Litigation and Trial - Max Kennerly : Philadelphia Trial Lawyer Max Kennerly : Business and Commercial Litigation : Civil Attorney : The Beasley Firm : Philadelphia Pennsylvania

The producers of the Oscar-nominated The Hurt Locker, which Roger Ebert* deemed the second best film of the decade, were just sued by Sgt. Jeffrey Sarver, a former explosive ordinance disposal technician with the 788th Ordinance Company, with whom journalist Mark Boal — the writer of The Hurt Locker — was “embedded” on assignment for Playboy Magazine.

The complaint, filed in the United States District Court for the District of New Jersey (where Sgt. Sarver lived during the relevant times), gives some examples of the similarities:

The title “The Hurt Locker” – Plaintiff originated this term and said it often around colleagues while in Iraq. Defendant BOAL took interest in this phrase and asked Plaintiff what the phrase meant. Because Plaintiff was told Defendant BOAL was collecting information for the sake of documenting a factual report about Army EOD in general, Plaintiff acquiesced with BOAL’s request, which he said often while during his deployment in Iraq;

 “War is a Drug” – Another phrase Plaintiff used when talking to Defendant BOAL;

 “Will James”, played by Jeremy Renner” – Mr. Renner is essentially the same age and height; to personate Sgt. Sarver, Renner’s hair was dyed blonde, and Renner impersonated Sgt. Sarver’s persona down to the smallest detail, including the replication of Sgt. Sarver’s West Virginia accent, dialect, expressions, mannerisms, personality, and even dress habits (i.e. rolling his sleeves in the exact same manner as Sarver); succinctly stated, Renner acts and behaves just like Plaintiff5 throughout the movie;

Same Military & Family Background – Just like Plaintiff, character “Will James” is a former Army Ranger who has a young son who lives with his ex-wife back home; Renner is also referenced as a “red neck” and “trailer trash”;

Same EOD Missions – Most of the EOD missions depicted in the movie are identical to Plaintiff’s, including the same camps where the EOD team was based (ie Camp Victory), and the same manner in which they were handled - as documented in the Playboy Article;

[…]

Renner struggles with personal, family relationships just like, and in the same manner as, Plaintiff;

Renner drinking alcohol after successful missions;

Renner setting the record for the most IEDs disarmed by any single soldier;

As THR, Esq. notes,

According to legal experts on this topic, Sarver will need to overcome First Amendment protections that give broad protections on speech. Just putting someone's life story up on screen may not be enough.

Sarver's claims may be stronger if he, himself, had written about his experience in Iraq. Had Sarver written about his war stories, he might have been able to pursue a copyright claim that producers of "Hurt Locker" had violated his expression.

Sarver's best case may actually be if producers of "Hurt Locker" got things wrong. Potentially, Sarver could claim that "Will James" is just a thinly veiled depiction of him, but that they had put him in false light and defamed him with dishonest treatment about his character. We have seen these types of "libel-in-fiction" claims come up recently. 

Hence, the complaint continues:

Though the movie clings to the plaintiff’s likeness and personal circumstances throughout the movie, Plaintiff is also defamed in placed in a false light in several scenes, such as (1) the scene where Plaintiff explains to his young son that he essentially does not love him, and that the only thing plaintiff loves now is “war”. The movie ends by showing Plaintiff back in Iraq, starting another deployment mission; and (2) the portrayal of Plaintiff as a reckless, gung-ho war addict who has a morbid fascination with death which causes him to carelessly risk both his and his colleagues’ lives in the theater of war, simply to feel the thrill of cheating death.

The Complaint alleges seven counts:

• Misappropriation of Name & Likeness
• False Light Invasion of Privacy
• Defamation
• Breach of Contract
• Intentional Infliction of Emotional Distress
• Fraud
• Negligent Misrepresentation

As far as I can tell, Sgt. Sarver will have little trouble meeting most of the elements of misappropriation, with one exception:

In order that there may be liability under the rule stated in this Section, the defendant must have appropriated to his own use or benefit the reputation, prestige, social or commercial standing, public interest or other values of the plaintiff's name or likeness. It is not enough that the defendant has adopted for himself a name that is the same as that of the plaintiff, so long as he does not pass himself off as the plaintiff or otherwise seek to obtain for himself the values or benefits of the plaintiff's name or identity. Unless there is such an appropriation, the defendant is free to call himself by any name he likes, whether there is only one person or a thousand others of the same name. Until the value of the name has in some way been appropriated, there is no tort.

Restatement of the Law, Second, Torts, § 652, cmt c (emphases added); see Jeffries v. Whitney E. Houston Acad. P.T.A., 2009 N.J. Super. Unpub. LEXIS 1895, at *9 (App. Div. Jul. 20, 2009)("the purpose of an appropriation of likeness claim is to vindicate the property interest the plaintiff has in his or her name or likeness."). Misappropriation claims typically arise from false endorsements; here, however, Sarver certainly was not represented as directly endorsing the film. The challenge for his lawyers will be arguing that the use of his life story is sufficient "likeness" that it constitutes a de facto endorsement of the story.

False light and defamation are highly similar claims, and often analyzed together. As THR, Esq. said, there’s precedent out there for “libel-in-fiction,” and Sgt. Sarver’s case seems similar to the The Red Hat Club case linked above: taking an already incredible, but nonetheless real, story and scandalizing it some more. It’s a little bit harder for Sgt. Sarver here, though, since it seems that anyone who recognized him from the film would also know the differences between him and the character, and the complaint admits that he already had substantial family troubles and that he broke military regulations, such as drinking after missions. Those issues, however, are typically issues for a jury, not a judge, to decide.

The remaining claims are intriguing, though none are a good fit to the facts. Regarding breach of contract, it doesn’t appear that Sgt. Sarver was an intended third-party beneficiary to Boal’s “embedding” agreement with the U.S. Department of Defense, though he might be an implied third-party beneficiary. Without the contract in hand, it’s hard to say what will happen here. (One of the commentators at THR, Esq., linked to some of the Department of Defense embedding guidelines, which don't seem to be as strict as the complaint implies.)

The intentional infliction of emotional distress claim will likely go nowhere. The complaint essentially admits there’s no evidence the producers of the film intended to cause Sgt. Sarver harm. See Ortiz v. Ocean County Prosecutor's Office, 2005 U.S. Dist. LEXIS 29274, at *15–16 (D.N.J. Nov. 22, 2005)("To sustain such a claim, the conduct at issue must be 'so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency and to be regarded as atrocious, and utterly intolerable in a civilized community.”).

Similarly, the fraud and negligent misrepresentations claims will likely be dismissed. Most courts require some degree of explicit economic loss for these claims. McClellan v. Feit, 376 N.J. Super. 305, 313, 870 A.2d 644, 648 (App. Div. 2005)("Negligent misrepresentation constitutes an incorrect statement, negligently made and justifiably relied on, which results in economic loss."). It might be morally wrong to trick someone into revealing their personal story, but it’s not legally compensable as fraud or misrepresentation unless they're also tricked out of some money.

An interesting case to watch. Depending on Sgt. Sarver’s goals / demands, I’d expect a somewhat prompt settlement, though perhaps not until after the inevitable motion to dismiss is decided.  

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Felix Salmon at Reuters caught something interesting:

[T]he facts of the case are pretty clear. The relationship between JP Morgan and Televisa goes back decades, and so JP Morgan was the natural choice for Televisa to turn to when it decided to buy a fiber-optic cable company called Bestel for $325 million, $225 million of which was to come from Televisa subsidiary Cablevisión.

JP Morgan intended to syndicate the loan, but the timing was bad: the deal closed in 2008, when credit markets were all but closed, and as a result JP Morgan ended up owning all of it. After an attempt by Televisa to help JP Morgan syndicate the loan fell through, JP Morgan then turned to Inbursa, Carlos Slim’s bank.

This was not an obvious choice from the point of view of serving one’s client. Slim and Cablevisión compete fiercely in the telecommunications space, where Slim is the dominant monopolist and Cablevisión is selling telephony and internet access in competition with him. And the rivalry is all the tougher due to the history between the two groups: Slim used to be a major shareholder in Televisa, and to this day Inbursa owns a 22% stake in Cablevisión.

Now there were two ways of selling this loan: JP Morgan could either assign it to Inbursa, which would require Cablevisión’s permission, or else it could participate it to Inbursa, which would not. At first, JPM tried to assign the loan, but unsurprisingly Cablevisión refused to grant their permission for that deal to happen.

You can imagine what happened next: JP Morgan dressed up the "assignment" as a "participation." As Judge Rakoff described it in his order,

JP Morgan, acting in bad faith, used the guise of a purported “participation” to effectuate what is in substance a forbidden assignment, with unusual provisions demanded by Inbursa that are calculated to give Inbursa exactly what the assignment veto in the Credit Agreement was designed to prevent. JP Morgan thereby violated, at a minimum, the covenant of good faith and fair dealing automatically implied by law in the Credit Agreement…

Televisa's request for a preliminary injunction halting the agreement was thus granted.

Salmon wonders what JPMorgan's response to all these allegations is:

So for JP Morgan’s side of the story, all I have to go on is their 40-page memorandum of law in the case, which is quite narrowly legalistic, which was roundly rejected by Rakoff, and which obviously can’t respond to Rakoff’s ruling since it was filed before Rakoff made his ruling.

Since JPMorgan moved for summary judgment pursuant to Fed. R. Civ. P. 56, they, like Televisa, were entitled to submit affidavits in support of their position, and it appears they submitted declarations from "Sheldon L. Pollock" and "Jaquelina Truzzell." Both declarations have been unsealed by Judge Rakoff's order, but neither is on the docket.

I doubt the declarations say much; JPMorgan's memorandum of law primarily references the Pollock and Truzzell declarations when discussing side matters, like telephone calls and Televisa's motives for opposing the assignment / participation. Truzzell apparently affirms there are "no side agreements" with Inbursa and that JPMorgan would not release "confidential" information, but that's it. There's nothing about how JPMorgan came to participation terms with Inbursa that, at least on their face, entitle Inbursa to a treasure trove of information about Televisa, far more than provided by JPMorgan's standard participation agreement.

Which I find telling. Though the standard response of most defendants is — for tactical reasons like avoiding getting pinned down to a particular version of events — to "deny and delay" rather than to come forth with an affirmative opposition, under the facts here, JPMorgan really needed to make a better showing. Here's the full quote (excerpted above) from Judge Rakoff's order:

In opposing a preliminary injunction, JPMorgan argues that the Participation Agreement is technically consistent with the Credit Agreement. Superficially, this may be correct. For example, with respect to Cablevisión’s concerns about confidential information, the Credit Agreement permits disclosure of information about the borrower, not just to assignees (who can be vetoed) but also to participants (who cannot), provided that such information is given on a confidential basis. Credit Agreement § 9.16(f)(i). This includes “all information received from the Borrower . . . relating to the Borrower, any of its Related Parties or their respective businesses.” Id. § 9.16. Similarly, there is no express restriction in the Credit Agreement on providing a participant with its pro-rata share of fees received by the lender or an option of first refusal for any further transfer of the loan. Finally, under the Credit Agreement, assignment of the loan without borrower consent is expressly permitted when there is an Event of Default. Id. § 9.04(b)(i).

But this narrow focus obscures the gist of Cablevisión’s argument, which is that JPMorgan, acting in bad faith, used the guise of a purported “participation” to effectuate what is in substance a forbidden assignment, with unusual provisions demanded by Inbursa that are calculated to give Inbursa exactly what the assignment veto in the Credit Agreement was designed to prevent. JPMorgan thereby violated, at a minimum, the covenant of good faith and fair dealing automatically implied by law in the Credit Agreement.

The Court agrees.

JPMorgan could have done more factually, rather than just legally, to rebut the appearance of bad faith. But they didn't; they just argued that they were entitled to do what they did, rather than show that their conduct with Inbursa was appropriate.

Such silence could be, in part, an attempt by JPMorgan to protect Inbursa's confidences, which arguably would have been appropriate. (I say "arguably" because the totality of the circumstances here — primarily Inbursa's attempt to negotiate terms more favorable than those typically provided by a participation agreement — imply that Inbursa has waived its right to keep those discussions confidential from Televisa.) But there's nothing on the docket reflecting an attempt to have Judge Rakoff review any pertinent materials in camera, and so there's no reason for us to speculate that JPMorgan's silence was a product of confidentiality.

It thus may be more appropriate to speculate that JPMorgan's silence was the product of not having a good defense. Again: facts win cases. "Technically consistent" legal arguments don't.

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[UPDATE: The WSJ Law Blog has copies of the letters submitted to the Delaware Chancery Court. Professor Hazard is undoubtedly one of the pre-eminent experts in the field, and he makes a compelling argument that Cravath violated the Rules of Professional Conduct. Yet, showing a violation of the Rules is not enough — to disqualify counsel under Chancellor Chandler's standard, Airgas will have to show the violation will "materially advance" Air Product's position or undermine the fair and efficient administration of justice. So far, I haven't seen anything demonstrating that. The vague references made so far to Cravath's insider knowledge of Airgas's finances isn't enough, since a firewall within Cravath can likely cure that problem.

UPDATE II: As predicted, the Eastern District of Pennsylvania declined to enter an injunction against Cravath, and the Delaware Chancery Court did not disqualify them.]

As has been reported all over the legal media,

Industrial gas producer Airgas filed suit against Cravath, Swaine & Moore on Friday over the firm's role as legal adviser to rival Air Products on that company's $5.1 billion bid for Airgas.

... Air Products filed a complaint on Thursday in Delaware's Chancery Court against Airgas, claiming that the smaller company improperly blocked its board of directors from considering previous Air Products takeover offers. Cravath litigation partners Francis Barron, David Marriott and Gary Bornstein are representing Air Products in the Delaware litigation along with local counsel Kenneth Nachbar (he of sports gambling notoriety) and Jon Abramczyk from Morris, Nichols, Arsht & Tunnell. (Click here for the Chancery Court complaint, courtesy of The Times' Dealbook.)

Airgas responded by retaining Cozen O'Connor chairman Stephen Cozen, litigation chair Jeffrey Weil and litigation partner Thomas Wilkinson Jr., for a civil suit against Cravath in state court in Pennsylvania. In the suit, Airgas claims that Cravath has a conflict of interest and breached its fiduciary duty by representing Air Products because it previously advised Airgas on several financings. According to Airgas' complaint against Cravath, the company has had a client relationship with the firm for 10 years and has paid Cravath about $2 million, including a $320,000 payment last October.

There's an obvious question dangling over the Pennsylvania suit filed by Airgas: what basis — or power — does a state court in Pennsylvania have to preclude a New York law firm from representing a Delaware-registered company in Delaware state court litigation against another Delaware-registered company?

Unsurprisingly, that's just what Philadelphia Court of Common Pleas (Commerce Court) Judge Albert Sheppard Jr. wondered before denying Airgas' petition for a temporary restraining order:

In essence, I would be saying to a lawyer you can’t go to Delaware and represent your client. I find that difficult. I don’t want to do that.

Judge Sheppard only had it for two weeks, though, since Cravath, like virtually every out-of-state defendant, promptly removed the case to Federal court, i.e. the Eastern District of Pennsylvania, where it was assigned to Judge Eduardo Robreno (whose work in the Philadelphia Inquirer bankruptcy I've covered before).

Cravath (represented by a team at Conrad O'Brien*) has responded to the suit and has asked Judge Robreno to abstain from hearing the case at all:

First, whatever this Court may ultimately decide with respect to Airgas’s claim for money damages, Airgas’s request for a preliminary injunction is the functional equivalent of a motion to disqualify Cravath from appearing before the Delaware Chancery Court. With all due respect, Cravath submits that a motion precluding counsel from appearing in Delaware Chancery Court is more appropriately decided by Chancellor William B. Chandler III, who presides over the firstfiled Delaware litigation. Just as this Court has full authority over proceedings here, judicial comity warrants according Chancellor Chandler due authority over proceedings in his courtroom. ...

Second, the Delaware Chancery Court is aptly suited to decide the key issue presented by Airgas’s petition to this Court—whether Cravath should be disqualified. Indeed, the dispute concerning Cravath’s ability to represent Air Products is intertwined with the merits of the (firstfiled) Delaware litigation. ...

Third, whereas this Court’s ruling on Airgas’s petition for preliminary relief would be, by definition, provisional, the Delaware Chancery Court’s ruling on the question of whether Cravath should be disqualified will be a final decision on the merits.

(From Cravath's brief, available on RECAP.)

It's hard to argue with that; whatever the merits of the conflict-of-interest allegations, it seems they all relate to the Delaware litigation and so should be decided there.

Of course, there's a reason Cravath wants the case decided in Delaware's Chancery Court (and why Airgas wants it decided elsewhere). As Francis G.X. Pileggi notes:

[Airgas'] separate suit alleging a conflict was filed in Philadelphia. One might speculate that the suit was not filed in Delaware and it was not filed as a motion to disqualify, because the Delaware decisions recently have not granted many motions to disqualify. See, e.g., cases summarized on this blog here.

Indeed, one might speculate that. More on that in a moment.

Back in Delaware, it seems a war of correspondence has broken out:

Airgas (which has retained Wachtell, Lipton, Rosen & Katz) began the exchange of correspondence Monday, when it sent a letter to Chancellor William Chandler at Delaware's Court of Chancery ... In its Monday letter to Chandler, Airgas argues that a Pennsylvania courtroom is the proper place for the Cravath hearing. In response, Air Products and local counsel Kenneth Nachbar of Morris, Nichols, Arsht & Tunnell drafted their own letter to Chandler, urging him to decide on Cravath's fate in Delaware and accusing Airgas of trying to "circumvent" Chandler's authority by suing in Pennsylvania.

Airgas also has enlisted a legal ethics expert who has issued an opinion letter in which he claims Cravath was working under "a clear and serious conflict of interest" while it was helping Air Products formulate its takeover bid last fall, according to a copy of the letter obtained by The Am Law Daily. In his letter, Geoffrey Hazard Jr., a professor at the University of Pennsylvania Law School, says Cravath ... violated the so-called "hot potato" rule, which holds that a firm cannot get out of a conflict simply by dropping one client on short notice, Hazard wrote.

Like I wrote before, the hot potato rule lives. Here's a recent recitation of the rule:

Courts that have considered the issue have held that a firm will not be allowed to drop a client in order to shift resolution of the conflicts question from Rule 1.7 dealing with current clients, to the more lenient standard in Rule 1.9 dealing with former clients.

El Camino Res., LTD. v. Huntington Nat'l Bank, No. 1:07-cv-598, 2007 U.S. Dist. LEXIS 67813, at *39–40 (W.D. Mich. Sept. 13, 2007).

On the surface, that's not good for Cravath — if Chancellor Chandler applies a similar analysis, then Cravath will be evaluated as if it was simultaneously representing Airgas and Air Products on both sides of the litigation, which is expressly prohibited by the Delaware, Pennsylvania and New York rules.

But the final analysis is a practical one:

The finding of an ethical violation, however, does not automatically require disqualification. The court should order disqualification only where some specifically identifiable impropriety has actually occurred and the balance of relevant factors requires vindication of the integrity of the legal profession over defendant's interest in retaining counsel of its choice.

Id.

Returning again to why Cravath wants the issue decided in Delaware by Chancellor Chandler, it bears mention here that Chancellor Chandler took a strongly disqualification-unfriendly view in a similar case a year ago, in which Dow Chemical attempted to disqualify Wachtell from representing Rohm and Haas:

I am not persuaded that Wachtell’s access to this information will materially advance Rohm and Haas’s position or undermine the fair and efficient administration of justice. Dow’s defense to specific performance is that conditions in the market and within Dow have changed significantly since December 2008 and that it is no longer feasible for the merger to close. Dow has failed to convince me that the information Wachtell had access to regarding Dow’s strategies and asset values in 2006 and 2007 will substantially advance the interest of Rohm and Haas in this litigation. Additionally, Wachtell has assured the Court that its attorneys who obtained confidential Dow information have not and will not share Dow’s client confidences with the Wachtell attorneys working on this matter. While Dow is correct that the ethical rules impute knowledge of one attorney to other attorneys in the firm, the issue before the Court is not whether there was a violation of the ethical rules. To justify disqualification, the Court must find that allowing the representation to continue would threaten the fair and efficient administration of justice, a threat that is greatly reduced by a credible representation to the Court that the firm will ensure that the attorneys working on this matter do not have access to Dow’s client confidences. Dow has failed to point to information or confidences obtained by Wachtell in its 2006-2007 work for Dow that will have a material influence on the proceedings before me today.

Rohm and Haas Co. v. Dow Chem. Co., No. 4309-CC, 2009 WL 445609, at *3 (Del. Ch. Feb. 12, 2009)(also courtesy of Pileggi).

Truth be told, there's not much distinguishing the Rohm and Haas v. Dow situation from the present case with Cravath, except for the "hot potato" rule aspect, given how Cravath's work for Airgas was much more recent than Wachtell's work was for Dow. Indeed, it seems Cravath's work for Airgas unambiguously overlapped its work for Air Products.

As noted above, though, a mere violation of the rules isn't enough; the question is what prejudice the former client will suffer and if that prejudice can be avoided. Cravath's work for Airgas was comparatively small, and if Cravath sets up an ethical firewall that keeps the former Airgas attorneys away from the Air Products lawsuit, that will likely be enough to satisfy Chancellor Chandler.

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As The Recorder reported,

Four states and dozens of California cities and water districts have joined a qui tam lawsuit, unveiled this week, seeking millions of dollars in damages against a company for allegedly supplying customers with substandard PVC pipe.

The suit, brought against J-M Manufacturing Co. and its former parent company, Formosa Plastics Corp., alleges that J-M sold PVC pipe that had tensile strength below industry standards, and that the company deceived customers by choosing stronger samples for independent certification of its product. The suit also contends that under the company president, Walter Wang, it "implemented a series of 'cost-cutting' measures that undermined the quality of J-M's PVC pipe products," including filling supervisory positions with less experienced managers.

In one corner, we have the Defendants:

"At JM Eagle, we stand 100 percent behind the quality of our products," said spokesman Marcus Galindo. "Any claim that Mr. Wang or anyone at JM Eagle sacrificed the quality of our product for profit is ludicrous. We're a company that cares about more than just the bottom line."

According to the complaint, Hendrix was fired a week after he wrote a memo informing management that the tensile strength of the PVC pipe was below the standard required by independent certification agency Underwriters Laboratories Inc.

Galindo discounted that claim, saying outside agencies make unannounced visits to the company's plants to perform regular audits of its products.

Further, Galindo noted, over the three years that the federal government investigated the claim, it "never stopped purchasing pipe from us. They have decided not to move forward and intervene in this case."

In the other corner, we have Phillips & Cohen LLP's press release:

Nevada, Virginia, Delaware, Tennessee, San Diego, Sacramento, San Jose, the Los Angeles Department of Water and Power and 39 other California municipalities and water districts have joined a whistleblower lawsuit seeking millions of dollars in damages from JM Eagle and its former parent company, Formosa Plastics Corp. (USA), for supplying their water and sewer systems with pipes that JM knew were substandard. ...

"The decisions by so many states, cities and water districts to join this case show just how serious these allegations are," said Mary A. Inman, a San Francisco attorney with Phillips & Cohen LLP, which represents the whistleblower, the Commonwealth of Virginia, the State of Tennessee and 25 California cities and water districts. "With government entities struggling to meet their budgets, it's particularly important for them to recover their losses from any fraud."

