY Deputy Chief Paul Mannix to say "I have no confidence in the test and the list that will come of it." [NY Daily News via Sailer] If you're interested in taking the old tests, you can see for yourself how "unfair" and "racially biased" the old tests were.

As Sailer notes, one cannot even blame the Obama administration for this travesty, as the Bush DOJ brought the original lawsuit.

I sincerely hope a qualified aspiring firefighter sues over his or her own exclusion on racial grounds, given that the subpar applicant pool was specifically selected on grounds of race. Meanwhile, New York City residents and firefighters will be less safe because of the dropped standards. But we'll have more diversity!

Related: Mac Donald; POL on Wax on disparate impact; POL Ricci coverage; Olson @ Forbes; Overlawyered.

Colin Hedrick
Legal Intern, Manhattan Institute's Center for Legal Policy

Given the recent slew of negative press (e.g. Daily Beast, Frontline) about the government's failure to prosecute executives for their alleged role in the 2008 financial crisis, it is unsurprising that the Justice Department is making high profile moves against big banks. However, the strategy the Justice Department is pursuing, as recently reported by Ben Protess of the New York Times' Deal Book, raises serious concerns. Many of those concerns are all too familiar, especially to those following the ongoing saga of the Foreign Corrupt Practices Act and its enforcement.

The Justice Department's new strategy more or less consists of the old strategy of fines and reforms but with the added twist of encouraging guilty pleas from the companies accused of wrongdoing. In recent years, the Justice Department was hesitant to push for guilty pleas or actual court proceedings for fear of irreparably injuring companies, and as a result, the economy at large. However, under this new strategy, the Department is attempting to avoid this pitfall by eliciting the guilty pleas out of subsidiaries as opposed to the parent banks. The idea is that focusing on the subsidiary will not destroy the entire company, yet still allows the Justice Department to take meaningful action.

It is easy to criticize this strategy on multiple fronts; however, the most common criticism leveled against this approach is that it amounts to little more than a PR campaign by the Justice Department to make it seem like they are doing something. It is much easier for the Department to point to a guilty plea than a deferred prosecution agreement or a non-prosecution agreement. A guilty plea is something that can be easily sold to the press and an angry public. This sentiment is perfectly expressed by former federal prosecutor Evan T. Barr in Protess' article, "Extracting a guilty plea from a wholly owned subsidiary finally enables the Justice Department to look tough on financial institutions while sparing them from the corporate death penalty." The idea that "looking tough" is the actual goal of this strategy is worrisome for both those looking for actual punishment and those seeking meaningful reform.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.