As a result of the investigation into the quality of PVC pipe that JM Eagle has provided, the Nevada Department of Public Works, the cities of San Diego and Sparks, Nevada, as well as at least three water districts in Nevada and California (Truckee Meadows Water Authority, North Marin Water District and Alameda County Water District) have removed JM products from their approved-products lists for purchases.

In a case of this size, a government's decision to intervene or not is more political than legal. I don't mean that in a pejorative sense: when a government brings a multi-million-dollar lawsuit against one of its major suppliers, there's a lot more at stake than a settlement or judgment.

It's thus hard to read the tea leaves on the differing federal and state decisions. I'm sure the plaintiff's lawyers are quick to remind that the federal government usually does not intervene, and that the non-intervention is likely a product of limited resources and the federal government's belief that the state intervention (and the experience of the plaintiff's counsel) will ensure the claims are prosecuted in a diligent and thorough manner.

On the flip side, I'm similarly sure the defendants' lawyers consider the state interventions nothing more than cash-strapped states looking for "jackpot justice" from a profitable business.

An interesting one to watch, not least because the plaintiff's claims are predicated entirely upon violation of third-party standards and codes (e.g., Underwriters Laboratories, American Water Works Association, American Society for Testing and Materials, and FM Approvals) that are incorporated into the government contracts.

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Matthew Belloni at The Hollywood Reporter, Esq., has a copy of the 'Tonight Show' contract that's been the subject of much speculation over the past few weeks. He can't post the contract itself (I asked), but he described with considerable detail the parties' positions:

[W]e've finally tracked down a copy of the O’Brien contract, and -- lo and behold -- NBC did define “Tonight” as the series that airs at 11:35 as far back as 2002. However, what may have emboldened NBC to move the program anyway was the absence of that key language from later amendments to the deal.

Read the whole piece for more.

As Belloni continues,

Insiders familiar with settlement negotiations say NBC jumped on that fact to argue that the "operative" deal was silent on the timeslot issue and even contained some NBC profit-participation boilerplate allowing NBC discretion to move shows as it chooses. 

One problem with that argument: Any lawyer worth his 5% commission knows you've got to read an amended contract in the context of all other prenegotiated elements. O'Brien's 2004 deal incorporated by reference and ratified all the terms of his prior deals -- including the "Tonight Show" definition -- and says any conflicts between NBC's standard terms and the negotiated terms are governed by what's been negotiated.

Fact is, an amendment is still an amendment, not a new deal, even if you also call it a separate agreement. NBC's argument that the amendment — which specifically incorporated the old deal — was nonetheless actually a wholly-new deal would have been charitably described as "novel," which in the law is often synonymous with "bad." I don't doubt that O'Brien's lawyers saw right through NBC's argument and held firm throughout the negotiations.

Most importantly, congratulations to O'Brien and his lawyers for keeping their eye on the ball for all these years: they contracted for — and this is the language in the contract — the "Tonight Show" defined as the "series that airs at 11:35," more specifically the "second network series after the end of primetime."

As I wrote in Time-Tested Advice For Young Lawyers About Contracts Which They Should Ignore, 

In certain circumstances -- like some real estate transactions -- there is language used so frequently that it has become the standard against which all other grammar and syntax is measured. Any deviation will likely be interpreted against the person who suggested it.

If you have one of those situations, be sure you know what the "standard" language is. Otherwise, focus on making the text of the written agreement reflect the reality of the parties' understanding, not on adding in "gobbledygook" to make it look lawyerly.

O'Brien's lawyers realized that and didn't contract just for a particular name or for a bunch of legal gibberish, they contracted for a particular slot in the evening lineup. They understood the client's goals, recognized the potential risk, and dealt with both in the contract in a clear, unambiguous manner that withstood a serious challenge.

Crack open a bottle of champagne, Patty Glaser and Leigh Brecheen, and charge it to Conan's account. You earned it.

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As Howard Bashman reports (along with many others, such as The Legal Intelligencer), yesterday two separate panels on the United States Court of Appeals for the Third Circuit simultaneously issued opinions in separate cases in which public-school students created prank MySpace pages about school administrators, were disciplined, and then brought suit alleging violations of their free speech rights.

The opinion in Layshock v. Hermitage School District is here. The opinion in J.S. v. Blue Mountain School District is here. 

In Layshock, the District Court granted summary judgment in favor of the student. In J.S., the District Court granted summary judgment in favor of the school district.

On appeal, Layshock still won, J.S. still lost.

So how did that happen?

Different facts.

Both panels worked off the same law. In Tinker v. Des Moines Indep. Cmty. Sch. Dist., 393 U.S. 503, 513 (1969), the Supreme Court held that student expression may not be suppressed unless school officials reasonably conclude that it will “materially and substantially disrupt the work and discipline of the school.” In Bethel School District No. 403 v. Fraser, 478 U.S. 675, 678, 683 (1986), the Court upheld the school’s suspension of a high school student for delivering a nominating speech at a school assembly using “an elaborate, graphic, and explicit sexual metaphor” because "[t]he schools, as instruments of the state, may determine that the essential lessons of civil, mature conduct cannot be conveyed in a school that tolerates lewd, indecent, or offensive speech."

At the Third Circuit, the Layshock panel noted:

At the outset, it is important to note that the district court found that the District could not “establish[] a sufficient nexus between Justin’s speech and a substantial disruption of the school environment[,]” Layshock, 496 F. Supp. 2d at 600, and the School District’s does not challenge that finding on appeal.

That killed the School District's argument. Layshock held that, without the nexus, the District had no authority to punish the student.

The J.S. panel described the distinction between its opinion and Layshock:

A separate appeal dealing with school discipline of a student who created a MySpace profile of his principal was filed simultaneously in our Court. See Layshock v. Hermitage Sch. Dist., Nos. 07-4465 & 07-4555, slip op. (3d Cir. Feb. 4, 2010). However, upon review of the holding in that case, as set forth in that panel’s opinion, we find the two cases distinguishable.

Unlike the instant case, the school district in Layshock did not argue on appeal that there was, under Tinker, a nexus between the student’s speech and a substantial disruption of the school environment. Id. at Part IV.A.1. This nexus, under Tinker, is the basis of our holding in the instant case. Rather, the Layshock panel held that the school district failed to establish that a sufficient nexus existed between the student’s creation and distribution of the profile and the school district so that the district was permitted to regulate the student’s conduct. Id. at Part IV.A.2. That panel also held, under Frazer, that the student’s speech could not be considered “on-campus” speech just because it was targeted at the Principal and other members of the school community and it was reasonably foreseeable that school district and Principal would learn about the MySpace profile. Id. at Part IV.A.3.

In litigation and trial, "winning on the law" is important. It's necessary to win the case.

But winning on the law isn't sufficient by itself to win a case.

Facts win cases. Layshock won the facts. J.S. didn't.

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The Racketeer Influenced and Corrupt Organizations Act ("RICO") is not all that complicated.

Section 1962(c) provides:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.

In case you think "racketeering activity" is too vague, don't worry — the RICO Act defines it specifically. If the plain meaning rule was applied as strictly as courts say it should be, then we would see these claims prevail in every case involving a systematic fraud.

Instead, over the years defense lawyers and activist courts have imposed a broad swath extra-statutory requirements on RICO claims, such as two separate requirements of "distinctiveness." A plaintiff alleging RICO claims must allege that the "enterprise" at issue is "distinct" from the "persons" in the enterprise, and must allege that the "enterprise" has a "distinct" structure separate from the racketeering.

Of course, if we applied the dual "distinctiveness" requirements the way defense lawyers say we should, then Al Capone and his organization couldn't be prosecuted for racketeering, because Capone's organization was not "distinct" from itself and because Capone and his organization had no structure "distinct" from the racketeering itself.

Thankfully, after a handful of recent Supreme Court cases recognizing the broad language of the RICO Act (e.g., the Cedric Kushner and Boyle cases) , common sense is beginning to prevail again in the federal courts:

In a major setback for several title insurers, a federal judge has refused to dismiss a trio of class action consumer RICO suits that accuse the companies of engaging in a pervasive pattern of overcharging for title insurance by systematically ignoring entitlement to statutory discounts.

Although title insurers have been battling a wave of consumer litigation in recent years, the three decisions by U.S. District Judge Joel H. Slomsky mark the first time that a court has green-lighted RICO claims.

Defense lawyers had urged Slomsky to dismiss the RICO claims, arguing that the plaintiffs failed to plead a proper RICO enterprise since an insurer and its agents cannot be considered legally "distinct."

Slomsky disagreed, saying "plaintiffs have satisfied the minimum 'person' and 'enterprise' distinctiveness requirement because the combination of Commonwealth Land and the title agents constitute a single 'enterprise' separate and distinct from the 'person' of defendant Commonwealth Land and this combination is permissible under RICO jurisprudence."

The opinion is a victory for common sense. Will the plaintiffs prevail? Beats me. But a plaintiff who can marshal plausible allegations of systematic mail and wire fraud should not have the courthouse doors closed to them on grounds of sophistry.

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Before Ashcroft v. Iqbal improperly re-wrote the Federal Rules of Civil Procedure, Bell Atlantic Corp. v. Twombly foolishly imposed a new hurdle for plaintiffs who brought antitrust claims. Specifically, in Twombly the Supreme Court held,

In applying these general standards to a §1 claim [e.g., a price-fixing claim], we hold that stating such a claim requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made. Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement. ...[A]n allegation of parallel conduct and a bare assertion of conspiracy will not suffice. Without more, parallel conduct does not suggest conspiracy, and a conclusory allegation of agreement at some unidentified point does not supply facts adequate to show illegality. Hence, when allegations of parallel conduct are set out in order to make a §1 claim, they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action.

... A statement of parallel conduct, even conduct consciously undertaken, needs some setting suggesting the agreement necessary to make out a §1 claim; without that further circumstance pointing toward a meeting of the minds, an account of a defendant’s commercial efforts stays in neutral territory. An allegation of parallel conduct is thus much like a naked assertion of conspiracy in a §1 complaint: it gets the complaint close to stating a claim, but without some further factual enhancement it stops short of the line between possibility and plausibility of “entitle[ment] to relief.”

A number of defense lawyers — and, unfortunately, courts — have interpreted the above language to mean that an antitrust plaintiff can only "raise[ ] a suggestion of a preceding agreement" by proving, at the beginning of the lawsuit, that the defendants secretly agreed to raise prices together.

But how do you prove a secret agreement before you can use court processes to conduct an investigation?

Normally, you can't.

Catch-22.

Thankfully, the Second Circuit has just corrected those errors in reversing dismissal of a price-fixing case against several digital music companies. As the opinion (PDF) holds:

Defendants’ arguments that plaintiffs have failed to state a claim are without merit. Defendants first argue that a plaintiff seeking damages under Section 1 of the Sherman act must allege facts that “tend[] to exclude independent self-interested conduct as an explanation for defendants’ parallel behavior.” Appellee’s Br. 15-17. This is incorrect. Although the Twombly court acknowledged that for purposes of summary judgment a plaintiff must present evidence that tends to exclude the possibility of independent action, 550 U.S. at 554, and that the district court below had held that plaintiffs must allege additional facts that tended to exclude independent self-interested conduct, id. at 552, it specifically held that, to survive a motion to dismiss, plaintiffs need only “enough factual matter (taken as true) to suggest that an agreement was made,” id. at 556; see also 2 Areeda & Hovenkamp § 307d1 (3d ed. 2007) (“[T]he Supreme Court did not hold that the same standard applies to a complaint and a discovery record . . . . The ‘plausibly suggesting’ threshold for a conspiracy complaint remains considerably less than the ‘tends to rule out the possibility’ standard for summary judgment.”).

Defendants next argue that Twombly requires that a plaintiff identify the specific time, place, or person related to each conspiracy allegation. This is also incorrect. The Twombly court noted, in dicta, that had the claim of agreement in that case not rested on the parallel conduct described in the complaint, “we doubt that the . . . references to an agreement among the [Baby Bells] would have given the notice required by Rule 8 . . [because] the pleadings mentioned no specific time, place, or person involved in the alleged conspiracies.” 550 at 565 n.10. In this case, as in Twombly, the claim of agreement rests on the parallel conduct described in the complaint. Therefore, plaintiffs were not required to mention a specific time, place or person involved in each conspiracy allegation.

Starr et al v. Sony BMG et al., slip op., 08-5637 (2d Cir., January 13, 2010), pp. 15-16.

It's hard to call the opinion a "win" for antitrust plaintiffs — Twombly should have been better decided — but it definitely leaves antitrust plaintiffs better off than they were before.

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JURIST Paper Chase reports:

US security firm Blackwater [JURIST news archive] on Wednesday reached a settlement agreement in seven federal lawsuits filed by Iraqi citizens. The suits claimed that Blackwater, now known as Xe, created a reckless culture [AP report] that resulted in numerous deaths, including the deaths of 17 Iraqi civilians [JURIST reports] in September 2007 and the 2006 killing of an Iraqi guard. The suits accused Blackwater founder Erik Prince of personal responsibility. The terms of the settlement have not been made public, but Xe said in a statement that it is "pleased" with the resolution.

The settlement comes just a week after after a US judge dismissed charges [JURIST reoprt] against five guards indicted for their involvement in the September 2007 killings. Judge Richardo Urbina of the US District Court for the District of Columbia [official website] dismissed [opinion, PDF] voluntary manslaughter and weapons charges against the five guards, finding that statements were obtained in violation of the Constitution.

Susan Burke, who represents the plaintiffs, previously posted her response to Blackwater's motion to dismiss in the case online.

To say the allegations are shocking would be an understatement:

These Complaints allege that Mr. Prince acted contrary to, and in violation of, United
States government policies and instructions. Through their actions, Blackwater seriously harmed the United States and violated the law. See, e.g., Abtan/617 Compl. ¶ 60.

These Complaints allege that Mr. Prince fostered a culture of lawlessness, and encouraged employees to act in the company’s financial interests at the expense of innocent human life. See, e.g., Sa’adoon/615 Compl. ¶¶ 16, 18, 25-29; Albazzazz/616 Compl. ¶¶ 13, 14; Abtan/617 Compl. ¶¶ 2, 3, 49-57; Hassoon/618 Compl. ¶¶ 31-35, 46, 47, 80-85; Rabea/645 Compl. ¶¶ 1, 13-21. Collectively, these Complaints describe with specificity multiple examples of Mr. Prince’s men killing and wounding innocent Iraqis. For example, the Hassoon/618 Complaint describes a killing as follows: “On July 1, 2007, a driver named Wala’a was driving a minibus for three related families who were going to Baghdad airport to apply for passports. The three families included parents with four children, including a three-month old baby; an uncle; and a cousin and his wife. As the families were returning from the airport, six Xe-Blackwater vehicles, including three with turrets, surrounded the minivan and opened fire for absolutely no reason. The Xe-Blackwater shooters killed the nine-year boy. The Xe-Blackwater shooters shot the mother in the back as she bent over, trying to protect the three-month old daughter from being shot. She was unsuccessful, as the baby was shot in the face. The Xe-Blackwater shooters hit the father and the uncle. They shot at, but missed, the two other children. The Xe-Blackwater shooters also hit the cousin, Sadiq Ahmed Ali. They shot at but missed his wife, Khalida Jasim Mohammed, and the driver. Hassoon/618 Compl. ¶¶ 50-56. The other Complaints are to like effect, spelling out in detail the dates and times of the killings. For example, the Abtan/617 Complaint describes the Nisur Square shootings: “On September 16, 2007, heavily-armed Blackwater mercenaries (known in Blackwater parlance as “shooters”) working in Iraq began firing on a crowd of innocent civilians without justification, resulting in multiple deaths and injuries.” Abtan/617 Compl. ¶ 2. The acts against each Plaintiff are detailed. See, e.g., Abtan/617 Compl. ¶ 17 (stating “Plaintiff Haider Ahmed Rabe’a is a 32-year old Baghdad resident who was seriously injured by Xe-Blackwater shooters when they shot him in both legs as he was trying to flee from his car to escape the gunfire.”) Abtan/617 Compl. ¶ 17

...

As testified to under penalty of perjury by John Doe No. 2, Mr. Prince views himself as a Christian crusader tasked with eliminating Muslims and the Islamic faith from the globe. Decl. John Doe No. 2 ¶ 9. Mr. Prince intentionally deployed to Iraq certain men who shared his vision of Christian supremacy, and encouraged them to kill Iraqis. Decl. John Doe No. 2 ¶¶ 10-11. In addition to his Christian supremacist views, Mr. Prince was also motivated by greed. He knowingly deployed unsuitable candidates for carrying lethal weaponry because deployments meant more money. Decl. John Doe No. 2 ¶ 12. Mr. Prince ignored the advice and pleas from certain employees, who sought to stop the deployments and resulting killings of innocent Iraqis. Decl. John Doe No. 2 ¶ 13. See also Decl. John Doe No. 1 which describes additional deaths; and Exhibit C, in which one of Mr. Prince’s men admits to killing innocent Iraqis.

Plaintiffs brought suit under three statutes: Racketeer Influenced and Corrupt Organizations Act (“RICO”), Alien Tort Statute ("ATS"), and War Crimes Act ("WCA"). Blackwater's motion to dismiss was still pending when the case was settled.

Dismiss? How could someone get away with shooting a baby in the face?

Judicial politics. It doesn't matter if Congress passed at least three separate acts (RICO, ATS, WCA) making organized murder abroad illegal. It doesn't matter if two successive Presidents — one Republican, one Democratic — refused to grant private contractors immunity.

All a private contractor needs is a conservative judicial activist and even a dozen Iraqis who "were beaten, electrocuted, raped, subjected to attacks by dogs, and otherwise abused by private contractors" will have their case dismissed, like in Saleh / Ibrahim v. Titan Corporation et al.

Ironically, the dismissal of the criminal case probably encouraged Blackwater to settle. Plaintiffs' lawyers normally welcome simultaneous criminal prosecution of the defendants (for a host of reasons), and I imagine Burke did, too. Here, however, in light of the extraordinary circumstances, Blackwater may have felt the dismissal of the criminal charges offered them an opportunity to wrap everything up and retreat back into the shadows.

Where they can get back to business as usual.

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That's one way to lose millions of dollars:

Disbarred lawyer Kenneth Heller's refusal to turn over files in a matter that ultimately was resolved with a $3.7 million settlement was "symptomatic" of a 24-year record of "utter contempt for the judicial system," Southern District Bankruptcy Judge Stuart M. Bernstein wrote, quoting from an opinion of the appeals court in Manhattan that disbarred Heller in 2004.

Bernstein's ruling in In re Ruby G. Emanuel, 97-44969, denied Heller any share in the $1.2 million the judge had awarded to the law firm of Jacoby & Meyers, which took over from Heller the wrongful death case of James Emanuel, a stevedore who was fatally injured in a 1992 accident at the Brooklyn Navy Yard.

...

Following Heller's disbarment [for misconduct in an unrelated case], Ms. Emanuel retained Jacoby & Meyers to handle the retrial in state court.

The law firm asked Heller to forward his files in the matter, but Heller refused, even though, Judge Bernstein noted, "terminated lawyers normally send their files promptly to new counsel to be sure that the interests of the client are protected."

In resisting the surrender of his files, Bernstein recounted, Heller provided different estimates of the value of his work for Ms. Emanuel.

During Jacoby & Meyers' 2 1/2 year quest to secure the files, Heller offered various explanations as to what had happened to them -- lost in a house upstate, damaged by a flood, discarded by workers -- as the case was passed among five judges in Manhattan and the Bronx.

Eventually, the court declared Heller in contempt and issued sanctions, causing Heller to flee, after which deputies raided his office looking for the files, to no avail.

$3.7 million doesn't come close to the actual damages. The decedent was paralyzed from the neck down after a 45-foot fall and spent 20 months in the hospital before he died. In the original trial (in which Heller represented the plaintiff), a jury unsurprisingly awarded $25 million.

But because Heller didn't turn over the file:

Jacoby & Meyers only had the record on appeal to work with in negotiating a settlement, Michael S. Feldman, the firm's lead attorney on the case, said in an interview.

Heller's files consisted of 43 boxes of material, while the record on appeal filled only two boxes, Feldman said. The defendant's records in the underlying death case had been destroyed in the Sept. 11 attack on the World Trade Center where its law firm, Hill Betts & Nash, had its offices, Feldman added.

"We had to proceed without videos and photographs of Mr. Emanuel" who was paralyzed from the neck down as a result of a 45-foot fall as he was repairing a barge, Feldman said.

Switching attorneys in the middle of contingent fee litigation can cause a dicey situation. It is never easy for the exiting attorney — after pouring years of blood, sweat, tears and money into the case — to set the file down and walk away without securing a fee, as they would before voluntarily referring a case to another attorney.

But walk away they must. An attorney can't dangle the client's case over the new counsel's head as a negotiation tool.

The flip side is that, if the lawyer does the right thing and ensures the timely transfer of representation, the law will protect them. At the resolution of a case, prior contingent fee attorneys are generally entitled to recoup their reasonable costs and the quantum meruit — the fair value — of the work they did.

Except, however, where the attorney has breached their fiduciary duties to the client, in which case most states will deny the award of fees. Indeed, the issue isn't just a concern for contingent fee attorneys: in some states, if a professional breaches their fiduciary duties, the court can order the disgorgement of any fees previously paid.

Some people need to learn lessons the hard way. For the rest of us, take note: there's millions of reasons not to play games with client's files.

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[UPDATE: Welcome, Boing Boing readers! The below post was written before the South Korean edition of W Magazine was spotted out in the wild with Demi Moore's hip re-attached. As you can imagine, one of the most important parts of a retraction demand is that you get your facts straight.]

Lawyers are men and women of letters. Litigators, in particular, pride themselves on their correspondence; ask a litigator to show you their best work, and they will skip over dozens of briefs and transcripts to reveal a letter — maybe a settlement demand, a cease and desist for infringement, a spoliation warning, or a bad faith notice to an insurance carrier — that takes arms against a sea of troubles.

Among defamation lawyers, few letters are important as the first letter they send in a case, the demand for a retraction.

Under New York Times v. Sullivan, in order for the plaintiff in a defamation case to recover punitive damages, they must show "actual malice," i.e. the defendant's actual knowledge of falsity or reckless disregard for the truth. One way to show "actual malice" is to show that the defendant continued to publish the defamatory allegations even after the true facts were made known to them and a retraction was demanded. In some states, like California, a plaintiff must demand a retraction if they want to recover more than the specific monetary damage caused by the defamation.

All of which is to say: retraction demand letters are extraordinarily important in defamation cases. Each retraction demand letter, despite being only a few pages, is the product of hours of painstaking editing.  

Marty Singer is the go-to guy in Hollywood. For everyone in Hollywood.

He's written a few retraction demand letters in his time.

Which makes it hard to understand why he would end a retraction demand letter to a blogger (over the blogger's critique of an apparently photoshopped picture of Demi Moore) with this absurdity:

On behalf of Ms. Moore, we demand publication of an appropriate retraction and apology. We further request that you promptly remove from your website, twitter posts, and other site, all of the false and defamatory statements about my client and the cover photo, as well as any accompanying pictures of the W Magazine cover. We trust that now that the unequivocal facts have been established, that you will comply with these demands in order to set the record straight so that your readers/followers are not misled. If you fail to agree to the foregoing, then you will be exposed to substantial liability, and acting at your own peril.

Please govern yourself accordingly.

This does not constitute a complete οτ exhaustive statement of all of my client's rights or claims. Nothing stated herein is intended as, nor should it be deemed to constitute a waiver or relinquishment, of any of my client's rights or remedies, whether legal οr equitable, all of which are hereby expressly reserved. This letter is a confidential legal communication and is not for publication.

A threatening letter is not "a confidential legal communication" — whatever that means — just because some lawyer says so. Absent a confidentiality order, confidentiality agreement, or some other legal obligation to keep a confidence (e.g., trade secrets shown to an employee), a person has no duty to keep an unsolicited communication from a third party "confidential."

Unless, of course, Marty Singer is reading this post, in which case he should ignore the prior paragraph and consider this post a confidential legal blog post, not for publication.

Bluster — like a bogus "confidentiality" designation — is disturbingly common when powerful lawyers representing clients with essentially unlimited resources threaten unrepresented individuals. Singer's letter, however, is so full of bluster it might fail its essential purpose of establishing liability for punitive damages.

Ordinarily, the demand for a retraction is just that: a demand for an apology and retraction. There's nothing to which the defendant will "agree." Either the potential defendant retracts the publication or they don't.

The text of Singer's letter, however, does not demand a retraction, but instead apparently offers a settlement: "If you fail to agree to the foregoing, then you will be exposed to substantial liability ..." Presumably, then, if the blogger does "agree to the foregoing," then he will not be exposed to substantial liability. Indeed, the possibility of settlement is the only way that the letter could arguably be "confidential," since settlement offers are inadmissible (not the same thing as "confidential," but analogous) in court under Cal. Evid. Code § 1152.

But is that what Singer intended? Is a confidential settlement demand the functional equivalent of a retraction demand? How, exactly, does Singer intend to introduce at trial his own "confidential" letter requesting the defendant "agree" to terms to avoid "substantial liability" as evidence that a retraction was demanded? In other words, how can Singer try to admit the letter as evidence in court when the letter on its face proposes a settlement?

The target of the letter, photographer Anthony Citrano has responded with a retraction demand of his own: 

Mr. Singer: your demand that I retract my statements is a demand that I do further unwarranted and costly damage to a reputation you have already deliberately tarnished. Demanding an apology adds insult to this injury. Obviously, neither of these will be forthcoming.

On the contrary, I demand a complete retraction of all statements made or solicited by you, your client(s), and W that denied this retouching, and served to deliberately impugn my credibility and that of countless others who made similarly fair and accurate observations. I further demand a sincere and prominent public apology.

Touché.

Admissible in court, too.

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The ABA Journal reports about Mohawk Industries v. Carpenter:

Personal injury associate J. Craig Smith couldn’t turn down his father’s request to take on the case of his cousin Norman, who was fired from his job as a supervisor in a carpet manufacturer after alleging the company was hiring undocumented aliens.

"When my father called me from Georgia [in 2006] about Norman being fired, I didn't know if I could do anything for him," Smith told the Connecticut Law Tribune. "But my Dad said, 'Remember who you are, and where you're from--we stick by our own.' I knew I had to do right by Norman.”

Smith stuck with cousin Norman Carpenter, all the way to a U.S. Supreme Court victory on a privilege issue.

At the time of the call, Smith was a fourth-year associate at personal injury law firm Koskoff, Koskoff & Bieder in Connecticut. He worked on the case along with a two-person employment law firm in Atlanta—until cert was granted. Smith began getting calls from Supreme Court specialists, who warned he wouldn’t stand a chance unless they got involved, the story says. Smith turned them down and hired Yale law professor Judith Resnik; they sat together at the counsel table when the case went to the Supreme Court.

Lawyers like to believe we're really smart. We like to believe that we can predict which case will make a lot of money. We like to believe we can tell which cases are really important. We like to believe we can tell when a landmark unanimous Supreme Court opinion has walked in the door.

James E. Beasley, Sr., the late founder of our firm, believed that, if lawyers did the right thing, everything else would take care of itself. He took a lot of cases that offered little more upon presentation than years of bruising litigation, despite the risk and the cost, because he believed that taking up that person's cause was the right thing to do.

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Following up on my post of two weeks ago on judicial immunity in the "kids for cash" Luzerne County scandal, Judge Caputo of the Middle District of Pennsylvania issued his ruling yesterday, which holds in pertinent part:

For judicial immunity to apply, only two requirements need to be met: jurisdiction over the dispute, and a judicial act. As to the first, a judge is not immune only when he has acted in the “clear absence of all jurisdiction." Stump 435 U.S. at 349 (citation omitted). Second, a judicial immunity extends only to “judicial acts,” not administrative, executive, or legislative ones. Id. at 360-61.

...

The Plaintiffs argue that because Ciavarella’s acts contravened the Constitution of the United States, he was acting in the “clear absence of jurisdiction” and therefore is not immune from suit. The Plaintiffs cite no authority for this proposition, nor is there any. They allege that Ciavarella violated the constitutional rights of the juveniles brought before him in the following ways: (1) his court or tribunal was not impartial; (2) he failed to advise them of the right to counsel and therefore assure that any waiver of counsel was knowing and voluntary; and (3) he failed to determine that the pleas of guilty were knowing and voluntary. While these acts constitute egregious, unjustifiable judicial behavior, they do not make out a case for the absence of jurisdiction. If unconstitutional acts by a judge deprived the court of jurisdiction, and hence eliminated judicial immunity, it could be argued that all erroneous decisions in constitutional tort cases would subject the judge to civil liability. Such is not, and should not be, the case. As to their courtroom behavior, I conclude that both Ciavarella and Conahan had jurisdiction.

...

Conahan’s issuance of an injunction for an alleged corrupt motive is identical to the conduct the Supreme Court considered when granting immunity in Dennis v. Sparks. Dennis, 449 U.S. at 28 (illegal injunction allegedly based upon corruption). As to Ciavarella, focusing only on the nature of the act performed, as I am required to do by law, I also find that the determinations of delinquency and the sentences imposed were judicial acts. As the Supreme Court has made clear, the alleged motivations, be they corrupt or with malice, are irrelevant to this determination. As to the courtroom acts of Conahan and Ciavarella, I find that they are protected by judicial immunity.

That is not to say, however, that every act alleged of the two was judicial in nature. For example, Conahan’s signing of a “Placement Agreement” would be an administrative, not a judicial act. Similarly, any acts in making budget requests to the Luzerne County commissioners would also be administrative or executive in nature. And the actions of Conahan and Ciavarella in coercing probation officers to change their recommendations is outside of the role of a judicial officer. Probation officers are to advise the court, not the other way round, on sentencing matters. The nature of these acts are not judicial in nature, and therefore judicial immunity does not shield such conduct.

(Emphasis added.)

I disagree, but Judge Caputo's ruling has strong support in precedent and policy going back well before the founding of our nation and the founding of Pennsylvania.

Also, even though Judge Caputo in general accepted the judicial immunity of the defendants, there's also a strong argument to be made that Judge Caputo had to rule this way, for he had no appellate court precedent supporting a ruling otherwise, no matter how persuasive the plaintiffs' arguments may have been to him. Some questions are not for the District Court to decide in the first instance.

The opinion — which is very clear and concise — is worth reading by anyone interested in the subject. An article that will appear in Monday's The Legal Intelligencer is available here.

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Business Week points us to the major cases.

As Litigation & Trial is a legal, rather than a business, blog, I'm going to take their list of cases but replace their description of each with the actual legal issue at stake, along with links to SCOTUSWiki, which hosts all of the relevant briefs for your reading pleasure:

Bilski v. Kappos: Whether a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (”machine-or-transformation” test), to be eligible for patenting under 35 U.S.C. § 101 and whether the “machine-or-transformation” test for patent eligibility, contradicts Congressional intent that patents protect “method[s] of doing business” in 35 U.S.C. § 273.

Free Enterprise Fund v. Public Company Accounting Oversight Board, et al.: Whether the Sarbanes-Oxley Act is consistent with separation-of-powers principles - as the Public Company Accounting Oversight Board is overseen by the Securities and Exchange Commission, which is in turn overseen by the President - or contrary to the Appointments Clause of the Constitution, as the PCAOB members are appointed by the SEC.

Black et al. v. United States: Whether the “honest services” clause of 18 U.S.C. § 1346 applies in cases where the jury did not find - nor did the district court instruct them that they had to find - that the defendants “reasonably contemplated identifiable economic harm,” and if the defendants’ reversal claim is preserved for review after they objected to the government’s request for a special verdict.

American Needle Inc. v. NFL, et al.: Whether NFLP, the NFL, and the teams functioned as a “single entity” when granting the company an exclusive headwear license and therefore could not violate Section 1 of the Sherman Act, 15 U.S.C. 1, which requires proof of collective action involving “separate entities.”

United Student Aid Funds, Inc. v. Espinosa: Where a debtor declares to discharge a student loan debt in his Chapter 13 bankruptcy plan, has the debtor satisfied the due process requirements of Mullane v. Cent. Hanover Bank & Trust Co, and does the fact that the debtor failed to initiate an adversary proceeding render the enforceability of the discharge order under 11 U.S.C. 1327(a)inapplicable?

Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Company: Can a state legislature properly prohibit the federal courts from using the class action device for state law claims?

Hemi Group, LLC, et al v. City of New York: Whether city government meets the Racketeer Influenced and Corrupt Organizations Act standing requirement that a plaintiff be directly injured in its “business or property” by alleging non commercial injury resulting from non payment of taxes by non litigant third parties.

Graham County Soil and Water Conservation Dist v. ex rel. Wilson: Whether federal courts have jurisdiction over False Claims Act suits based on revelations in administrative reports or audits issued by state or local governments, as opposed to the federal government.

Stay tuned for more discussion of each in upcoming posts.

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As you may already know (Google News already lists 300+ articles on it):

A state investigation found that a Montgomery County swim club racially discriminated in June when it revoked an agreement to allow a Northeast Philadelphia day camp to use its pool after 56 African American and Hispanic children made their first visit.

"The racial animus . . . and the racially coded comments" by club members at the Valley Club in Huntingdon Valley were the reasons the club revoked Creative Steps Inc.'s contract, according to a 33-page report by the Human Relations Commission that was released last night by an attorney for four of the campers.

The situation elicited a national media firestorm during the summer over allegations that members of a swim club in a historically white suburb withdrew permission to allow minority children into their pool - even after a $1,950 check had been delivered to pay for the children to have weekly swimming trips.

We've discussed the case twice before on this site. As I wrote before,

Let's assume, for the moment, that everything the Club said is true. There's still a big unanswered question: once they realized they were overbooked, how did they choose which money to refund?

The most recent members? Did they do that for individual white members, too? What about predominantly white day camps?

On its face, the Storybrook Day Camp story sounds favorable to the Valley Swim Club's position, but upon closer inspection it's another diverse day camp whose money was refunded after they showed up. Like the "statistics" described by the Pennsylvania Supreme Court, the presence of another minority Day Camp which was excluded might be very damaging to the Swim Club's defense, unless they can show similar exclusions / refunds of white camps or members.

But I think they've got an even bigger problem: we're having a debate they obviously did not have when they refunded the money. The concern stated at the time was over "complexion" and "atmosphere."

A copy of the PHRC's findings are available on Scribd. Let me highlight a few of them (excuse any typos; I had to perform OCR to copy the text):

31. In 2009, the Respondent employed eight persons as life guards and seven persons as grounds crew. All of the life guards and grounds crew employees are race, Caucasian.

33. In 2009; the Respondent had a total of 155 paid memberships of whom none were African American.

34. In 2008, the Respondent had a total of 179 paid memberships of whom none were African American.

109. Approximately 30-45 minutes after their arrival, ________and ____________, Creative Steps campers, left the swimming pool and walked to the Respondent's concession stand to get a snack.

110. As they returned to the swimming pool area, ____________ heard Michelle Flynn (race, Caucasian), a Respondent member and a teacher at Laura H.Carnell Elementary School, state the following: "What are all of these black kids doing here?" and "I am scared they might do something to my child. "

130. Immediately after the Creative Steps campers departed, Mr. Duesler stated that Meg Wescott, a Respondent member, spoke to him on behalf of 5 or 6 women who were in favor of the ·summer day camps, including Creative Steps. Mr. Duesler also stated that Yasmin Adib, Amy Goldman, Walter Poukish, Respondent members, spoke to him in favor of Creative Steps.

131. On or about June 29, 2009 ill the early evening, Mr. Duesler received a telephone call from Mary Beth DeGeorge, a Respondent member, who indicated that she was at the pool earlier in the day. She 'told Mr. Duesler that she felt that the Respondent was not prepared to host the camps due to the volmne of children in the shaIlowend of the swimming pool and that it was beyond the Respondent's capacity.

132. On or about June 29, 2009 at 9:45 p.m., Ms. Flynn sent an e-mail to the Respondent members explaining that she was "'very upset" that when she arrived at the swim club at 4:00, there was a bus emptying off a group of kids.She explained that while it is a community pool, "'this is not the community where these kids live." She also noted that she was especiaijy annoyed "'because there was no notice ahead of time like there is for the swim team."

133. Ms. Flynn also stated: "', .. since I personally know some of these kids because I teach at their school and I have seen first hand what at least one of these children is capable of I don't feel comfortable with my children even going to the bathroom during this time." She also stated: "Thank you for your time and I needed to write something because I felt I was being treated as if because the kids were African American it was an issue.. That could not be further than the truth."

138. On or about June 29, 2009 at 11:17 p.m., Walt Slowinski, a Respondent member, sent an e-mail to the Respondent members with a subject line of "bussing." Mr. Slowinski stated that he was a "little upset" at the news "about the bussing of kid (sic) to the pool every Monday." He explained that "[w]hen we joined we assumed that this was a private club not a club for hire or some sort of social program." He concluded that "[w]e like Valley and would love to stay but after hearing what transpired today I guess we will be looking for somewhere else to go next year. "

144. Just over twelve hours after Mr. Duesler defended his decision to invite the campers in an e-mail to Mr. Slowinski, on or about June 30, 2009 at 12:40 p.m., Mr. Duesler sent an e-mail to" the members of the Responqent's Board of Directors with a subject line of "Feedback from our Summer Camp Program" recommending the cancellation of Creative Steps.

145. Mr. Duesler explained that "[w]hat ultimately is holding sway with me is the tension that will linger throughout every hour of the club, essentially pitting member against member, as we are forced to take sides in this debate. This is no way to spend the summer for anyone, and, believe me, its all people are talking about at the club." With that in mind, Mr. Duesler recommended to the Respoiu:lent Board of Directors the following: "we refund out Monday summer campers' money, and inform Wednesday's camp that things are not going to work out this summer. Our Summer Bible Camp will conclude this week." Mr. Duesler concluded by explaining he welcomed feedback from the members of the Respondent Board of Directors but requested such feedback be quick as he needed to contact the campers to let them know.

150. On or about June 30, 2009 at 3:54 p.m., Steve Korolyk, a Respondent member, e-mailed the Respondent members with a subject line of "LET THE MEMBERS KNOW." He stated: "I hear the Valley Swim Club is becoming a day camp pool, I see nothing posted on your website or at the board at the bottom of the fill." He also voiced complaints regarding the Wexler Plumbing party and asked when the party would be occurring this year. He concluded by stating that it was not right not letting members know when the pool was rented out and that he might have to rethink his membership.

151. On or about June 30,2009 at 4:01 p.m.• Mr. Duesler responded to Mr. Korolyk's e-mail stating that it was a mistake on his part not telling the club about the summer camps. He also stated: "I will also tell you that after this week, we are pulling the plug on the camps, since 1 have been receiving many emails similar to yours. "

152. On or about June 30, 2009 in the late afternoon, Mr. Duesler called Ms. Wright and informed her that the Respondent was discontinuing its relationship with Creative Steps Summer Day Camp and that it would refund the $1,950.00 payment.

It's clear from the rest of the findings that "safety" had nothing to do with the decision to refund the day camp's money. Ironically, it seems that the "atmosphere" and "complexion" remarks by Mr. Duesler that inflamed this controversy really summed up what happened: after receiving multiple complaints with implicit, but not explicit, references to the campers' race, Mr. Duesler "pulled the plug on the camps" not necessarily out of any personal racial animus he felt against the campers, but rather to assuage the complaints of those who appeared to feel racial animus towards the campers. Ergo, the campers were rejected due to their race.

Although the PHRC findings have been described as finding, for example, "racial discrimination did play a role in the rejection of campers from a local swim club," that's not quite what the findings mean. Rather, as the findings conclude:

WHEREFORE, probable cause exists to credit the Complainant's allegations that the Respondent refused and denied Complainant's child the accommodations, advantages, facilities or privileges of its public accommodation and commercial property, including the use of its swimming pool, due to the child's race, Black/African American in violation of Section 5 of the Pennsylvania Human Relations Act, 43 P.S. 955 ...

Which is to say, the Pennsylvania Human Relations Commission found probable cause to believe discrimination occurred, rather than a actually finding discrimination. As described by my second post, the next step involves the Commission sitting down with the parties to encourage a settlement. If that doesn't work, then the Commission will hold a formal hearing on the matter, after which the factual and legal findings will be made.

Interestingly, the finding awarded "actual damages, including damages caused by humilitation and embarrassment." That doesn't line up with the statute itself, which allows damages for "humiliation and embarrassment" only for employment and housing cases, but not for public accommodation cases. See 43 P.S. § 959(f)(1) and Mechensky v. Commonwealth, Pennsylvania Human Relations Comm'n, 134 Pa. Commw. 192, 205, 578 A.2d 589, 595–96 (1990)(describing Midland Heights Homes, Inc. v. Pennsylvania Human Relations Commission, 478 Pa. 625, 387 A.2d 664 (1978), as holding "the Commission was without authority to award compensatory damages").

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As you may have heard, Judge Rakoff did not like the proposed SEC settlement with Bank of America (neither did I) in part because it blamed the bank's lawyers while refusing to waive attorney-client privilege and explain what, exactly, went wrong. A week ago, he rejected it entirely:

In a 13-page order available here at the New York Times's DealBook blog, Rakoff variously calls the settlement "trivial," "absurd," and "neither fair, nor reasonable, nor adequate." His primary objection seems to be that shareholders would indirectly pay for the alleged failure to disclose the bonuses, since the bank, not the individual executives who struck the merger agreement, would pay the fine. The SEC, according to Rakoff, says it cannot punish BofA executives because those executives did not craft the merger agreement in a way that--according to the agency--violated disclosure rules. Who did craft the merger agreement in such a way?

According to the SEC, that would be the lawyers who wrote the agreement--Wachtell, Lipton, Rosen & Katz for BofA and Shearman & Sterling for Merrill. Rakoff responds with a sentence that must frighten any M&A lawyer: "If that is the case, why are the penalties not then sought from the lawyers?"

As we've written at length, the pointing of the finger at outside counsel has raised serious questions about whether the bank waived attorney-client privilege in its talks with the SEC, and whether Rakoff may try to extend that waiver into his courtroom. The bank, for its part, has denied any wrongdoing, saying it is routine to conceal sensitive information, such as bonus payments, in confidential statements filed at the same time as public merger agreements.

Now Congress has jumped in:

The chairman of the House Committee on Oversight and Government Reform on Friday told Bank of America that it has questions concerning disclosures made surrounding the bank’s purchase of Merrill Lynch. The panel’s chairman, Edolphus Towns (D-NY), told the bank it can’t use the attorney-client privilege when dealing with Congress. Click here for more, from the NYT; here for earlier coverage of BacMerSaga, from the LB.

In a letter on Friday, Towns (pictured) said the bank must divulge when it became aware of the enormous losses at Merrill last year, when it received a commitment from the federal government for a second round of bailout money and what legal advice its management received about whether it had to disclose those developments to the bank’s shareholders. (Legal advice? Yipes! It means that, at least for the moment, the roles of Wachtell, Lipton and Shearman & Sterling will likely stay firmly in the spotlight.)

...

Bank of America acknowledged that Congress had the authority to disregard attorney-client privilege. That said, the bank’s Washington law firm, WilmerHale, argued that that would set a bad precedent. It’s a sentiment shared, writes the NYT, by the Association of Corporate Counsel, which came to BofA’s defense this month when the New York attorney general Andrew Cuomo asked the bank to give up its claim that its legal advice should remain private. The group issued a statement saying that it would be an “outrageous precedent” for other public companies if the bank had to give up its right to legal privacy.

As I wrote back when Judge Rakoff was still considering the settlement,

Courts often hold that clients cannot use attorney-client privilege as both a sword and a shield. That is, clients can either use lawyers' advice as a "sword" to defend themselves or they can use the privilege as a "shield" to keep communications private, in which case they're off limits entirely.

But they can't have it both ways. If they could, every defendant would just blame their lawyers and call it a day.

Bank of America's (current) lawyers have it exactly backwards: it would set a "outrageous precedent" if privilege was not waived here, because the bank itself interjected legal advice into the matter by blaming its lawyers for what happened.

The principle involved is not complicated. If you want to keep your legal advice out of the case, then do not use it in your defense. If you want to blame your lawyers and raise advice of counsel as a defense, then you lose the privilege.

Sword or shield. Not both.

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The AmLaw Daily reports:

When news broke Wednesday that guitar virtuoso Joe Satriani's copyright suit against the band Coldplay had been settled, the Litigation Daily raced to Pacer to download the documents. After all, it's not every day that a copyright dispute between an aging guitar god and one of the biggest rock bands on the planet settles. (Granted, it's a bit of a stretch to call Coldplay a "rock" band.) But it turns out that the settlement is as opaque as a Coldplay lyrics sheet.

Satriani filed suit in December 2008, alleging that Coldplay's monster hit of 2008, "Viva La Vida," ripped off "substantial, original portions" of his 2004 song "If I Could Fly." (To compare the two, scroll to the bottom of this RollingStone.com post.)

On Monday, Los Angeles federal district court judge Dean Pregerson issued an order dismissing Satriani's suit. We were hard-pressed, however, to find details of the settlement between Satriani and the band in the judge's one-page filing. The only nugget: Each side will cover its own costs and attorneys' fees.

(YouTube also has an excellent analysis of the two songs by a guitar instructor.)

I must point out a technical note. The order for dismissal says:

Each party shall bear its own costs and attorney fees.

For those of you who can read English, you may be surprised to learn that the above language does not mean that each side will cover its own costs and attorney fees. Indeed, as part of the settlement, it's possible that Coldplay agreed to pay all of Satriani's costs and fees.

Here's why: in actions for copyright infringement (like actions for patent infringement and employment discrimination), a plaintiff can recover, as part of their damages, the costs and attorney's fees incurred in bringing the suit. In such a situation, once the trial was concluded favorably for the plaintiff, the plaintiff would submit a petition for fees to the court, after which the Court would evaluate the reasonableness of the fees and then award those fees which were appropriate.

In some cases, the parties settle the merits of the action, but expressly reserve the issue of costs and attorneys' fees for the Court to decide, after which the case is over. All the language in the Satriani v. Coldplay cases means is that the parties have decided to resolve the costs and fees issue themselves, rather than letting the court rule on it. It's likely Coldplay is indeed paying them, since otherwise Satrinani wouldn't recover anything on balance after paying his attorneys.

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The Philadelphia Inquirer reports:

Since the beginning of the year, a new Pennsylvania law on public records has been sending tremors through state and local governments.

Unprecedented numbers of citizens, civic groups, reporters and businesses have filed thousands of requests for government documents and data.

Now come the aftershocks: Dozens of public-record lawsuits are piling up in courthouses around the state, waiting for judges to spit out rulings on what the law really means.

...

The new law is more detailed than the old one in specifying which government records are open to the public and which are not.

It also created the [Office of Open Records], a state agency to act as a first-stage arbiter when there's a dispute over a record being public or not.

In just eight months, the OOR has handled more than 4,500 e-mails and phone inquiries, about evenly split between people wanting to get information and government agencies wondering if they have to provide it.

...

The new law could be a victim of its own success.

As of yesterday, 55 rulings from the OOR have been appealed to local or state courts, where county and appellate judges will ultimately decide which government records the public is entitled to see.

There's a serious risk that when the cases are argued, John Q. Public will be legally outgunned by local and state agencies, using taxpayer money to pay thousands of dollars in legal fees - and arguing, usually, that taxpayers have no legal right to see the records they're asking for.

The problem of excessively defensive litigation is typically mitigated by awarding the plaintiff attorney's fees if they prevail, as is done in civil rights and discrimination cases.

Unfortunately, the Pennsylvania Right To Know Law's attorney's fees provision is not nearly as strong as the federal freedom of information act. The Pennsylvania law only permits attorneys fees to be shifted where:

Section 1304. Court costs and attorney fees.

(a) Reversal of agency determination. — If a court reverses the final determination of the appeals officer or grants access to a record after a request for access was deemed denied, the court may award reasonable attorney fees and costs of litigation or an appropriate portion thereof to a requester if the court finds either of the following:

(1) the agency receiving the original request willfully or with wanton disregard deprived the requester of access to a public record subject to access or otherwise acted in bad faith under the provisions of this act; or

(2) the exemptions, exclusions or defenses asserted by the agency in its final determination were not based on a reasonable interpretation of law.

(b) Sanctions for frivolous requests or appeals. — The court may award reasonable attorney fees and costs of litigation or an appropriate portion thereof to an agency or the requester if the court finds that the legal challenge under this chapter was frivolous.

That's a hard standard to meet, as shown by cases in other states with similar "willful" language, and thus it makes the Right-To-Know Law essentially unavailable except to lawyers and well-heeled parties.

Compare that weak fee-shifting to the Federal Freedom of Information Act's more robust fee-shifting:

The Freedom of Information Act provides that the court "may assess against the United States reasonable attorney fees and other litigation costs reasonably incurred in any case . . . in which the complainant has substantially prevailed." 5 U.S.C. § 552(a)(4)(E).

Given low rates typically awarded to prevailing plaintiffs, FOIA litigation is by no means profitable, but the fee-shifting takes enough of bite out of the costs plaintiffs must incur when fighting against the unlimited resources of the government to attract the attention of public interest organizations, non-profits, and media companies. Which is good for democracy, and strikes a respectable balance between the need to know and the preservation of taxpayer funds: only the strongest cases get picked up by those organizations and carried through to their conclusion.

But that's only on the Federal level. In Pennsylvania, however, if you want to know what your state or local governments are up to, you need to be willing to pony up five-or-six figure attorneys' fees just to dispute their objections, much less prevail over them through litigation and appeals. Though it's your government, you have to put your money where their mouth is.

Of course, it bears repeating that, when the government hires lawyers by the hour, the relationship creates an inherent conflict of interest in which the lawyers have an incentive to excessively defend, delay and deny to generate more billable hours, exacerbating the problem and raising even more barriers to citizen-led investigations of the government.

Thus, much like how taxpayers are better served when the government is represented on a contingent fee for its own lawsuits, I propose the government only be defended on a contingent fee, too: if the defense lawyers don't "substantially prevail," they don't get paid at all.

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In a stunning display of judicial activism, two conservative judges on the United States Court of Appeals for the District of Columbia re-wrote several recent Department of Defense regulations, a sixty-year-old Act of Congress, a basic principle of federalism upheld by dozens of Supreme Court opinions, and millenia of common law to dismiss the Saleh v. Titan Corporation and Ibrahim v. Titan Corporation lawsuits brought by more than a dozen Iraqis who "were beaten, electrocuted, raped, subjected to attacks by dogs, and otherwise abused by private contractors working as interpreters and interrogators at Abu Ghraib prison." Dissent op., p.1. The United States was not a defendant, nor were the military officers. The lawsuit was solely against the private contractors.

You already know the "allegations" -- you've probably already seen much of the evidence. There's no doubt what happened. It was "abhorrent" and "[doesn't] represent America” according to President Bush. Secretary Rumsfeld assured “[t]he people of the Middle East . . . that we will investigate fully, that we will find out the truth . . . and [that] justice will be served.” Dissent op., p. 2. Ilham Nassir Ibrahim isn't around for justice; he was beaten to death while in captivity. His widow is one of the plaintiffs.

The prohibition on unauthorized violence, even against prisoners, is universal to civilization. Under the Code of Hammurabi, if a prisoner like Ibrahim died "from blows or maltreatment," the responsible party's son was put to death. These days, torture for fun and profit without even the pretense of government authorization violates a panolopy of laws, including the Torture Victim Protection Act, the Racketeer Influenced and Corrupt Organizations Act, numerous common law torts (assault and battery, wrongful death and survival, intentional infliction of emotional distress, and negligence), government contracting laws, and various international laws and agreements.

To cover their bases, the plaintiffs sued under all of them. Surely at least one such claim would survive under centuries-old Anglo-American legal maxim -- reaffirmed by the most important Supreme Court decision in our history -- that "where there is a legal right, there is also a legal remedy by suit or action at law whenever that right is invaded?"

The plaintiffs' claims were strengthened by the absence of any Executive or Congressional action to stop them, despite numerous claims by the private contractors that the federal government had a substantial interest in the outcome of the case. The Bush and Obama administrations both declined to intervene in the case. Congress for a half-century now has authorized dozens of military actions which included the use of private contractors without passing a single law granting them immunity from suit.

The only related Congressional Act -- the Federal Tort Claims Act -- expressly says it "does not include any contractor with the United States.”  In fact, the only recent relevant action by either the Executive or Legislative branches is a regulation from the Bush-era Department of Defense stating that, for performance-based service contracts, "contractors [are] accountable for the negligent or willful actions of their employees, officers, and subcontractors." Dissent op., p. 22. The DoD further explained that "“[i]nappropriate use of force could subject a contractor or its subcontractors or employees to prosecution or civil liability under the laws of the United States and the host nation.” Id at p. 21.

The Supreme Court, too, has made it quite clear that, when a government contractor breaches its agreement with the government and thereby causes a third party harm, that contractor is responsible for the harm. In Miree v. DeKalb County, 433 U. S. 25 (1977), the victims of an airplane crash sued a county airport because it "breached the FAA [flight permission] contracts by owning and maintaining a garbage dump adjacent to the airport, and that the cause of the crash was the ingestion of birds swarming from the dump into the jet engines of the aircraft." After reiterating (consistent with prior law) that "the issue of whether to displace state law on an issue such as this is primarily a decision for Congress" and noting "Congress has chosen not to do so in this case," the Supreme Court affirmed the victims' right to sue. Keep that "primarily a decision for Congress" concept, a basic principle of federalism recently upheld in Wyeth v. Levine, in mind -- we'll come back to it later.

Why, then were the Abu Ghraib cases dismissed? Judicial activism, plain and simple: having no act of Congress, no Executive decision (in fact, regulations to the contrary), and no applicable Supreme Court precedent to support their preferred policy outcome, two conservative judges invented an entirely new judicial doctrine.

The judges didn't say that, of course. They claimed to be applying existing law.

A bit of background is required to see why that's not true. Though Miree is the general rule for lawsuits brought by third parties injuried by government contractors who breach their contracts, an exception for government manufacturers who perform their contracts properly was created by Boyle v. United Technologies Corp., 487 U.S. 500 (1988), where a United States Marine helicopter copilot was killed when his CH-53D helicopter crashed off the coast of Virginia Beach and he drowned. His family brought a lawsuit against the manufacturer of the CH-53D, alleging that the helicopter was defective because escape hatch opened out instead of inward, and thus was impossible to open underwater.

The Supreme Court held the family could not recover against the manufacturer because that design had been specifically required by the government, and thus the federal procurement specification "preempted" any claims of negligence, rendering the contractor immune from suit for following those specifications. Make no mistake: as the Supreme Court later described Boyle, preemption and immunity for government contractors applies only in the "special circumstance" where the “government has directed a contractor to do the very thing that is the subject of the claim.”  Correctional Services Corp. v. Malesko, 534 U.S. 61, 74 n.6 (2001)(applying the old Miree rule)

It's a sensible rule, even though one not enacted by Congress (as Miree and long-standing law said it should be). But it's also a very limited rule: as Justice Scalia wrote for the Supreme Court, it applies where "the asserted basis of the contractor's liability (specifically, the duty to equip helicopters with the sort of escape-hatch mechanism petitioner claims was necessary) is precisely contrary to the duty imposed by the Government contract (the duty to manufacture and deliver helicopters with the sort of escape-hatch mechanism shown by the specifications)."

Note those words: "precisely contrary." Scalia even gave an example of where it would not apply, such as where a government merely purchased air-conditioning units without any requirement contrary to a specific safety feature. As Scalia wrote, "no one suggests that state law would generally be preempted" if someone injured by the lack of that safety feature filed a lawsuit. Of course, absolutely no one suggested that a government contractor who breached their contract would be immune. As Scalia wrote, "conflict there must be" between the federal contract requirements and the lawsuit.

Compare "precisely contrary" and "conflict there must be" to Abu Ghraib, where the contractors intentionally breached their contracts through criminal conduct. Such is even less a case for preemption and immunity than Miree, where the breach was negligent, and which was reaffirmed by Boyle. Yet, Boyle is what the conservative judges claimed they were applying:

Slip op., p 13.

Did you catch all of that? The conservative judges took a twenty-year-old Supreme Court case admittedly involving the "special circumstance" where a plaintiff sued alleging a government manufacturer should have done the exact opposite of what the government told them to do, then, by way of a federal statute that expressly says it does not apply to contractors (the FTCA), the conservative judges applied that "special circumstances" to immunitize every private contractor in any "battle-field" -- which Abu Ghraib certainly wasn't -- who tortures and kills people without even the pretense of governmental authority.

In order to do that, the conservative judges also ran roughshod over the millenia-old prohibition on abusing prisoners, the centuries-old maxim that every right has a remedy, decades of precedent holding that Congress -- not the Courts -- is responsible for creating immunities, and recent crystal-clear Department of Defense regulations affirming that private contractors remain responsible for their wrongful conduct.

Judicial activism at its finest. Read the opinion yourself, if you dare. I recommend you start with the fine dissent by Judge Garland.

Continue Reading...

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As Ashby Jones at the WSJ Law Blog notes:

For all those who’ve made lists of cases to watch heading into the fall, may we kindly suggest adding the Google Books case, if you haven’t already.

The backstory: Manhattan judge Denny Chin is currently sitting on a settlement reached last year between the search engine giant and publishers that would allow Google to sell digital books online. (A hearing on the case is scheduled for Oct. 7.)

Since the settlement was announced, a chorus of objectors has emerged, many of whom have howled that, were the deal allowed to go forward, Google would be allowed a near-monopoly on the publication of out-of-print books and other titles.

You can read the Google Books Settlement press release and proposed settlement here, where I casually described it as "good news for everyone," largely on the assumption that the Author's Guild had reached a settlement that would both make orphan works more accessible and provide compensation for such use. Such was how the settlement was described.

But the settlement is much bigger than that. Walter Olson at Overlawyered rounds up some criticism:

One blogger turns thumbs down on Google Books settlement [Patrick at Popehat] “Laundering orphan works legislation through a class action lawsuit”? [James Grimmelmann, ACS Blog via Mass Tort Lit] Much more: Lynn Chu/Writer’s Reps (who, I should note, has represented my literary interests on matters unrelated to this); WSJ Law Blog; Pasquale/ConcurOp.

The objections are worth considering. Principally, the objection is, as Chu writes,

The Google Book Settlement far exceeds any mere litigation settlement. Settlement is about damages for specific, past harms. This, by contrast, is a business proposal. The plaintiffs' claim was about the harm from Google’s book copying before January 5, 2009. After four years of self-serving business planning, what the parties now place before the court is no “settlement” of this claim at all, but a 335 page publishing and union contract—a proposal for a business venture they wish to present to the class.

Google, although generally a good corporate citizen, has often been cavalier about the rights and interests of individuals, particularly with regard to privacy and copyright, which, like the book settlement, affect the ability of individuals to control the content they produce. As such, there is reason to be suspicious.

One issue, however, seems to be missing from the debate so far: a general principle of governance is that, in the absence of regulation, social policy issues will be determined by litigation.

It is the second half of 2009.  He have affordable technology to unlock much of the collective wisdom of humanity and make it immediately accessible anywhere in the world. Indeed, we even have a well-regarded company ready and willing to do it for free.

That is not a mere business proposal. That is a social policy issue of considerable importance, one will may affect us for generations to come, particularly if, as academics have warned, the inaccurate metadata used by Google Books represents a "train wreck" for scholars. It should be the subject of legislative and executive attention; that is why we have representative government in the first place, to assess and to act upon (or intelligently decide not to act upon) social policy issues.

But it is not the subject of much legislative or executive attention, likely because our intellectual property regime is captive to a handful of corporations that believe they can and should control the bulk of culture forever. They like how things are going for them. They're not going to rock the boat over mere books; indeed, they probably like seeing Google centralize control over publishing the way the RIAA and MPAA have centralized control over music and film.

One consequence of this laissez-faire approach by the government is, as we see in the Google Books settlement, creation of "policy" by the judicial branch by way of litigation. Litigation, however, is particularly ill-suited to solve these problems, for the very reasons mentioned by the objectors, such as the lack of notice to, and participation by, millions of interested parties, including parties which will become interested in the future.

As such, we're stuck. An internationally-and-instantly-accessible, free-of-charge Library of Alexandria is, in theory, a wonderful idea. But so is reasonable protection for the rights of authors (and so is the assurance that appropriate metadata has been captured). And who will decide the wisdom of the new Library of Alexandria?

Judge Denny Chin. I have nothing against Judge Chin -- he may issue a ruling far superior to that which could have been produced by any Congressional subcommittee -- but I can assure you that the Framers of the Constitution had no intention of leaving such matters to him alone.

[UPDATE: Ask, and ye shall receive. The House of Representatives' Committee on the Judiciary is holding a hearing entitled, "Competition and Commerce in Digital Books." Hopefully, prepared remarks will be available on the site soon.]

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On Tuesday, The New York Times reported:

The finger-pointing in Merrill Lynch’s bonus troubles shifted to a new target on Monday in two court documents that essentially said: blame the lawyers.

Responding to questions posed by a federal judge, Bank of America and the Securities and Exchange Commission said the bank had relied on its outside lawyers to fill in the fine print in that firm’s controversial marriage with Bank of America.

That meant that lawyers at two firms — Wachtell, Lipton, Rosen & Katz as well as Shearman & Sterling — handled a decision to keep Merrill’s $3.6 billion in bonus payouts a secret from Bank of America’s shareholders, according to the filings.

It is unclear if the responses will satisfy the judge who requested them, Judge Jed S. Rakoff of the Southern District of New York. He has the power to decide whether to approve a $33 million settlement reached between Bank of America and the S.E.C. over the bank’s failure to disclose the bonuses to its shareholders.

I was going to write a post about how that bothered me, because, as the AmLaw Litigation Daily noted:

"The preparation of the joint proxy statement, including the decision not to attach the disclosure schedule setting forth the agreement on...bonuses or otherwise disclose its contents in the proxy statement, was made by the lawyers at Wachtell, Shearman, Bank of America and Merrill," the SEC brief says, adding that statements in the proxy materials deliberately misled investors into believing Merrill bonuses would not be paid.

Bank of America did not waive attorney-client privilege for the SEC investigation, so the SEC says its knowledge of what the Wachtell and Shearman lawyers said is limited. The government contends, moreover, that the executives' reliance on their lawyers shields them from fraud accusations because it would be hard to prove scienter.

Bank of America's lawyers at Cleary Gottlieb Steen & Hamilton--Lewis Liman and Shawn Chen--offered precious few of the specifics Judge Rakoff seemed to be asking for at the August 10 hearing. The names of Kenneth Lewis and John Thain, for instance, appear nowhere in BofA's submission. And as for the role of the outside lawyers, the brief merely says: "The parties were represented throughout the process by two law firms with preeminent experience in the field of mergers and acquisitions." Cleary offered no details on who or what those preeminent firms advised about disclosure materials.

Judge Rakoff, however, beat me to it:

Federal judge Jed S. Rakoff fired a new shot in his challenge to a $33 million settlement by Bank of America Corp. over investor disclosures, saying the government's justification for letting individual executives off the hook is "at war with common sense."

The Securities and Exchange Commission reached the settlement with the bank last month. The agency charged that a Bank of America proxy statement in November misled investors about bonuses for employees at Merrill Lynch, which was about to be acquired by the bank.

The SEC has said it couldn't investigate individual executives' culpability because they said they relied on lawyers' advice. Unless the executives waived their right to keep the advice private, the SEC said it would face "substantial obstacles" to building a case.

Judge Rakoff, who must approve any settlement, criticized that reasoning. If that were the regulator's policy, "it would seem that all a corporate officer who has produced a false proxy statement need offer by way of defense is that he or she relied on counsel." He said if the company insists on attorney-client privilege, there is no way to test the assertion and determine whether executives or their lawyers were culpable.

Exactly right. Courts often hold that clients cannot use attorney-client privilege as both a sword and a shield. That is, clients can either use lawyers' advice as a "sword" to defend themselves or they can use the privilege as a "shield" to keep communications private, in which case they're off limits entirely.

But they can't have it both ways. If they could, every defendant would just blame their lawyers and call it a day.

(If you're interested in more, AmLawDaily dug a bit deeper into the ethics issues raised by the litigation.)

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The Recorder reports:

Michael Ross was fired and blamed for two corporate scandals at Atmel Corp. -- but now the former general counsel is fighting back.

Ross has filed a lawsuit, claiming the San Jose, Calif., semiconductor company ruined his reputation when it pointed the finger at him and others for the company's stock option backdating problems, which led to a $125 million financial restatement. Having been fired along with other Atmel executives in 2006 after an investigation into the misuse of travel funds, Ross became an easy scapegoat when the company faced a mounting backdating mess a year later, his lawyers say.

Many lawyers in Ross' position bore the brunt of the blame for the backdating scandal that swept Silicon Valley's tech companies. They were fired; they were pursued by the government for overseeing the illegal practice of fudging dates to grant stock options at low prices and not properly accounting for it. But few have fought back with lawsuits like this.

* * *

When it released the results of its internal probe to the world, it laid the blame squarely on Perlegos and Ross in an April 2007 press release.

"Mr. Ross was aware of, and participated in the backdating of, stock options," the release blared, although the company's audit committee conceded that Ross may have not understood the tricky accounting implications of backdating until 2002. It also leveled accusations that Ross backdated his own stock options.

In his lawsuit, Ross said the press release damaged his career and counts as defamation: "As a result of the reckless, false and misleading comments made by Atmel regarding Ross' culpability in Atmel's stock option troubles, Ross has had significant difficulty obtaining employment commensurate with his experience and background."

As the story continues, after the travel investigation, Atmel went through one of the most bitter corporate struggles for control in recent Silicon Valley memory, resulting in the ouster of the brothers who founded the company, with whom Ross was close.

Most interesting to me, however, is how Atmel covered its bases dealing with the travel scandal, but not the backdating scandal. Take note:

An internal investigation of Davani led to the Perlegos brothers, Ross and another executive.

Daniel Bergeson and his team found that the executives had been paying small amounts in return for lots of travel on the company's dime ...

In the end, the executives contested the travel scandal findings, claiming it was a ploy to oust the management. The company got Morrison & Foerster to double-check Bergeson's investigation -- and the MoFo lawyers concluded it was fair.

"Double-check." Reminds me of a recent derivative suit here in Pennsylvania, which the company got dismissed because it had hired outside counsel to conduct an independent investigation.

Which is exactly what Atmel did for the travel funds but not, apparently, for the backdating. Now, they might pay the price.

Hiring independent counsel for an investigation is expensive. It's inconvenient. It may end up being unnecessary, or it may end up revealing troubling facts and recommending painful remedies. But it is, bar none, the best prophylactic a company can take when it finds itself in trouble.

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[UPDATE: The Supreme Court issued its opinion in Mohawk Industries v. Carpenter, holding attorney-client privilege was not immediately appealable.]

Last week, the Fulton County Daily Report noted:

The Obama administration and a group of law professors and former federal judges are asking the U.S. Supreme Court to reject a Georgia company's plea for a change in the way many appellate courts deal with questions of attorney-client privilege.

Earlier this year, a coalition of business interests and the American Bar Association filed amicus briefs joining carpet maker Mohawk Industries' argument that parties in federal cases should be allowed to immediately appeal lower court findings that the parties have waived their rights to keep key information secret under attorney-client privilege. They argue that once privileged material is produced in discovery, the consequences of disclosure cannot be undone by an appellate reversal of the trial order mandating production.

But this month, the former Mohawk employee seeking information the company claims is privileged received some high-powered help of his own. U.S. Solicitor General Elena Kagan filed an amicus brief supporting the former employee, plaintiff Norman Carpenter, as did the group of 19 law professors and six former federal judges that includes former Whitewater independent counsel Kenneth W. Starr; former Federal Bureau of Investigation director William S. Sessions; former federal judges Patricia M. Wald and Abner J. Mikva; and legal scholar Erwin Chemerinsky. They argue that a Mohawk win at the Supreme Court would undermine district court judges' ability to control the discovery process.

The relevant briefs and a synopsis of the arguments are available at SCOTUSwiki. Seeing Starr and Chemerinsky on the same side of an issue is almost as odd as seeing Ted Olson joining David Boies to sue for gay rights.

The position of the Chamber of Commerce and Defense Research Institute is no surprise: deny, distract and, above all, delay.

But why do bar associations (like the Philadelphia Bar Association) have a penchant for chiming in only on behalf of defendants?

In one sense, the question we're really asking is one of balance. Everyone would like to have every issue decided against them made immediately appealable. But we can't do that; as the former judges' brief notes, the courts are overworked as is, and, as the plaintiff's brief notes, there are dozens of serious issues -- like those affecting constitutional rights and criminal convictions -- which are not immediately appealable.

Where does attorney-client privilege (involving discussions regarding a separate case) fit on the totem pole?

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All's fair in love, war and litigation:

An arbitrator cannot sue a lawyer for wrongful use of civil proceedings, the 3rd U.S. Circuit Court of Appeals has ruled, even if the lawyer allegedly lodged false accusations in court papers to have the arbitrator disqualified, because lawyers enjoy an "absolute privilege" that immunizes them from liability over any communication made in the course of litigation.

The five-page unpublished opinion is available here. It says:

The underlying litigation in this case began in 1995 when Anthony Patterson, a
member of the Church of the Lord Jesus Christ of the Apostolic Faith in Philadelphia, filed an action in state court against church leaders alleging that they had looted millions of dollars from the church’s bank accounts. In November 2006, the parties agreed to submit the case to binding arbitration. The parties selected Edward Naythons (“Naythons”), a retired United States Magistrate Judge in the Eastern District of Pennsylvania, as the neutral arbitrator. . . .

Naythons issued the final adjudication in October 2006, but dated it July 25, 2006,
the date he completed it. In November 2006, Stradley filed a motion to vacate the final arbitration award. In December 2006, Stradley filed a petition for a hearing on their petition to vacate, as well as their previous petition for recusal.

About ten months later, Naythons filed a complaint against Stradley. In it, Naythons alleged abuse of process and wrongful use of civil proceedings due to the “scorched earth” litigation strategy Stradley employed and the accusations Stradley leveled against Naythons in the course of making arguments for his recusal. Stradley moved to dismiss the case because Naythons, a non-party to the underlying litigation, lacked standing.

The Third Circuit agreed in a single paragraph of analysis:

Under Pennsylvania law, the District Court correctly dismissed Naythons’s claims
of abuse of process and wrongful use of civil proceedings. Stradley did not “use legal process” against Naythons. Naythons was the arbitrator in the state proceeding, not a party to the action, and the fact that he was named as a respondent in one of the state court petitions is of no import. Permitting Naythons to sustain either of these claims against Stradley would abrogate the doctrine of judicial privilege, whereby “pertinent and material” communications made in in the context of judicial proceedings are absolutely privileged from civil liability. Moses v. McWilliams, 549 A.2d 950, 956 (Pa. Super. Ct. 1988) (citing Post v. Mendel, 507 A.2d 351, 355 (Pa. 1986)). The proper recourse for any unethical conduct on behalf of Stradley is through judicial review of the arbitration proceedings, which could result in sanctions against Stradley if their conduct was as egregious as Naythons alleged in his complaint.

The claims were obviously a long shot -- an arbitrator isn't a party to the case they hear, so nothing is "used" or "initiated" against them.

Why didn't Naythons allege defamation? 

Ask his lawyer, George Bochetto. Bochetto was the plaintiff in the most recent Pennsylvania Supreme Court opinion on "judicial privilege," Bochetto v. Gibson,  which reaffirmed Post:

 Pursuant to the judicial privilege, a person is entitled to absolute immunity for 'communications which are issued in the regular course of judicial proceedings and which are pertinent and material to the redress or relief sought.' Post v. Mendel, 510 Pa. 213, 507 A.2d 351, 355 (Pa. 1986) (emphasis in original). This privilege is based on the 'public policy which permits all suiters, however bold and wicked, however virtuous and timid, to secure access to the courts of justice to present whatever claims, true or false, real or fictitious, they seek to adjudicate.' Id. As we explained in Post, 'to assure that such claims are justly resolved, it is essential that pertinent issues be aired in a manner that is unfettered by the threat of libel or slander suits being filed.' Id. Notably, this privilege is extended not only to parties so that they are not deterred from using the courts, but also to judges so that they may 'administer the law without fear of consequences,' 'to witnesses to encourage their complete and unintimidated testimony in court, and to counsel to enable him to best represent his client's interests.' Binder v. Triangle Publications, Inc., 442 Pa. 319, 275 A.2d 53, 56 (Pa. 1971).

Bochetto v. Gibson, 580 Pa. 245, 251, 860 A.2d 67, 71 (2004).

The Pennsylvania Supreme Court held the privilege did not apply to the facts alleged by Bochetto, however, as the defendant attorney had faxed a copy of the allegedly defamatory complaint to a reporter (at The Legal Intelligencer). Such faxing was not "in the regular course of judicial proceedings."

The lawyers at Stradley Ronon no doubt paid heed the lesson of Bochetto v. Gibson and kept all their allegations within the confines of the litigation. Hence Naythons' and Bochetto's creativity.

I don't know the merits of the allegations either way. Assuming, for a moment, that Naythons' allegations were true and Stradley injured him through "scorched earth " litigation tactics, the immunity granted to them from suit by Nathons is all the more reason that the district court needs its hands free to deal with lawyers and parties who misbehave, the exact issue pending before the Third Circuit in Grider v. Keystone Health.

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In today's Wall Street Journal:

Good news: The Pennsylvania Supreme Court has agreed to hear an unusual but important legal challenge in a case involving Governor Ed Rendell’s hiring of a contingency fee law firm to sue a drug manufacturer on behalf of the state.

The lawsuit—which we first wrote about in April—concerns Bailey Perrin & Bailey, a Houston law firm tapped by the Rendell administration to prosecute Janssen Phamaceuticals over the marketing of its antipsychotic drug Risperdal. When states lack the resources or expertise to bring certain suits, it’s not uncommon for them to seek help from private lawyers. ...

In agreeing to hear the challenge, the state Supreme Court said it will consider, among other things, “whether Bailey Perrin Bailey, LLP, should be disqualified because the due process guarantees of the United States and Pennsylvania Constitutions prohibit the Commonwealth from delegating the exercise of its sovereign powers to private counsel with a direct contingent financial interest in the outcome of the litigation.”

The WSJ makes a big deal out of donations the firm made to Governor Rendell's campaign while negotiating the contract. If there's an issue there, this appeal won't address it.

Drug & Device Law has a copy of the petition for review, which bizarrely claimed companies accused of ripping off taxpayers have a due process right to force the government to hire only lawyers who are "impartial."

Of course, everyone wants government officials to be "impartial." But once those impartial officials have made the decision to sue, common sense dictates they hire lawyers who will "act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client’s behalf," as required by the Pennsylvania Rules of Professional Conduct.

The real issue is whether the Commonwealth may hire lawyers on the same terms as businesses and individuals do every day or if the Commonwealth is forced to use a particularly wasteful system invented by corporate lawyers that came to prominence in the 1970s (and is being rejected today) as a means of extracting greater profits from business clients by creating unnecessary work for recent law graduates.

You can guess what I think: the appeal is a blatant attempt to make litigation more expensive for the government, thereby making it harder for the government to sue companies when they cheat or injure taxpayers.

If there was pay-for-play, that's obviously illegal and unethical, but contingent fee litigation itself is a win-win for taxpayers, as it protects the public coffers (no fee if they lose), preserves state cash for other use (no billables to pay at the end of each month), and ensures the matter will be prosecuted in a prompt and efficient manner, rather than through the relentless fee churning that characterizes complex litigation billed by the hour.

Examples of waste by the hour aren't hard to find: the litigation (excluding trial) of a few trust documents at Princeton was reached $40 million for each side. The white collar criminal defense of an executive for accounting fraud was a "feeding frenzy" of $12 million. Compare that to the $0.00 that Pennsylvania taxpayers have paid so far for the prosecution of Commonwealth of Pennsylvania v. Janssen Pharmaceutica, Inc.

It should be noted that the "among other things" to be considered by the Pennsylvania Supreme Court are:

A. Whether 71 P.S. § 732-103 dictates that Petitioner lacks standing to
seek disqualification of Bailey Perrin Bailey, LLP on the basis of alleged
violations of constitutional law.

B. Whether the Attorneys Act, 71 P.S. § 732-101 et seq., authorizes the Office
of General Counsel’s contingent fee arrangement with Bailey Perrin Bailey, LLP.

C. Whether Bailey Perrin Bailey, LLP, should be disqualified because the
General Assembly did not authorize the contingent fee arrangement between
the Office of General Counsel and the law firm, such that the agreement
violates Article III, § 24 and the separation of powers mandate of the
Pennsylvania Constitution.

The first question is a substantial one. 71 P.S. § 732-103 reads in full:

No party to an action, other than a Commonwealth agency including the Departments of Auditor General and State Treasury and the Public Utility Commission, shall have standing to question the authority of the legal representation of the agency.

Such would appear to be a clear indication by the General Assembly that choice of counsel is a political question.

Nonetheless, an interesting and important case to watch. Will Pennsylvania taxpayers be required to open their wallets again?

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Although some physicians continue to claim medical malpractice liability is the biggest problem affecting access to health care (despite the total cost of medical malpractice premiums being $0.50 for every $100 spent on health care, and despite premiums being the lowest they've been in over forty years), the real problem, as alluded to by this American College of Surgeons report, is "declining reimbursement."

That's a euphemism for one of the ugliest businesses in America.

We got a glimpse into that ugly business last week, when Bayonne Hospital Center sued Horizon Blue Cross Blue Shield of New Jersey (hat tip: Movin' Meat), the largest health insurer in New Jersey, with just under 4 million insureds. The press release is mind-boggling:

The complaint, filed late yesterday in the U.S. District Court in Newark, New Jersey, provides a detailed account of Horizon’s business practices which run counter to the insurer’s contractual duties to its customers, its obligations under state law and its stated commitment to the interest of public health. Some of the most offensive Horizon practices detailed in the complaint include:

• A systematic campaign discouraging patients from seeking emergency care at BHC despite it being the closest and safest option for urgent care for the residents of Bayonne
• Intimidation of patients by threatening denial of coverage if they seek treatment at BHC
• Interference with care by sending couriers to BHC to tell patients undergoing medically necessary treatments to leave BHC and seek care at a hospital that is “in network”
• Indefensible denial of claims, often while the patient is still undergoing care
• Unilateral determinations by Horizon bureaucrats that emergency room patients are medically stable enough to be discharged to home or transferred to other in-network facilities without consulting the patient's attending physician

The complaint not only details Horizon’s atrocious behavior and policies with BHC, but also exposes Horizon’s multi-billion dollar financial success at a time when New Jersey’s hospitals cannot afford to provide healthcare to the communities which they serve. The complaint also reveals Horizon’s gold-plated executive compensation packages and its publicly stated plans for conversion to a “for profit” entity and initial public offering.

Keep than in mind next time someone tells you health care reform might involve "rationing." We've already got rationing, but right now it's done for profit, and done without any regard for your health or safety.

The complaint (a poorly rendered version is available here) alleges thirteen counts, which I break into four main types of claims: antitrust, ERISA, consumer fraud (including Lanham Act), and business torts.

I find that approach a little odd. Most cases involving fraudulent claims denials by insurance companies -- like Grider v. Keystone Health -- primarily allege racketeering ("RICO") claims. Antitrust continues to be notoriously hard to prove, and recent efforts to reform it have already run into trouble. ERISA is a wicked beast of a claim, with dozens of loops and curveballs, and though it quite clearly covers how employers administer the health benefits plans they run, it's not clear how it applies to the health insurance company itself.

That said, these cases aren't easy or simple, and I give the lawyers credit for creativity. They may end up making good law here, and perhaps they'll amend to allege RICO later.

Of course, let's not forget why Grider v. Keystone Health became so prominent: because the defense lawyers for the health insurance company, taking their cues from the client, brought the obstructionism and deception that pervades the health insurance industry into the courtroom, prompting severe sanction from the court.

Like I said: one of the ugliest businesses in America.

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Amazon just paid a little under a billion dollars for Zappos, a shoe-company with legendary customer service. Of interest to those of us in the litigation business is this post at peHUB:

One of the sources says Zappos was financially strong enough to wait for the IPO market to recover, if it chose to go that route. The source, a Zappos shareholder who has seen the company’s income statement reports, said that the company did over $1 billion in gross revenue in 2008, $625 million in net revenue and had an EBITA greater than $40 million.

Zappos had raised $49.1 million from venture investors since its inception, most of it from Sequoia, according Thomson Reuters (publisher of PEHub.com). The Zappos shareholder, who says he has seen the company’s capitalization tables, says Sequoia had a 3x or 3.5x liquidity preference associated with the shares it purchased.

“When Mike [Moritz, a GP with Sequoia] came in, he came in at a high valuation, but he countered that with a very high liquidation preference,” the shareholder says. “It puts management on one side of the table and investors on the other. Then there’s always pressure to sell the company.”

At least two sources who do not hold board seats, but are directly involved with Zappos, indicated that Moritz and Zappos CEO Tony Hsieh came into conflict about the company’s future. Moritz, the sources say, wanted Zappos to sell while Hsieh wanted to remain independent.

Such a dispute, if true (Zappos has sort-of denied it), could have  turned into a bitter lawsuit that, at the least, frustrated the sale to Amazon.

It didn't. Perhaps that's because Zappos' management just didn't want to do that.

But perhaps it's also because, from the get-go, the parties realized that their interests were not entirely aligned, and so intentionally framed the deal in a way that recognized and dealt with this conflict, rather than papering over it or punting it to the future.

Sure, it was easier for Sequoia and Zappos to see this coming, since venture capitalists (and most private equity investors) understand the inherent conflict between management and investors when it comes time for an exit, and so routinely frame their contracts around it.

Nonetheless, it's a good example for every business, investor and partner who gets caught up in the exuberance of signing onto a project without stopping to think about the likely disputes down the line. The more you think about these potential disputes, the less time you'll spend dealing with people like me.

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As The Philadelphia Inquirer reported on Friday:

An association of black police officers has sued the Philadelphia Police Department in federal court for allowing its officers to post "blatantly racist . . . and offensive" content on a popular Web site devoted to law enforcement topics.

The suit, filed Wednesday, says Domelights.com, which bills itself as "the voice of the good guys," was founded by a Philadelphia police sergeant who uses the screen name "McQ" and "encourages the racially offensive conduct."

...

Guardian Civic League attorney Brian Mildenberg said that black officers had long reviled the site and that complaints had been been lodged with current and past police administrations to no avail.

Even the word domelights, which normally refers to the police lights on top of cruisers, has taken on an "insulting connotation" among black officers, according to the lawsuit.

...

Mildenberg said white officers post and moderate the forums while on duty and on department computers, creating "a racially hostile environment."

"It's the same thing as you can't hang racist material in the workplace," he said.

Of interest is the response "McQ" posted at the website:

Domelights.com has two members (founders and co-owners) with global administration rights, along with several moderators of individual forums. I am the only current PPD employee among the moderators and administrators. I do not administer the site from work, and since the site is only lightly moderated, I barely administer the site from home (it is essentially an open forum to members). I have personally NEVER made a racist/sexist post on Domelights or anywhere else on the Internet.

...

Domelights.com has no association, official or otherwise, with the Philadelphia Police Department. It is just a semi-popular social networking site that is geared towards cops/firefighters. There are THOUSANDS of city employees with blogs, facebook pages, myspace pages, twitter accounts and even websites, with ALL kinds of content, offensive and otherwise. I just happen to run the site that gets the most hits (at least for now).

WHYY has a copy of the complaint, available here.

There are plenty of sites offering analysis of the comments posted at the site and quoted in the complaint. For the moment, let's assume that, consist with Third Circuit jury instructions on hostile work environments, the allegedly harassing conduct was not "generally harsh, unfriendly, unpleasant, crude or vulgar," but rather "could be objectively classified as the kind of behavior that would seriously affect the psychological or emotional well-being of a reasonable [member of plaintiff’s race]."

How could the Philadelphia Police Department, and thus the City of Philadelphia, be liable for posts on a website with "no association, official or otherwise, with the Philadelphia Police Department?"

Let's go back to 1866.

Plaintiffs allege three counts, two of which are only against "Sgt. 'McQ,' Domelights.com a/k/a Domelights Enterprises, LLC and JOHN/JANE DOES ## 1-10,000," the other of which is:

FEDERAL CIVIL RIGHTS VIOLATION/DISCRIMINATION
HOSTILE WORK ENVIRONMENT ON THE BASIS OF RACE
42 U.S.C. § 1981 as enforceable through § 1983
Plaintiffs, individually, and on behalf of all others similarly situated v.
The Philadelphia Police Department

The core language in 42 U.S.C. § 1981 was originally passed as part of the Civil Rights Act of 1866 (over President Johnson's veto), which included:

All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other.

Such did little to halt the Ku Klux Klan's frustration of Reconstruction. In 1871, Congress passed (and President Grant signed) a bill colloquially referred to as "the Ku Klux Klan Act," which included:

[A]ny person who, under color of any law, statute, ordinance, regulation, custom, or usage of any State, shall subject, or cause to be subjected any person within the jurisdiction of the United States to the deprivation of any rights, privileges, or immunities secured by the Constitution of the United States, shall, any such law, statute, ordinance, regulation, custom or usage of the State to the contrary notwithstanding, be liable to the party injured in any action at law, suit in equity, or other proper proceeding for redress

The primary purpose of the Act was to create criminal penalties -- "a fine not less than five hundred nor more than five thousand dollars, or by imprisonment, possibly with hard labor, for not less than six months nor more than six years or by both fine and imprisonment" -- for a host of wrongful conduct, including witness intimidation, voter intimidation, obstruction of justice, and interference with federal government operations.

More than a century later, lawyers revived § 1981 to pursue discrimination actions against state governments, only to be shot down by Jett v. Dallas Independent School District, 491 U.S. 701 (1989). In January of this year, the Third Circuit "consider[ed] whether a private right of action against state actors can be implied under 42 U.S.C. § 1981," and held it could not. McGovern v. City of Philadelphia, 554 F.3d 114 (3d Cir. 2009).

But suit can be brought against "state actors," including municipalities themselves, by using § 1983 to apply § 1981. Yet, to recover against a municipality under § 1983 requires proving more than just purposeful discrimination that creates a hostile work environment; plaintiffs' complaint reveals how they intend to recover against the City specifically:

50. By and through their conduct, the Philadelphia Police Department has evidenced a
policy, practice or custom of allowing the use of their computers for a racially hostile purpose, and allowing its employee Police Officers to engage publically in racially offensive and hostile commentary and postings.

 The key words are "policy, practice or custom." As the McGovern case above noted,

In Monell v. New York Department of Social Services, 436 U.S. 658, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978), the Supreme Court held that a municipality may not be held vicariously liable for the federal constitutional or statutory violations of its employees. See id. at 694. "Instead, it is when execution of a government's policy or custom, whether made by its lawmakers or by those whose edicts or acts may fairly be said to represent officially policy, inflicts the injury that the government as an entity is responsible under § 1983." Id.

McGovern at 121.

And that's what's going to pose the greatest challenge for the plaintiffs here. The City and Police Department are not vicariously liable for civil rights violations by their employees. Moreover, and perhaps most importantly, unlike in a typical case alleging a constitutional violation -- in which neither the City nor the plaintiff disputes that the defendant was acting in their official capacity when they crossed the line -- it seems unlikely the City would indemnify "McQ" or anyone else for comments made on a website with "no association, official or otherwise, with the Philadelphia Police Department."

That is to say, the City / Police Department are only liable if the plaintiffs can show that the government policy itself inflicted injury on the plaintiffs. Hence the references to the use of "Domelights" in the office as a pejorative term and the use of work computers.

Can they prove that? Ironically, since § 1981 lay dormant for so long, it never really had any "organic" development of case law and precedent. Thus, courts in recent years have simply taken the McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), framework for deciding cases under Title VII of the Civil Rights Act of 1964 and applied it wholesale to § 1981 employment discrimination cases.

The details of such a framework can fill -- and has filled -- shelves of books. For a glimpse, start at page 10 of the Third Circuit model jury instructions. Assuming McQ is right, it appears the core question will likely be if the Philadelphia Police Department should have taken action to stop off-the-job discriminatory remarks by its employees.

That's a tricky question; just ask Sonia Sotomayor, who dissented in the Pappas v. Giuliani, 290 F.3d 143, 154 (2d Cir. 2002) case, in which the New York Police Department fired an officer for off-the-job hate speech. The Second Circuit upheld the termination; Sotomayor would have held the termination violated the officer's free speech rights:

Today the Court enters uncharted territory in our First Amendment jurisprudence. The Court holds that the government does not violate the First Amendment when it fires a police department employee for racially inflammatory speech -- where the speech consists of mailings in which the employee did not identify himself, let alone connect himself to the police department; where the speech occurred away from the office and on the employee's own time; where the employee's position involved no policymaking authority or public contact; where there is virtually no evidence of workplace disruption resulting directly from the speech; and where it ultimately required the investigatory resources of two police departments to bring the speech to the attention of the community. Precedent requires us to consider these factors as we apply the Pickering balancing test, and each counsels against granting summary judgment in favor of the police department employer. To be sure, I find the speech in this case patently offensive, hateful, and insulting. The Court should not, however, gloss over three decades of jurisprudence and the centrality of First Amendment freedoms in our lives because it is confronted with speech it does not like and because a government employer fears a potential public response that it alone precipitated.

As Popehat notes,

Of course in some ways the Pappas case is easier than what’s alleged here.  Pappas’s speech was far more loathsome than the “locker room” casual redneck racism that’s complained of in Domelights.  But in others the Pappas case is harder.  There was no evidence Pappas’s speech was repeated on the job, while the Philly PD allegedly allows officers to post at Domelights from work computers.

This case, if its litigated fully (and it should be, as it presents interesting issues on the First Amendment and the Civil Rights Act), may wind up before Sonia Sotomayor one day.  If and when that happens, she may have the opportunity, in the most emphatic way, to reverse her Second Circuit colleagues.

An interesting case to follow.

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The WSJ Law Blog spots an interesting development:

In June, as we blogged here, a San Francisco federal judge ruled that convicted terrorist Jose Padilla can sue Yoo, the Bush administration lawyer who authored some of the now famous war-on-terror memos, including one that opined the military can use “any means necessary” to hold suspected terrorists. ...

Yoo has now turned for help to Miguel Estrada, the powerhouse Gibson Dunn appellate litigator who was nominated by Bush to serve on the D.C. Circuit Court of Appeals. Estrada’s nomination was scuttled by Democrats, a point repeatedly harped on by Republican senators in the Sotomayor confirmation hearings. (Okay, we can only turn away from Sonia for so long.)

The Justice Department had been defending Yoo in the Padilla suit, but DOJ has agreed to foot the bill for Estrada’s services, according to an article today in The Recorder. Conflicts of interest are behind the change in counsel, ethics experts say.

“The department so far has been able to provide direct representation in this case by arguing that the lawsuit should be dismissed for qualified immunity reasons, and that remains the department’s position,” a Justice spokeswoman told the Recorder. “But as this case moves forward, the defendant deserves the opportunity to retain defense counsel that can make any and all arguments available on his behalf.”

I've discussed qualified immunity before on this blog. In short, as described by Harlow v. Fitzgerald, 457 U.S. 800 (1982):

government officials performing discretionary functions[] generally are shielded from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.

For more on the specific ruling in the case against Yoo, see this post by Jonathan Turley. Up until now, the Department of Justice (under Obama) had conducted Yoo's defense, and had angered civil libertarians by requesting the court dismiss Padilla's case on several grounds, including qualified immunity.

It's typical for federal government officials to be represented by the U.S. Attorneys and the Department of Justice, since the United States indemnifies its officials for damages awarded against them for conduct taken as part of their office, including for constitutional violations.

A "conflict of interest" isn't the right way to describe what happened here. The Department of Justice and Yoo have the same interest, which is to dismiss the case promptly or to minimize their liability.

What really happened here is revealed by the bolded quote above. It appears Yoo is going to make arguments on his behalf that the Department of Justice itself is unwilling to support.

That's good news for civil libertarians. Even though the Department of Justice initially sought to dismiss the suit on standard "qualified immunity" grounds, it appears the Department of Justice will not support Yoo's actual constitutional arguments, like how the President is "free from the constraints" of the Fourth Amendment (and the rest of the Bill of Rights) even when ordering domestic military action. (If the Department of Justice agreed, there would be no need to withdraw.)

Indeed, the Department of Justice might end up admitting that Yoo's opinions were erroneous and did not accurately state the law. Were I Padilla's lawyers, the first discovery I'd send would be a request for admission to the the United States establishing that.

A important case to watch, and perhaps the only vehicle by which we'll have a legal accounting of what really happened behind closed doors in the Bush years.

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The Blog of The Legal Times talks about the Sotomayor confirmation hearings:

Under questioning from Sen. Ted Kaufman (D-Del.), she spoke in greater detail than she has before about her career as a commercial litigator. She said she learned the importance of predictability in business law when partners would revise the drafts of settlement agreements she had written. The partners, she said, replaced her plain language with what she considered "gobbledygook," in order to conform the agreements to court precedent.

"In business, the predictability of law may be the most necessary," she said, "in the sense that people organize their business relationships based on how they understand the courts interpret their contracts."

When I was a summer associate at a business and transactional firm, the managing partner told me a similar story. Back when he was an associate, a partner at the firm asked him to draft a real estate bill of sale. He did so, with considerable difficulty, and a considerable investment of time, and took it to the partner, who skimmed it and threw it away.

Why?

"Because I don't know what any of that means. I do, however, know what these old agreements I've been using mean. Their meaning hasn't changed in five hundred years."

It seems Sotomayor got the same lesson. Lots of lawyers do.

Let me tell you: the lesson is wrong.

It's not always wrong. In certain circumstances -- like some real estate transactions -- there is language used so frequently that it has become the standard against which all other grammar and syntax is measured. Any deviation will likely be interpreted against the person who suggested it.

If you have one of those situations, be sure you know what the "standard" language is. Otherwise, focus on making the text of the written agreement reflect the reality of the parties' understanding, not on adding in "gobbledygook" to make it look lawyerly.

But even where you have a "standard" contract, the lesson may lead you astray. Long ago, I lost track of the number of times a lawyer told me "court precedent" dictated the use of particular language yet couldn't produce any actual "court precedent" to back that up.

Do you think every partner who told Sotomayor how the contract "should" have been written actually reviewed that "court precedent" prior to rejecting Sotomayor's draft? I doubt it. I'm betting more than a few of those "replaced" agreements included "standard" language that meant something different from what their clients intended.

Pay heed your elders, but shepardize your cases.

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[Update II -- Anne Marie Green of CBS3 (KYW) News Philadelphia also spoke with me about case, particularly the relief available to the day camp members. Video available here.

Update -- Jon Elliott on San Diego 1700AM interviewed me on the incident and the law. List of their podcasts here (I'm "7/10/09 2nd Hour, 07/10/09 4:00pm"), direct link to 36MB MP3 here. Best part is when a spaceship lands in the middle of my interview.]

You've probably heard by now about the Valley Swim Club / Creative Steps Day Camp incident, in which a Huntingdon Valley "private" swim club apparently refused to let 65 African-American and Hispanic children who had paid $1950 for a weekly membership swim in the pool.

For a legal introduction, see my post yesterday, Philadelphia Swim Club Refuses Black Children Because Of Their "Complexion." In short, the Pennsylvania Human Relations Act prohibits racial discrimination in "public accommodations" like "swimming pools" unless those entities are "distinctly private." Odds are, the Valley Swim club is not "distinctly private" because the PHRA and the case law imply "distinctly private" applies only to bona fide fraternal organizations that do not let nonmembers use their facilities at all, not the simple paid-your-membership-dues-and-swim system the Valley Swim Club used.

Today let's talk about the upcoming legal procedure, the disputed facts, and the core issues to be resolved.

The Legal Procedure:

Discrimination lawsuits (whether based on race, gender, age, or disability) don't begin like most lawsuits; before filing in court, the victim of discrimination must file a complaint with either the Pennsylvania Human Relations Commission (PHRC) or, if related to employment, the federal Equal Employment Opportunity Commission (EEOC).

Also unlike almost every other field of law, most of which allow plaintiffs one year, two years, or possibly more to file their claim under the 'statute of limitations,' discrimination complaints must be filed within 180 days of the discrimination or they are forever waived. 

Based on a NAACP complaint, the PHRC has already opened an investigation. Typically, these investigations take months, and can take up to a year; by state law, victims of discrimination are prohibited from suing until the investigation is completed or a year from when they filed the complaint, whichever comes first. The PHRC has said they will conduct an "expedited" investigation here.

The PHRC process is flexible and analogous to a police investigation, in that the bulk of the process is not lawyers arguing with one another, but rather a PHRC investigator talking with the complainant, the respondent, and important witnesses. Eventually, the PHRC will either dismiss the case for lack of probable cause (after which a normal lawsuit can be initiated) or:

If probable cause is found in your case, the Commission will attempt to settle the case. The respondent will be asked to stop the discriminatory actions, begin any new programs or make financial payment to settle your case. If this conciliation process is unsuccessful, a public hearing will be held on your case.

At the public hearing, testimony is given under oath and evidence in your case is submitted. If you do not have an attorney, a Commission attorney will represent your complaint. After your case is presented, the Commissioners will vote either to agree that discrimination did occur and approve a settlement, or dismiss the complaint, if they decide discrimination did not occur.

The idea here is similar to small claims court and arbitration of motor vehicle accidents: presumably, if the parties go through the process once and one side clearly loses, this will encourage settlement.

Unfortunately, except where the damages are small, PHRC decisions, like compulsory arbitration decisions, are typically appealed to state court. Unless the Valley Swim Club and the Day Camp can come up with a solution, then, regardless of what the PHRC finds, this case will likely be appealed and litigated in the Montgomery County Court of Common Pleas, since the pool was in Montgomery County.

The Facts That Will Be Disputed:

The core allegations by the plaintiffs are simple: we paid $1950 to swim at a club, got there, heard a number of racist remarks, then, the next day, had our money refunded and told not to come back because of "complexion" and "atmosphere."

The Valley Club has replaced its entire website with:

The Valley Club is deeply troubled by the recent allegations of racism which are completely untrue.

We had originally agreed to invite the camps to use our facility, knowing full well that the children from the camps were from multi-ethnic backgrounds. Unfortunately, we quickly learned that we underestimated the capacity of our facilities and realized that we could not accommodate the number of children from these camps. All funds were returned to the camps and we will re-evaluate the issue at a later date to determine whether it can be feasible in the future.

Our Valley Club deplores discrimination in any form, as is evidenced by our multi-ethnic and diverse membership. Whatever comments may or may not have been made by an individual member is an opinion not shared by The Valley Club Board.

Plausible, but disputed:

HUNTINGDON VALLEY, Pa. - A suburban Philadelphia swim member tells the AP she didn't see inner-city kids misbehaving at a pool they were later barred from.

Amy Goldman said she's been a member of the Valley Club for two years. She said the pool wasn't particularly crowded and the children from Creative Steps daycare were "well behaved and respectful."

She said there had been black members at the club in the past, though she couldn't remember seeing any this year.

We see hints of a "no good deed goes unpunished" defense in the works:

The statement says the day campers were turned away because they overwhelmed the 110,000-gallon pool.

"We quickly learned that we underestimated the capacity of our facilities, and realized that we could not accommodate the number of children from these camps," the statement says.

A worker at another Northeast Philadelphia day camp that had an agreement to use Valley Club this summer, Storybook Children's Center, said she believed the club's account. Monica Scanlon said she took 25 children of diverse ethnicities to its pool this summer, but the noise had clearly been too much for comfort.

Valley Club president John Duesler apologetically refunded Storybook's money, as he did for Creative Steps.

"He was trying to help us out, because there weren't supposed to be city pools open this year," said Scanlon, who contacted The Inquirer after learning of the controversy.

These sorts of factual disputes are precisely why we have courts and juries and why cases take so long.

What Creative Steps Day Camp Has To Prove And What The Valley Swim Club Has To Explain:

This incident is intriguing, legally, because it asks a basic question that hasn't really been raised in more than forty years: what does a complainant have to prove to show they were the victim of racial discrimination?

Do they have to show that race had some effect in excluding them from a public accommodation? That race was the only factor in their exclusion? What happens if the jury finds that race impacted the decision by the Club but that the Club would have refunded the money anyway for other reasons?

These questions have been answered in the employment context, where they come up all the time, but not in the public accommodation context, where there have been few lawsuits alleging racial discrimination for decades.

Based on the minimal Pennsylvania case law out there, I believe the PHRC and any later court would set a fairly low bar. Back in the 1970s, The Pennsylvania Supreme Court recognized "In trying to eradicate other manifestations of racial discrimination, courts, including the Supreme Court of the United States, have recognized that statistics alone can establish racial discrimination. " Pennsylvania Human Relations Comm'n v. Chester Housing Authority, 458 Pa. 67, 80, 327 A.2d 335, 342 (1974).

If statistics alone can prove discrimination, without concrete proof of racial motive or that race was a necessary factor, then odds are the eventual jury that hears this case will only be asked to decide if the Club "den[ied] to any person because of his race" "any of the accommodations, advantages, facilities or privileges of such public accommodation," just as the Human Relations Act says.

So how do we show denial because of their race?

Let's assume, for the moment, that everything the Club said is true. There's still a big unanswered question: once they realized they were overbooked, how did they choose which money to refund?

The most recent members? Did they do that for individual white members, too? What about predominantly white day camps?

On its face, the Storybrook Day Camp story sounds favorable to the Valley Swim Club's position, but upon closer inspection it's another diverse day camp whose money was refunded after they showed up. Like the "statistics" described by the Pennsylvania Supreme Court, the presence of another minority Day Camp which was excluded might be very damaging to the Swim Club's defense, unless they can show similar exclusions / refunds of white camps or members.

But I think they've got an even bigger problem: we're having a debate they obviously did not have when they refunded the money. The concern stated at the time was over "complexion" and "atmosphere."

That's not the same thing as their website says, that they "quickly learned that we underestimated the capacity of our facilities and realized that we could not accommodate the number of children from these camps."

And it gets worse:

Apparently, the way Duesler handled it was to refund Wright's check and tell her that the club membership overthrew his decision "by voting to disinvite us," Wright said.

Well, that's news to Valley Club member Jim Flynn. Standing in front of the club - which was padlocked yesterday - Flynn seethed over the way he said Duesler has handled things.

"To my knowledge, the members were not involved in any of the decisionmaking," says Flynn, 41, a Fox Chase resident who pays a $700 membership for a family of four. "As far as I know, all we recommended was to change the time that [the campers] came, from the afternoons to a nonpeak time. We never recommended to disinvite them."

As for Duesler's "complexion" comment, he said, "I couldn't believe he said that. . . . It was insensitive and inflammatory. Look, I'm not naive enough to think that racism doesn't exist here, but I don't want the good people's names at this club to be smeared."

And that's what will probably sink the Swim Club's defense: they can't get their stories straight. At some point, even the most open-minded juror can tell you're just treading water. 

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At The National Law Journal, Nick Akerman, a partner at Dorsey & Whitney, has a thorough argument that the Computer Fraud and Abuse Act ("CFAA") should, and likely will, be applied against employees who leave with trade secrets or other proprietary / confidential information for use at their new jobs:

The Computer Fraud and Abuse Act, a federal criminal statute outlawing the theft of data, permits a company that "suffers damage or loss" by reason of a violation of the CFAA, to "maintain a civil action against the violator" for damages and injunctive relief. 18 U.S.C. 1030(g). Since [Pacific Aerospace & Electronics Inc. v. Taylor, 295 F. Supp. 2d 1188, 1196 (E.D. Wash. 2003)], there has developed a body of district court opinions that refuse to apply the CFAA against employees who steal their employer's data. This article will explain why these opinions are not likely to survive appellate review; it will also provide a strategy to avoid the application of these decisions.

Well worth reading if you come across trade secrets theft in your practice. Akerman may be the most experienced attorney in the country on this developing body of law, and it shows.

I agree with him, but for a more general reason. Since I practice in the Third Circuit (Pennsylvania, New Jersey and Delaware), I'll focus on the Third Circuit's most recent opinion on the CFAA:

The District Court focused on the criminal provisions and found it difficult to infer a civil application within the statutory framework and concluded that it could not do so, although the Court did acknowledge that several other courts had determined to the contrary. However, we conclude that not only the relevant case law, but also the plain language of the statute, militate in favor of the availability of a civil remedy, and specifically, the type of injunctive relief sought by the PC plaintiffs.

Numerous courts have recognized that a civil cause of action is apparent from the text of § 1030(g). Although we acknowledge the criminal thrust of the section in general, as it is found in Title 18, there is ample authority for permitting civil actions to proceed based on violations of the section pursuant to the language of § 1030(g). See, e.g., Theofel v. Farey-Jones, 359 F.3d 1066, 1078 (9th Cir. 2003) ('The civil remedy extends to 'any person who suffers damage or loss by reason of a violation of this section.'') (emphasis in original); I.M.S. Inquiry Mgmt. Sys., Ltd. v. Berkshire Info. Sys., Inc., 307 F. Supp. 2d 521, 526 (S.D.N.Y. 2004) (stating that § 1030(g) affords civil action for any violation of CFAA). Accordingly, we conclude that civil relief is available under § 1030(g).

P.C. Yonkers, Inc. v. Celebrations the Party & Seasonal Superstore, LLC, 428 F.3d 504, 511 (3d Cir. 2005).

In one sense, the above looks like a straightforward review of a criminal statute which permits a civil remedy. The statute says there's a remedy, so we'll enforce it.

In another sense, we're witnessing a big change in the way Circuit Courts and the Supreme Court interpret federal statutes which provide plaintiffs with civil relief for criminal conduct.

Like the CFAA, The Racketeer Influenced and Corrupt Organizations Act ("RICO") creates a civil remedy for those persons injured by racketeering activities, typically mail or wire fraud. Also like the CFAA, numerous District Courts have contorted the brief text of the RICO Act to enact confusing, complicated barriers to relief without much basis in the Act itself. For example, numerous District Courts required plaintiffs show "first-party reliance" on the alleged mail or wire fraud (rather than merely injury related to the racketeering as a whole) and required that the plaintiff prove the defendants used a formal racketeering structure.

In the past year, the Supreme Court has torn down both of these barriers. See Bridge v. Phoenix Bond & Indem. Co., 128 S. Ct. 2131, 2145 (2008)(eliminating the "reliance" requirement, noting "Whatever the merits of petitioners’ arguments as a policy matter, we are not at liberty to rewrite RICO to reflect their — or our — views of good policy. We have repeatedly refused to adopt narrowing constructions of RICO in order to make it conform to a preconceived notion of what Congress intended to proscribe."); Boyle v. United States, ___ U.S. ____, No. 07-1309, 2009 U.S. LEXIS 4159, at *22–23 (Jun. 8, 2009)(eliminating the "structure" requirement, noting "The fact that RICO has been applied in situations not expressly anticipated by Congress does not demonstrate ambiguity. It demonstrates breadth.”).

Like the RICO Act, the broad text of the CFAA "does not demostrate ambiguity[,] it demonstrates breadth." If the Circuit Courts and the Supreme Court interpret the CFAA the same way they've interpreted the RICO Act, we'll see a lot more of these claims in the future.

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When the going gets weird, the weird turn pro.

Here's how it starts:

Nancy Kanter, Esquire ("Kanter") referred a case to Alan B. Epstein, Esquire ("Epstein"). The case involved a claim by a child in the foster system who was abused by her prospective adoptive foster parents (the "Tara M. case"). Kanter had served as a guardian ad litem for the child. When Kanter referred the case to Epstein, he agreed to pay her a referral fee. However, this agreement was not reduced to writing. Subsequently, Epstein joined the firm of Spector Gadon and Rosen, P.C. ("SGR") while he was handling the Tara M. case. Eventually, the Tara M. case was settled for $ 4,310,000. From that amount, Epstein realized attorney's fees of $ 1,293,000. Kanter claimed that she was entitled to a referral fee of $ 431,000. However, Epstein and SGR refused to pay Kanter a referral fee.

Kanter v. Epstein, 2004 PA Super 470, 866 A.2d 394, 395–96 (Pa. Super. Ct. 2004).

Kanter sued and won $215,500 at trial, exactly half what she claimed. The jury then considered, and declined, punitive damages.

Then things got ugly:

On August 16, 2002, counsel for SGR informed the court that she would be taking a pre-paid vacation and requested that the briefing schedule be adjusted to accommodate her vacation. ... Following on-the-record discussions, the trial court summarized the agreement of all parties that the Rule 227.4 deadline [the time at which judgment can be entered and appeals taken] would be extended until March 14, 2003. ...

Despite the fact that they had executed a written agreement and had agreed on the record to extend the Rule 227.4 deadline until March 14, 2003, the Defendants filed a praecipe to enter judgment on January 8, 2003, and judgment was entered that same day.

Why did defendants' counsel jump the gun on their own extension? Who knows. Either way, after filing the judgment, defendants filed two appeals.

Bad idea. The Superior Court later knocked out these first two appeals because:

Accordingly, the judgment entered on January 9, 2003 was improvidently entered as a result of the Defendants' breach of their agreement to extend the Rule 227.4 deadline. As a result, Defendants' appeal of the trial court's December 30, 2002 contempt Order was interlocutory and not appealable at the time that the Defendants filed their appeals at 186 and 187 EDA 2003. Accordingly, the appeals filed at Nos. 186 and 187 EDA 2003 are quashed.

Back at the trial court, after the premature appeal things got uglier:

The trial court ultimately issued an Order dated March 10, 2003, in which the trial court denied the Defendants' post-trial Motions and granted Kanter's post-trial Motion, in part. Essentially, the trial court granted: (1) Kanter's request for additur, increasing the award to $ 431,000; (2) pre-and post-judgment interest; (3) Kanter's request for punitive damages; and (4) Kanter's Motion for sanctions.

Let me fill in the amounts. Interest bumped the compensatory award to $461,429, then punitive damages added another $ 645,000, and then sanctions (for attorney's fees) topped it off with another $124,219.86, bringing Kanter's total to $1,230,648.86, about $60,000 less than the total fee collected by Epstein in the first place.

Defendants appealed that, too.

In the Pennsylvania Superior Court, things got even uglier:

In this case, the trial court ordered the Defendants to file concise statements of the issues to be raised on appeal. However, the Rule 1925(b) Statements filed by the Defendants were anything but concise. SGR's fifteen-page Rule 1925(b) Statement included fifty-five issues that it purportedly sought to raise on appeal and also incorporated by reference the forty-nine issues raised by Epstein in his Rule 1925(b) Statement. Likewise, Epstein filed a fifteen-page Rule 1925(b) Statement that raised the forty- nine issues, and also incorporated by reference the fifty-five issues raised by SGR. 7 In total, the Defendants identified 104 issues in their Rule 1925(b) Statements. Furthermore, we note that many of the issues identified by each of the Defendants also included multiple sub-issues.

Kanter v. Epstein, 2004 PA Super 470, 866 A.2d 394, 400–401 (Pa. Super. Ct. 2004).

The Superior Court dismissed that appeal as well, leaving defendants with nothing. The Pennsylvania Supreme Court and United States Supreme Court both denied certiorari.

So defendants sued their appellate lawyers.

There's an old saying that legal malpractice cases are hard to win because they require the plaintiff prove a "case within the case;" i.e., the plaintiff have to prove they would have won the original case in order to prove the malpractice case.

How do you do that for a bungled appeal? Do you try to convince a jury of non-lawyers what an appellate court would have done with 104 distinct legal issues?

My preferred quote for describing legal malpractice cases is, when the going gets weird, the weird turn pro.

As the Court of Common Pleas for Philadelphia County held last winter:

Whereas, the Kanter action appeal was quashed by the Superior Court of Pennsylvania without reaching a decision on the merits of the appeal;

Whereas, this action is based on the contention the Kanter action appeal was quashed due to the alleged malpractice by defendant, Saul Ewing;

Whereas, the existence of actual loss sustained by plaintiffs to the malpractice by defendant depends on the outcome of the “case within the case” and whether plaintiffs would have received appellate relief and the extent of appellate relief in the Kanter action if plaintiffs’ appeal had not been quashed by the Superior Court;

Whereas, the parties agree that the “case within the case” presents questions of law for the Court to decide and not a jury trial issue;

Whereas, the parties agree to bifurcate the proceedings to present the “case within the case” to the court for decision prior to a trial (if necessary) on the remaining issues for plaintiffs’ malpractice claim and defendant’s counterclaim. …

It is hereby ordered that … the “case within the case” is bifurcated from the other issues in this action and the Court will decide whether and the extent to which plaintiffs would have received appellate relief if their appeals had not been quashed in the Kanter Action … Following the Court’s decision of the “case within the case,” the court will entertain a request for immediate appeal of the decision of the “case within the case” if the decision is not a final order and no party shall oppose the request of another party to immediately appeal the court’s decision of the “case within the case” even if not a final order to resolve the “case within the case” prior to trial of other issues.

Good idea! Three weeks ago, the trial court issued its full order for the inevitable appeal:

A reading of the Trial Judge's Opinion, dated February 26, 2004, reflects his disappointment with the persistently adversarial, over-zealous, and non-cooperative posturing among all trial counsel for more than two years under his jurisdiction, and in his courtroom. As a result, this distinguished jurist may have inadvertently ordered overlapping financial sanctions for punitive damages, additur, Contempt and attorneys fees. An objective review brings a different result. With that in mind, the Superior Court most probably would be constrained to reverse. ...

This Reviewing Court believes that the Superior Court would be unable to find support in this record for the sua sponte alternative. Delaying tactics during trial, including objections and side bar conferences are annoying, but not the sort of wanton or reckless conduct that meet the criteria for a punitive damage award. ...

Ms. Kanter's request for additur was premised on her belief that the triers of fact were required to award her the full amount of her claim. The Superior Court would have reviewed the record and determined that the triers of fact are free to believe all or part or none of the testimony. ...

The Trial Court ordered attorneys fees and contempt as sanctions "relating to punitive damages only" (emphasis in original), however, for all the reasons set forth above finding that conversion and punitive damages should not have been part of this case, the Superior Court would not have remanded the record to the Trial Court for a hearing.

Epstein v. Saul Ewing, LLP, 2009 Phila. Ct. Com. Pl. LEXIS 83 (Pa. C.P. 2009).

And so back they go to the Superior Court, to rule on what it would have done had it considered the original appeal.

The weird have definitely gone pro.

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The WSJ Law Blog finds easter eggs for consumers of financial products buried in the proposed financial regulation overhaul:

The [not-yet-created Consumer Fraud Protection Agency] should be directed to gather information and study mandatory arbitration clauses in consumer financial services and products contracts to determine to what extent, and in what contexts, they promote fair adjudication and effective redress. If the CFPA determines that mandatory arbitration fails to achieve these goals, it should be required to establish conditions for fair arbitration, or, if necessary, to ban mandatory arbitration clauses in particular contexts, such as mortgage loans.

...

Although arbitration may be a reasonable option for many consumers to accept after a dispute arises, mandating a particular venue and up-front method of adjudicating disputes – and eliminating access to courts – may unjustifiably undermine investor interests. We recommend legislation that would give the SEC clear authority to prohibit mandatory arbitration clauses in broker-dealer and investment advisory accounts with retail customers.

Business Insider worries about the unintended consequences:

That seems a clear way of increasing the costs of broker-dealer and investment advisory costs, which may mean that smaller customers find that brokerages are even less likely to deal with them than before. As usual, there seems to be very little thought given to how brokers will react to having the increased risk of litigation imposed upon them.

What's more, there are serious questions about whether it makes sense to burden the court system with additional litigation that a ban on mandatory arbitration will sure spur. In effect, a part of the costs of disputes between brokers and their customers are being transferred to the taxpayer who will pay the costs for the extra-burden on courts. It's far from clear why this shift in cost from the parties to the agreement to taxpayers is warranted. We can squint our eyes and see this as something of a bailout of customers who wind up unhappy with their broker.

Last I checked, "wind[ing] up unhappy with [your] broker" wasn't worth a dime in a court of law, at an arbitration, or anywhere else. The investors aren't "unhappy" because their broker didn't get them a cheese wheel for Christmas, they're "unhappy" because their broker breached their contractual and fiduciary duties and lost a ton of the investor's money. It takes an awful lot of "squinting" to see a months-or-years-long expensive lawsuit to get back the money that someone else lost as a "bailout."

Most "mandatory arbitration clauses in consumer financial services and products contracts" force the disputes be heard in FINRA's Dispute Resolution process. As The National Law Journal reported at the end of March,

FINRA — the Financial Industry Regulatory Authority — oversees nearly 5,000 brokerage firms, 173,000 branch offices and 659,000 registered securities representatives. It describes its chief role as protecting investors by maintaining the fairness of the U.S. capital markets. ...

"We don't have official projections for 2009, but if the trend continues, we're probably looking at a high that will match what we saw in '03 and '04," said FINRA spokesman Brendan Intindola.

Arbitration cases filed in 2003 and 2004 — the largest number in 14 years — almost reached the 9,000 mark and were driven by the bursting of the dot-com bubble and the subsequent decline in the equity markets. In 2007, slightly more than 3,000 cases were filed, and in 2008, nearly 5,000.

Lawyers who represent customers and industry members generally believe that FINRA will be able to manage the dramatic increase in its arbitration workload, but they are divided on whether its arbitration panels — charged with industry bias in the past — now provide a level playing field to those using the process.

"The general perception is it is very tilted," said one practitioner who asked for anonymity. "Even if only one-third of the panel is from industry, that's the person with alleged expertise and who has disproportionate sway on the panels."

Broker/Dealer arbitrations are common, but banning them wouldn't open the floodgates: financial products consumers file under 10,000 claims filed nationwide. Keep in mind that essentially every dispute you have with your broker/dealer is forced into FINRA arbitration, including no-brainer claims like the return of a promissory note, so these numbers may be inflated to some degree. It's hard to say what percent of these filings claim substantial losses due to malfeasance.

More importantly, though glossed over by Business Insider, full-fledged civil litigation in open court is not fun for anyone involved. Even within confidential arbitration, just last month FINRA quietly withdrew a proposal that would have permitted more extensive discovery into the financial records of investors bringing claims against their financial advisers, in light of numerous complaints that such a change would subject investors to a "financial colonoscopy." Moving these types of cases into the civil court system would permit defendant banks and investment advisers to dig very deeply into the personal and financial histories of investors bringing suit, far deeper than they would be permitted to do in an arbitration.

For most of the individual claims, I am not too concerned about the arbitration process, as it provides wealthy investors (who make up most of the filings) a simple, relatively convenient and very private way in which to seek redress for their losses, and they will be adequately represented by paid counsel throughout the process. The problems for everyone else, however, are twofold:

• It's not clear whether a group of injured inventors may pursue a class action against a broker-dealer, investment bank or investment adviser. FINRA's Code says it is not applicable to class actions, and an increasing number of courts have held in other contexts that bans of class actions are illegal, but the law here is not as clear as it should be.
   
• The selection process for these arbitrators is not transparent. @phila_lawyer is right that FINRA seems to prefer arbitrators familiar with the financial industry; that's not necessarily evidence of bias, but it's nonetheless problematic, since it exposes the process to 'capture' by the industry and, as noted above, such 'insiders' often hold undue sway on panels.

As such, it's certainly worth a look into the issue, which is all the Obama plan proposes.

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The WSJ Law Blog points us to a Gawker reference to an AP article that says:

Richelle Olson sued [Sacha Baron Cohen] and NBC Universal on May 22, claiming an incident at a charity bingo tournament that was filmed for the upcoming "Bruno" left her disabled.

Olson claims she was severely injured after struggling with Cohen and his film crew at the event, held in Palmdale, Calif., two years ago. The lawsuit states she now needs a wheelchair or cane to move around.

The lawsuit seeks unspecified damages of more than $25,000.

Gawker wonders aloud:

We would hope that if this lady genuinely suffered brain bleeding that left her in a wheelchair that she's a asking for much more than $25,000 in damages, but why she waited two years to file the suit is anyone's guess—-Some would say probably because it's all a bunch of BS.

Don't blame Gawker, they don't claim to be legal experts.

The suit was filed in Lancaster, California, which is in Los Angeles County.

As you can see from this fee schedule (PDF), the Superior Court of California, County of Los Angeles, has a "limited civil case" program for those cases valued at less than $25,000. It likely has different rules and different judges, much like Philadelphia's mandatory arbitration for cases below $50,000 and Pennsylvania's municipal court for cases below $8,500 (or $10,000 in Philadelphia).

Most states have in place a "small claims court" of some sort for claims below a certain value, to conserve judicial resources while still giving parties access to substantial justice.

Thus, a suit that "seeks unspecified damages of more than $25,000" could be worth millions or billions of dollars. That allegation is nothing more than a legal term inserted in the complaint by the plaintiff's lawyer to let the clerk know that the case should be assigned to the full-fledged civil trial court and not the small claims court.

As for the two years, I doubt that has anything to do with the plaintiff herself. It takes time to prepare a case, and it's not surprising to see a case filed right as the statute of limitations is about to expire. Perhaps the lawyers have been discussing settlement. Perhaps the plaintiff was hoping to avoid suing and was seeing if they would get better, but, due to the statute of limitations, has to sue now or never.

[UPDATE: Daniel A. Reisman, a Los Angeles business lawyer, fills in the details, noting how (like in Pennsylvania), plaintiffs in personal injury suits are prohibited from stating specific damages in their complaint.]

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JURIST's Paper Chase reports an interesting development:

Former US solicitor general Ted Olson and prominent litigator David Boies [professional profiles] announced [video] Wednesday that they have filed suit [complaint, PDF] challenging California's constitutional amendment banning same-sex marriage [JURIST news archive], Proposition 8 [text, PDF], on federal Constitutional grounds. The complaint, filed Friday in the US District Court for the Northern District of California [official website], seeks to enjoin enforcement of the ban on the grounds that California state officials, including Governor Arnold Schwarzenegger and Attorney General Edmund Brown [official websites], would be liable under 42 USC § 1983 [text] for violating the Due Process and Equal Protection Clauses of the Fourteenth Amendment [text] if they were to restrict civil marriages to those "between a man and a woman." The complaint alleges that denying same-sex couples the right to marry is a Fourteenth Amendment violation because it stigmatizes gay and lesbian couples by creating "separate but unequal" domestic partnerships designation, and because it "treats similarly-situated people differently by providing civil marriage to heterosexual couples, but not to gay and lesbian couples."

Theodore Olson and David Boies were the respective lead lawyers in a little case called Bush v. Gore. Other links available at Above The Law, including quotes from (understandably) almost speechless liberals activists amazed by Olson's involvement.

The complaint in Perry alleges three claims: due process, equal protection, and "42 U.S.C. 1983." 42 U.S.C. 1983 is a federal statute that provides:

Every person who, under color of any [state law], subjects... any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the [United States] Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress ...

1983 enables plaintiffs to sue "persons" who, acting "under color of" state law, violate rights guaranteed by the U.S. Constitution.

Note how 1983 doesn't enable plaintiffs to sue states that violate constitutional rights. The Eleventh Amendment and "the structure of the original Constitution itself" recognize the sovereign immunity of the states from suits by private citizens, which Congress can't overcome with merely a statute. See Alden v. Maine, 527 U.S. 706 (1999)(holding Congress generally cannot authorize private suits against the state even in state's own courts).

Indeed, the Perry suit does not name the State of California among its defendants, but instead:

ARNOLD SCHWARZENEGGER, in his official capacity as Governor of California; EDMUND G. BROWN, JR., in his official capacity as Attorney General of California; MARK B. HORTON, in his official capacity as Director of the California Department of Public Health and State Registrar of Vital Statistics; LINETTE SCOTT, in her official capacity as Deputy Director of Health Information & Strategic Planning for the California Department of Public Health; PATRICK O'CONNELL, in his official capacity as Clerk-Recorder for the County of Alameda; and DEAN C. LOGAN, in his official capacity as Registrar-Recorder/County Clerk for the County of Los Angeles[.]

Odd, no? You can sue every office through whom the state acts, from the Governor to the "Registrar-Recorder/County Clerk," but not the state itself? That's the rule laid down by two 101-year-old companion cases, Ex parte Young, 209 U.S. 123 (1908) and General Oil Co. v. Crain, 209 U.S. 211 (1908):

It seems to be an obvious consequence that as a State can only perform its functions through its officers, a restraint upon them is a restraint upon its sovereignty from which it is exempt without its consent in the state tribunals, and exempt by the Eleventh Amendment of the Constitution of the United States, in the national tribunals. The error is in the universality of the conclusion, as we have seen. Necessarily to give adequate protection to constitutional rights a distinction must be made between valid and invalid state laws, as determining the character of the suit against state officers. And the suit at bar illustrates the necessity. If a suit against state officers is precluded in the national courts by the Eleventh Amendment to the Constitution, and may be forbidden by a State to its courts, as it is contended in the case at bar that it may be, without power of review by this court, it must be evident that an easy way is open to prevent the enforcement of many provisions of the Constitution … .

In short: A state is immune from suit, but a state officer can be sued for attempting to enforce an "invalid" law. It's a legal fiction: you sue the state by suing the officers.

Except, you can't sue the officers:

Obviously, state officials literally are persons [under 42 U.S.C. 1983]. But a suit against a state official in his or her official capacity is not a suit against the official but rather is a suit against the official's office. Brandon v. Holt, 469 U.S. 464, 471 (1985). As such, it is no different from a suit against the State itself. See, e. g., Kentucky v. Graham, 473 U.S. 159, 165 -166 (1985);

Will v. Michigan Dept. of State Police, 491 U.S. 58 (1989).

So what's the difference between the Young / Crain rule in 1908 and the Will rule 81 years later?

Money.

The Perry suit only seeks an injunction against the officials preventing them from enforcing Proposition 8 to deny same-sex marriage. It thus gets the Young / Crain rule. The Will rule only applies to suits for monetary damage.

Why the distinction? Neither the Constitution nor 42 U.S.C. 1983 draws any distinction between suits for injunctive relief and suits for money damages. 1983 specifically says the person "shall be liable to the party injured in an action at law." The Supreme Court, however, thought it prudent to create such a distinction where none existed.

One more issue then we're done: why not also sue Schwarzenegger and the rest personally to obtain money damages? The problem is suits for money damages against individuals must also overcome the hurdle of "qualified immunity," as described by Harlow v. Fitzgerald, 457 U.S. 800 (1982):

government officials performing discretionary functions[] generally are shielded from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.

The right to same-sex marriage is indisputably not "clearly established" -- the Perry case seeks to establish the right. As such, there's no chance of recovering monetary damages, and no use in complicating the case that way.

If the Perry plaintiffs succeed, however, they "may" recover "a reasonable attorney's fee" "in [the court's] discretion." 42 U.S.C. 1988.

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The Ninth Circuit just decided Barnes v. Yahoo! (link to PDF opinion). Here are the facts, as summarized by Anita Ramasastry at FindLaw:

The facts begin when plaintiff Cecilia Barnes learned that her ex-boyfriend – pretending to be her – had posted nude photos of her on Yahoo, along with her email address, work address and phone number, and an invitation to men to contact her for sexual purposes. The ex-boyfriend had also gone into Yahoo's member chat rooms to direct men to her profile. Soon, as the Ninth Circuit summarized it, "men whom Barnes did not know were peppering her office with emails, phone calls, and personal visits, all in the expectation of sex."

Yahoo's policy provides for the removal of fake profiles if the person making the request provides a copy of her driver's license, which Barnes says she did. However, Barnes alleges that when she contacted Yahoo on several occasions, in an effort to have the profile removed, the site did not remove them. She says that approximately three months after the first of these contacts, a Yahoo representative contacted her and advised her that Yahoo would now put a stop to this unauthorized profile – yet three more months passed, and Yahoo did nothing. Indeed, according to Barnes, Yahoo took no action to de-post the profile until she sued the company.

Unsurprisingly,

The court dismissed Barnes's negligence claim against Yahoo, based on Section 230 of the federal Communications Decency Act (CDA).

Nothing new about that.

However, it held that Yahoo's promises to her that it would de-post could give rise to a claim under the doctrine of promissory estoppel.

Interesting! Paul Levy at Consumer Law & Policy filed an amicus and attended the hearing, and fills us in on some context:

The argument also revealed that Barnes’ contention is that Yahoo!’s promise to take down her profiles came on the eve of a television report about her situation, after reporters contacted Yahoo! in an effort to avoid negative press, Yahoo! contacted her “on its own” to promise to take the material down, and that even though she could not have sued Yahoo!, there were other steps that she could have taken to obtain redress.  For example, she claims that, at Yahoo!’s direction, she did not testify before the Oregon Legislature about what had happened to her, because Yahoo! told her it would take the material down.  If Barnes proves such facts, one can see a real case here.

Daniel Solove at Concurring Opinions agrees with the result but looks on the horizon:

One of the potential problems with the court’s holding is that it may deter ISPs and other sites from having an explicit policy for removing tortious material.  Yahoo could be penalized with potential liability and a loss of its immunity by having a removal policy.  An ISP or site that has no such removal policy and that would say “get lost” to people who request takedowns would not be subject to promissory estoppel liability.  Is it fair to penalize those who have such policies?

But, Solove notes, we're not at that point quite yet, since the Court's holding was expressly limited, in that "Yahoo is liable not because it had a general removal policy, but because it made specific promises to Barnes." Evan Brown at Internet Cases sees ISPs changing their behavior nonetheless, in advance of the law:

Smart intermediaries (e.g. website operators) are likely to communicate less now with individuals who feel aggrieved, because the intermediary may fear that anything it says could be construed as a breakable promise putting it at risk for liability.

On a more technical issue, but one with big ramifications for the course of these case, Eric Goldman at Technology & Marketing Law Blog worries (much as Levy did) that the opinion on its face holds 230 immunity can not be raised on a motion to dismiss. That implicates the ISP's First Amendment rights to go about their business and permit online speech without fearing the cost of a long, meritless suit that's eventually dismissed anyway. Yahoo! has petitioned for rehearing on that issue alone.

In my humble opinion, I agree with everyone above. There is a very good reason not to apply section 230 immunity to an ISP interjecting itself into a private dispute to avoid negative publicity. At the same time, it does indeed create a precedent that makes other ISPs shy to intervene at all.

Yet, under section 230 immunity, the ISP already can choose to completely ignore anyone it wants to, and there is no good reason to "protect" Yahoo! for yanking Ms. Barnes' chain to avoid negative publicity. If an ISP promises to remove content, it should do so. If the ISP doesn't want to remove content, it shouldn't promise it will.

Simple enough.

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Summing up their reversal of a Montgomery County Court of Common Pleas' dismissal of plaintiff's complaint on preliminary objections:

Therefore, taking the facts pled in the Thierfelders' complaint as true, we hold that when a physician is providing specific treatment for psychological problems, and has a sexual relationship with the patient, if that sexual relationship directly causes the patient's psychological/emotional symptoms to worsen, that patient has potentially stated a cognizable cause of action for malpractice. These doctors need not be specialists in psychological care, but merely must be medically licensed to treat patients for such conditions. We note that in this case it is claimed that Dr. Wolfert was actively treating the patient for those issues, and not merely cognizant of them."

David Thierfelder & Thierfelder v. Wolfert, 2009 PA Super 92 (Pa. Super. Ct. 2009).

The case clarifies the rule set by Long v. Ostroff, which held "a general practitioner's duty of care does not prohibit an extramarital affair with a patient's spouse." Long, 854 A.2d 524 (Pa. Super. 2004).

Perhaps of more interest to law students, Thierfelder goes through the basic elements of tort duties and medical malpractice:

To establish a case of malpractice requires evidence that the physician acted negligently or unskillfully performed his duties which are devolved and incumbent upon him on account of his relations with his patients, or lacked the proper care and skill in the performance of a professional act. Keech v. Mead Joson and Co., 580 A.2d 1374 (Pa. Super. 1990). In order to set forth a prima facie case of malpractice, a plaintiff must establish the essential elements of a negligence cause of action, namely: (1) a duty owed by the doctor to the patient; (2) a breach of that duty; (3) the breach of duty was the proximate cause, or substantial factor in bringing about the harm suffered by the patient; and (4) damages suffered by the patient resulting directly from that harm. Gregorio v. Zeluck, 678 A.2d 810 (Pa. Super. 1996) (emphasis added). In order to meet this burden, the plaintiff is required to provide expert testimony to establish, to a reasonable degree of medical certainty, that the acts of the physician deviated from acceptable medical standards, and that such deviation was the proximate cause of the harm suffered. Id.(a) Physician's Duty of Care to Patient and Althaus v. Cohen, 756 A.2d 1166 (Pa. 2000).

Here, the trial court concluded that a general practitioner, such as Dr. Wolfert, does not breach a duty to his patient by having a sexual affair with that patient while under the physician's care. The concept of duty has been discussed by our Supreme Court in Althaus v. Cohen, 756 A.2d 1166 (Pa. 2000). The existence of a duty is a question of law for the court to decide. R.W. v. Manzek, 888 A.2d 740 (Pa. 2005). In Althaus, supra, the Supreme Court stated that the determination of whether a duty exists in such a case involves weighing the following factors:(1) the relationship between the parties; (2) the social utility of the actor's conduct; (3) the nature of the risk imposed and foreseeability of the harm incurred; (4) the consequences of imposing a duty upon the actor; and (5) the overall public interest in the proposed solution. 756 A.2d at 553. 

Thierfelder, 2009 PA Super 92 at * 11-12 (Pa. Super. Ct. 2009).

As noted by the dissent, in Physicians Ins. Co. v. Pistone, 726 A.2d 339 (Pa. 1999), the Pennsylvania Supreme Court denied medical malpractice liability insurance coverage to a doctor who, in the course of examining the patient for treatment for gallstones, performed a number of offensive and lewd acts. Pistone held medical malpractice liability "looks to whether the act that caused the alleged harm is a medical skill associated with specialized training," which the foregoing was not.

The case thus has good odds of eventually ending up in front of the Pennsylvania Supreme Court: given Pistone, the doctor's insurer likely believes they are under no duty to indemnify the doctor, and so is paying for the doctor's defense subject to a reservation of rights. Given the possibility of there being no coverage under Pistone, the insurer is likely loathe to contribute to sizable settlement, which means the parties will keep fighting it out until the Pennsylvania Supreme Court decides it for them.

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At The Legal Intelligencer Blog:

State Supreme Court Chief Justice Ronald D. Castille, the liaison justice to the First Judicial District who is in charge of appointing administrative judges of the court's divisions, said in an interview Thursday that the FJD may have to sue to secure a necessary level of funding in the next fiscal year.

...

An inadequate level of funding for the courts that sabotages the courts' ability to function could necessitate a lawsuit, Castille said.

"We don't want a constitutional confrontation but that will most likely end up before the Supreme Court," Castille said. "And we'd have to do what's right by the Constitution. And the counties and the state are required to adequately fund the respective judicial systems."

...

If the shortfall between the court's budget request and the proposal from Gov. Edward G. Rendell is not closed, Castille said he might have to tell judges --  who will be elected to new judgeships created, but not funded, by the General Assembly  -- that the court system can't pay them and they'll have to sue the executive and legislative branches in order to get paid.

We've been down this road before.

Until 1987, Pennsylvania state statutory law required counties assume financial responsibility for their own courts, and required those courts be adequately funded. In 1985, the County of Allegheny (home of Pittsburgh, and thus the second largest court system in the state) sued the Commonwealth of Pennsylvania, demanding that the Commonwealth, rather than the individual counties, fund the state's trial courts as part of the "unified" system specified in the Pennsylvania Constitution.

The Pennsylvania Supreme Court agreed:

While it is true that the 1968 Constitution of Pennsylvania does not specify the manner in which courts are to be funded, the constitution does require that the judicial system shall be unified. It is inconceivable that unity, in any meaningful sense of that word, can be attributed to a court system characterized by management and fiscal disagreements which periodically culminate in litigation in which the various counties and the courts within them are set off against each other as antagonists.

...

Our interpretation of the concept 'unified judicial system' depends, as does virtually all constitutional construction, not only upon a literal meaning of words, but also upon an awareness of the legal and constitutional implications of those words. In addition to the concerns already discussed, two additional matters should be mentioned.

First, the employment of staff. The purpose of a unified judicial system is to provide evenhanded, unbiased and competent administration of justice. The expectation is that cases will be processed as well in one county as another. In order to meet this expectation, however, judicial resources and staffing must be proportionately similar in all judicial districts. There must be uniform hiring practices and standards, and judges must be free to hire competent staff, not merely those referred by local political figures. If the staffing of court-related positions is treated as an opportunity to repay political debts rather than as an opportunity to serve the public by hiring qualified people who are able to make the system work efficaciously, the system will be neither evenhanded nor competent.

A second matter is the public's perception of the judicial system. The citizens of this Commonwealth have a right not only to expect neutrality and fairness in the adjudication of legal cases, but also, they have a right to be absolutely certain this neutrality and fairness will actually be applied in every case. But if court funding is permitted to continue in the hands of local political authorities it is likely to produce nothing but suspicion or perception of bias and favoritism. As the framers of our constitution recognized, a unified system of jurisprudence cannot tolerate such uncertainties. All courts must be free and independent from the occasion of political influence and no court should even be perceived to be biased in favor of local political authorities who pay the bills.

For the foregoing reasons we hold that the statutory scheme for county funding of the judicial system is in conflict with the intent clearly expressed in the constitution that the judicial system be unified. The order of Commonwealth Court is vacated and judgment is entered for the County.

However, because this order entails that present statutory funding for the judicial system is now void as offending the constitutional mandate for a unified system, we stay our judgment to afford the General Assembly an opportunity to enact appropriate funding legislation 2 consistent with this holding. Until this is done, the prior system of county funding shall remain in place.

County of Allegheny v. Commonwealth, 517 Pa. 65, 74–76, 534 A.2d 760, 764–65 (1987).

Unsurprisingly, the General Assembly did not rush to create a new funding system. Unsurprisingly, the Pennsylvania Association of County Commissioners sued to make them do it.

And thus came the sequel:

A lawsuit to compel legislative action normally would be barred by the speech and debate clause. Litigants may not sue in court to compel the legislature to enact a law.

In this case, however, where the legislature has been directed by this court to act in order to remedy a constitutional defect in the scheme which funds the court system, funding of which is necessary for the continued existence of the judicial branch of government, the legislature is not insulated from suit by the speech and debate clause. If it were, this court's duty to interpret and enforce the Pennsylvania Constitution would be abrogated, thus rendering ineffective the tripartite system of government which lies at the basis of our constitution.

...

Because this court has attempted to act cooperatively with the General Assembly and has denied prior petitions for enforcement, allowing the General Assembly a period of nine years to enact a funding scheme which would provide the necessary financial support for state courts, and because the General Assembly has failed to act within this extended reasonable period of time, we now grant petitioner's request for a writ of mandamus. Pursuant to this writ, jurisdiction is retained and by further order a master will be appointed to recommend to this court a schema which will form the basis for the specific implementation to be ordered.

Pennsylvania State Ass'n of County Comm'rs v. Commonwealth, 545 Pa. 324, 331, 681 A.2d 699, 702 (1996).

Former Supreme Court Justice Frank J. Montemuro, Jr., was appointed the special master to resolve the dispute, and he issued a report on July 30, 1997.

Over the past ten years, here's all that's happened, according to the Pennsylvania State Association of County Commissioners:

Only the first phase of the Montemuro report, which involved the transfer of approximately 200 court employees to the state – chiefly court administrators and deputy administrators – was accomplished in 1999. Transfer and funding of other judicial functions such as support staff for common pleas judges and magisterial district justices, court-related row offices, domestic relations, and juvenile and adult probation and parole are among those issues yet to be addressed. For twenty-one years, the state has failed to Court Administration / District Attorney Funding take steps to implement the rulings of the court, and this has been to the detriment of local taxpayers.

In spite of the Allegheny decision and the Montemuro report, county responsibility for court funding has actually increased, including Act 57 of 2005 which makes district attorneys full-time (prior to the law more than half were part time), and requires the commonwealth to fund 65 percent of the cost of those salaries. The 2008-2009 commonwealth budget contained no funding for cover the commonwealth obligation, leaving counties to shoulder the state’s responsibility.

The state currently reimburses counties $70,000 per judicial position for court costs. This amount has not been increased since 1981 and, if adjusted for inflation, the state would need to reimburse counties $166,000 to have the same purchasing power as
the reimbursement had when it was first enacted in 1981.

So the Pennsylvania State Association of County Commissioners is suing again, bringing another writ of mandamus to compel action by the General Assembly.

Philadelphia, however, has not yet joined the new suit, for reasons concisely summed up by the Inquirer:

In 1987, the state Supreme Court ordered that the state government pick up the tab for county judicial costs. The state has not obeyed that order. A legal effort launched in December is trying to force the state to honor the order, but so far the city has not joined the lawsuit. It is unclear how helpful it would be for the city to join the suit, given the level of anti-Philadelphia animosity in much of the state.

Thus, since the case is already proceeding along -- and the case has already been decided on the merits twice in favor of Philadelphia and the other counties -- the question of Philadelphia's First Judicial District joining the lawsuit is one of pure politics, a question of whether Philadelphia's intervention would make it more or less likely the Supreme Court would order relief of the General Assembly would finally provide funding.

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The case filed by the family of Staff Sergeant Ryan D. Maseth (an Army Ranger, Green Beret and combat veteran) got a lot of press when it was first filed: 

On Jan. 2 of this year, Sgt. Maseth, of Shaler, stepped into the shower at his quarters in Baghdad's safe Green Zone and was electrocuted.

...

According to the Army Criminal Investigation Division, Sgt. Maseth died when the electricity in the shower facility short-circuited because an electric water pump on the rooftop was not properly grounded.

...

Yesterday, in a quest for someone to be held accountable, Sgt. Maseth's parents sued KBR Inc., the multibillion-dollar contractor hired to maintain and repair the electrical infrastructure at the Radwaniyah Palace complex in Baghdad, a former estate of Saddam Hussein, where Sgt. Maseth was killed.

Attorney Patrick K. Cavanaugh said the military and the contractor had known about the electrical problem since February 2007, yet it went uncorrected.

"The Defense Contract Management Agency, we believe, authorized [the contractor] to the tune of millions of dollars to make the repairs. And they never made the repairs," Mr. Cavanaugh said. "And we don't know why. A simple repair -- just ground the building -- and Ryan would be alive today."

A little over a month ago, United States District Judge Nora Barry Fischer of the Western District of Pennsylvania denied Defendant's motion to dismiss, which raised two defenses irrelevant to blatant negligence by a civilian electrical contractor working on a military base: the "political question doctrine" and the "combatant activities" exception to the Federal Tort Claims Act ("FTCA"). 

After they lost the motion to dismiss, Defendant KBR moved to halt the litigation so they could file an interlocutory appeal with the Third Circuit. (Normally, appeals must await a "final order" on the case that resolves all the issues, such as a dismissal or judgment.)

Here's the standard for an interlocutory appeal, as recited by the Court:

28 U.S.C. § 1292, entitled "Interlocutory decisions," provides:

When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference in opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order.

28 U.S.C. § 1292(b). Section 1292(b) grants the Court of Appeals jurisdiction to review the District Court's interlocutory order. "Certification pursuant to § 1292(b) should be granted 'sparingly' and only when three conditions are met: (1) where immediate appeal may avoid protracted and expensive litigation, (2) the request involves a controlling question of law, and (3) where there is a substantial basis for differing opinion." The party seeking the interlocutory appeal has the burden to establish that all three conditions are met. However, this Court has discretion to deny an interlocutory appeal even if that party meets its burden. See Bachowski v. Usery, 545 F.2d 363, 368 (3d Cir. 1976)("The certification procedure is not mandatory; indeed, permission to appeal is wholly within the discretion of the courts, even if the criteria are present.").

(citations without quotes omitted) Harris v. Kellogg, Brown, & Root Servs., 2009 U.S. Dist. LEXIS 36253 * 2-3 (April 30, 2009).

Defendant KBR argued, in essence, that an appeal was warranted because "there is a lack of precedent within the Third Circuit" on these issues. That, however, is not grounds for a "substantial basis of differing opinion," since a lack of precedent is not the same thing as differing precedent. The Court accordingly rejected defendant's argument.

Defendant KBR then waved the bloody shirt of "costly discovery" (after litigating the heck out of the case so far with "voluminous" submissions) and piously claimed years of delay would not prejudice the plaintiffs, prompting the following refreshing course in reality:

First, Staff Sergeant Maseth died on January 2, 2008 and only limited discovery relevant to KBR's motion to dismiss has been permitted to this point, nearly a year and a half later. At the outset of this case, KBR took the position that despite its submission of voluminous evidence in support of its motion to dismiss that no discovery was necessary prior to the Court's resolution of its motion. (See Docket No. 56). Alternatively, KBR requested that the Court permit only limited discovery related to the issues raised in its motion. (Id.). The Court acquiesced to KBR's request, finding that the justiciability issue raised by KBR should be resolved prior to any further discovery being conducted. Now that KBR's motion to dismiss has been denied, Plaintiffs should have the opportunity to conduct discovery relevant to their claims on liability without the further delay which would be caused by any appeal. To that end, it is axiomatic that over time witnesses' memories may fade, they may become unavailable and/or physical evidence may be lost, destroyed or misplaced.

Second, due to the nature of this case and based on representations by counsel to the Court, many prospective witnesses are literally located around the globe and are potentially serving in the military or working for private military contractors in war zones where they may be at risk of serious injury or death. Again, any further delay in permitting discovery of these individuals could prevent both parties from discovering information relevant to their claims and/or defenses.

Third, to the extent that KBR, a multi-billion dollar international corporation, argues that an appeal is warranted based on financial concerns due to the potential avoidance of "costly discovery in this litigation," (see Docket No. 162 at 6), the Court is certainly mindful of the costs of litigation. However, in light of the fact that the individual Plaintiffs have not raised any such concerns, the Court is not persuaded.

Finally, as discussed above, KBR's motion was denied, without prejudice, and its counsel has already represented to the Court that it intends to re-file its motion and/or a summary judgment motion based on the political question doctrine and/or the combatant activities exception, once all discovery is complete.

 

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Much ink has been spilled over the suit brought by several New Haven firefighters against the city for scrapping the results of a promotional qualification exam, with the firefighters alleging Title VII employment discrimination claims (both disparate treatment and disparate impact) and constitutional Equal Protection claims for the city's decision to scrap those results, allegedly, because an insufficient number of African-Americans had passed the test as compared to whites and latinos.

In my humble opinion, the case is procedurally too premature for constitutional review by the Supreme Court. The firefighters weren't wrong to allege a whole host of possible scenarios ranging from intentional race-based decision-making to mere unnecessary creation of a racially-biased outcome; that's inherent in any claims brought by any plaintiff, since none of us know what "really" happened in the defendant's mind nor what the jury will find.

The problem is that their claims were dismissed on summary judgment prior to any factual finding, leaving open a number of issues which would show which type of claim they are actually able to prove at trial and whether the evidence, and not merely the allegations, raised constitutional issues.

The Supreme Court thus needs to review the factual evidence as broadly as possible, with all reasonable inferences in the plaintiffs' favor, and, per long-standing doctrine, the court is to avoid constitutional questions if possible. Let me quote two paragraphs from SCOTUSBlog:

Here's 2000e-2(j) & (l):

Apparently, the (l) issue wasn't even really addressed much by either party or the court at the trial level. The (j) issue, too, plays into a bigger factual question of just what New Haven was doing.

That means most of the "issues" raised by the briefs and the commentators are unnecessary for the court's review: everything could be decided on the grounds that the firefighters could show that New Haven's justifications are merely a pretext for imposing a race-based quota, which would be illegal under existing law.

The unique posture lead to some interesting questions at today's oral argument:

JUSTICE ALITO: Mr. Kneedler, could you explain how summary judgment in favor of the defendants on the Title VII disparate treatment claim can possibly be affirmed, even if the employer had reason to believe that the test that was given would expose itself to liability under a disparate impact theory? If that's not the employer's real reason for refusing to go ahead with the promotions, then isn't there liability under a disparate treatment -- under a disparate treatment theory, and that's a question for the jury? So how can we possibly affirm summary judgment here?

...

JUSTICE STEVENS: Mr. Kneedler, can I ask you this? You -- you've recommended that we set aside the summary judgment and send the case back for a hearing.
MR. KNEEDLER: Yes.
JUSTICE STEVENS: What is the issue of fact that you think needs to be decided?
MR. KNEEDLER: As I've mentioned to Justice
Ginsburg, I think it would go -- there are several things. One, it would go to the justifications that were advanced by, that identified by the district court here that do not fit into this framework, do not fit into complying with the Title VII disparate impact test, and those are promotion of diversity and -- and role models.
That is -- that is one. Also the district court did not apply what we believe is the right test, whether the employer had a reasonable basis for believing that what it was doing was necessary or a reasonable basis to believe it might be violating the disparate impact test. If it did not have a reasonable basis then we believe there would be a triable issue for the jury.
JUSTICE GINSBURG: When -- when I asked that you question, you said that one issue of fact was whether the board was acting in response to improper influence, to racial politics.
MR. KNEEDLER: Yes. That -- the district court rejected that argument and whether or not that should be revisited on remand is -- is another matter. We're --
JUSTICE SCALIA: Isn't that a controverted issue of fact? How can you possibly get around that?
MR. KNEEDLER: Well --
JUSTICE SCALIA: I mean, one side says what you say is just pretext; the real reason was just politics. Isn't that an issue of fact that has to be tried?
MR. KNEEDLER: Well, under this -- under this Court's decisions dealing -- dealing with summary judgment, even on questions of intent, the -- the plaintiff ordinarily has to come up with some affirmative evidence that there was -- that there was in this case an impermissible racial motive to do that. And the -- the district court looked at what the civil service commissioners said and concluded that -- that they did not have an impermissible racial motive, that they were responding to concerns about the validity of -- of the test.
JUSTICE ALITO: But does the government think that you can just -- in a case like this you can just look at what -- what is said by the ultimate decision-maker and ignore the input from other people who may have influenced the process?

"Interesting" because of the sources, with Stevens and Ginsburg skeptical about an employment discrimination plaintiff overcoming summary judgment and Scalia and Alito suggesting plaintiffs be permitted to air their grievances in court.

Not what we're used to in these situations.

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Amy Kolz has an extensive article at The American Lawyer detailing a merger debacle which settled last winter for $1 billion after "Vice-Chancellor Stephen Lamb [of the Delaware Chancery Court] declared that Wachtell's client, an Apollo Management, L.P., portfolio company called Hexion Specialty Chemicals, Inc., had 'knowingly and intentionally breached' its merger agreement with Huntsman Corporation in a deliberate effort to walk away from their $10.6 billion deal."

If you're interested in the subject, you should read the article.

I highlight three elements fundamental to their defeat, and the defeat of many business litigation plaintiffs:

Evading The Obvious Spirit of the Agreement:

Huntsman and its lawyers at Shearman & Sterling and Vinson & Elkins were able to negotiate a merger agreement that all but locked Hexion into the acquisition. There was no "financing out," which meant that Hexion would have to pay a $325 million termination fee if it failed-despite using best efforts-to obtain debt financing. The material adverse effect clause, as Lamb would later remark, was also "narrowly tailored." And though one of the parties had to deliver a solvency letter to the banks funding the deal, there was no "solvency out" for Hexion.

The deal also included a provision that later proved harmful to Apollo. Though the agreement capped Hexion's liability at $325 million if it couldn't complete the deal despite making "best efforts," it allowed for uncapped damages in the event of a "knowing and intentional breach of any covenant" by Hexion, a provision more often seen in deals with strategic acquirors.

If you want to be able to back out of an agreement, leave in place mechanisms by which you can. Huntsman smartly negotiated an agreement locking Hexion / Apollo into the deal.

I've seen plenty of sophisticated individuals and business make or break contracts in a manner charitably described as commercially unreasonable. I can't fix those mistakes. If you walked away from a good deal because you were afraid, I can't enforce it. If you consented to an air-tight contract because you desperately wanted the deal, I can't undo it. There's a lot I can do, but where the case would revolve around an issue fairly negotiated and clearly incorporated into the contract, that usually ends the story unless you can show fraud or fraudulent misrepresentation.

I don't know what fee arrangement Apollo had with Wachtell; Wachtell does a fair amount of contingent fee work, particularly in the mergers & acquisitions arena, and it seems like they really believed in their case, as Marty Lipton apparently assured Apollo victory at trial.

But that's not always the situation. We represent business litigation clients on a contingent fee, most of whom quickly pick up on the idea of a partnership in the litigation. Frankly, if your lawyer isn't willing to shoulder some of the risk of your lawsuit, you should ask yourself why not.

Making The Facts Fit Your Lawyer's Strategy:

Apollo arrived at the meeting, according to testimony from Apollo partner Jordan Zaken, focused on the contract's material adverse effect clause: If Huntsman's declining numbers constituted an MAE, Hexion could walk away without even paying the deal's $325 million termination fee. But Wolinsky had to know that was a long shot. Delaware courts have never found a MAE in the context of a merger agreement, and Wolinsky himself helped to litigate the precedent-setting case on the issue, IBP, Inc. v. Tyson Foods, Inc., in 2001.

Instead, Apollo and Wachtell began to consider the combined company's potential insolvency as a possible way out of the merger. The strategy was certainly intriguing. If the merger would result in an insolvent company, the banks could refuse to finance it, leaving Hexion with no choice but to abandon the deal. And if it were the banks-not Hexion-scuttling the deal, Hexion would be liable for, at most, the breakup fee.

Lawyers are smart, creative and innovative (or should be). They can change their strategies to meet a wide variety of fact patterns.

But facts are stubborn things. Trying to create facts, even in the midst of litigation, create a huge risk that the judge or jury will find your whole case to be a farce constructed for their benefit, which is what happened here: Judge Lamb ruled that insolvency wasn't even ripe for judgment.

Voiding Your Legal Protections, Like Attorney-Client Privilege:

Wolinsky explained that Wachtell was potentially interested in a formal solvency opinion, but also wanted to hire Duff in a "consultative arrangement to assess the solvency analysis," according to testimony from Duff's Philip Wisler. The firm would use Duff & Phelps, in other words, for two roles: a litigation consulting team that would provide various financial analyses to assess the possibility of deal litigation, and an opinion team that would be engaged if Hexion decided "to go forward with a particular course of action," namely litigation to end the merger.

...

From the beginning, Duff's efforts to separate the consulting and opinion teams were imperfect, at best. Wisler, for instance, attended the May 20 kickoff meeting for the litigation consulting team at Apollo's New York offices, even though he was to be the author of the insolvency opinion. The same Duff expert performed modeling work for both teams. And litigation team leader Pfeiffer, at Wachtell's request, e-mailed Wisler various deal models for the opinion analysis; Wisler later testified that he was unaware he was supposed to be walled off from Pfeiffer's work.

...

The blurry line between Duff's consulting and opinion work would later come back to haunt Wachtell in Delaware. Vice-Chancellor Lamb ultimately concluded that Duff's consulting assignment cast doubt on the objectivity of its solvency opinion. Moreover, the dual role destroyed any potential work-product privilege claim over the Hexion team's communications with both the Duff litigation consultants and solvency experts. Duff had to provide comprehensive discovery to Huntsman, which was a huge gift to Huntsman's Vinson & Elkins litigators.

Remember the Watchmen suit where a witness' testimony was so guarded and unhelpful the Court precluded the witness from testifying on the subject again, thereby warranting summary judgment?

If you misuse or abuse the law's protections and privileges, you run the risk of having them deemed waived or void by the court, as happened here. It's the same when clever businesses set up a variety of undercapitalized or alter ego LLCs and S-Corporations to evade liability -- odds are good the court will respond by striking the house of cards and seeing what's left standing, often nothing.

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At the National Law Journal:

The American College of Trial Lawyers and a legal think tank have called for a sweeping overhaul of civil discovery rules to curtail expensive, time-consuming battles for documents, in a study released on March 11.

The most radical of the changes would impose strict limits on discovery after initial up-front disclosure by both sides.

...

The 30-page report contains more than two dozen proposals and general principles for overhauling the discovery rules used in both federal and state courts. It was an 18-month joint project of the ACTL and the Institute for the Advancement of the American Legal System at the University of Denver.

Saunders said the task force, drawn from the experienced trial lawyers of the ACTL, came from both the plaintiffs' and defense bar. The proposals fall no harder on the plantiffs' bar than on the defense, he said.

There's a lot to be said about this report; let me start with the most basic problem.

When I file suit, I generally have my client's story and a little bit of paperwork. The defendant possesses the bulk of the proof. If I do not pry deeply into the defendants' materials, I will lose, either at the inevitable summary judgment motion that blames me for not having the evidence I was denied, or at the trial where a sweet-talking defense lawyer points their finger at my client demanding "where's the proof?"

Under the current, supposedly excessive discovery rules, more than half of my discovery requests are already met with unfounded objections like "unduly burdensome" or "not reasonably calculated to lead to discoverable evidence," objections often sustained by courts which already apply de facto limits on discovery in an effort to move cases along. If you want a glimpse of how quickly these judgments are made by courts (as a matter of necessity given the volume), spend a morning in Philadelphia City Hall's Courtroom 285, where 200+ discovery motions are decided before lunch.

The ACTL proposals dramatically raise the incentive defendants' already have in filing frivolous objectives by giving defendants all new bases upon which to object, creating whole new anti-discovery principles such as "Proportionality should be the most important principle applied to all discovery" and "All facts are not necessarily subject to discovery." Yet, even as they greatly expand the field of possible objections, the ACTL proposals take no steps towards reducing the filing of frivolous objections.

Thus, my case is supposed to be held to defendants' self-selected "initial disclosures" followed by time-pressured "limited" additional discovery, but defendants suffer no consequences whatsoever if they initially disclose a tiny fraction of the relevant information then frivolously object to every last one of my requests, tying up the courts (and my practice) by forcing judges to determine the "limited" nature of every last discovery request.

Putting it all together: the proposals eviscerate plaintiffs' ability to seek out evidence in discovery while increasing defendants' incentives to file excessive objections.

I wouldn't say such a lopsided outcome "falls as hard" on plaintiffs as defendants; for contingent-fee plaintiffs' lawyers, it's crippling, as it hampers their ability to prove their cases while also making discovery more time-consuming, whereas for hourly-paid defense lawyers, it's a goldmine, permitting them to litigate the heck out of a case before inevitably winning it. Hourly-paid plaintiffs' lawyers (a rare beast that appears largely in the mid-to-large-size corporate world) get a boon as well, even if they keep losing their cases, too.

If the ACTL truly wants to make discovery more just, speedy and efficient, I can see three easy ways to level the playing field under these proposals:

1. Mandate spoliation and/or adverse inference sanctions for parties that do not produce adequate initial disclosures in a timely fashion;
2. Modify the summary judgment burden of persuasion to eliminate the non-movant's requirement to produce specific evidence in rebuttal (since they're less likely to have it);
3. Mandate attorneys' fees and/or sanctions against parties which lose (not merely "frivolously file," since courts rarely hold that) motions for protective orders and other discovery objections.

To put it another way: the reason I have to send so many interrogatories and requests for production of documents is because fewer than 1 in 10 gets a candid answer, usually then only after sending threatening letters and filing a motion. Put some teeth behind the principle of "disclosure" and then we'll get somewhere.

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One of the few interesting parts of law school Professional Responsibility classes lives on in this article at The Recorder:

A San Francisco Bluetooth headset maker says Fish & Richardson played an unseemly game of hot potato by dropping it as a client and then turning around and suing for patent infringement the very next day.

Aliph Inc. moved to disqualify Fish from representing Bluetooth rival Plantronics in the patent case two weeks ago, arguing that the firm shouldn't be allowed to sue its own client or get out of the mess by suddenly disowning Aliph at 8:30 p.m. the night before.

...

Aliph's lawyers say that Fish's behavior is condemned by the so-called "hot potato doctrine," which frowns on a law firm creating a conflict so it can drop a smaller client for a more lucrative one.

As part of the engagement letter, Fish did have a prospective conflict waiver, stating, "In the past, when we have been retained for regulatory work only, we have made it an express condition of our representation that the firm not be conflicted from taking any intellectual property work that might otherwise be adverse to our clients."

Although most lawyers know (or at least have heard of) the hot potato doctrine, and law students are told the courts "frown" on it, there are not many cases actually applying it. A quick search reveals fewer than two dozen nationwide, at least of cases that actually refer to it as the "hot potato doctrine."

It's nonetheless a powerful doctrine, one that can easily get a lawyer disqualified from a lawsuit.

First, a simple question: what good does it do a lawyer or law firm to drop a client on the eve of suing them?

Lawyers have different obligations to current clients than they do former clients. Perusing the Model Rules of Professional Conduct, a version of which is in place in most states (New York is one exception), we find Rule 1.7 (relating to current clients) strictly prohibits lawyers from representing new clients "directly adverse to another client" whereas Rule 1.9 (relating to former clients) merely prohibits lawyers from working on "the same or a substantially related matter" as they did for the former client.

Fish & Richardson (allegedly) dropped Aliph, a regulatory client, because they were about to take a position "directly adverse" to Aliph, a current client, which is prohibited. They wanted the standard to be that they would be prohibited only if the Plantronics intellectual property matter was "the same or a substantially related matter" to the work they did for Aliph, which it wasn't, since it was different fields, different lawyers, different everything.

Too bad for F&R: there are good odds the court will apply the "hot potato doctrine" and apply the rules for current clients to them.

Pepper Hamilton was disqualified from a suit in Michigan a year and a half ago because...

Courts that have considered the issue have held that a firm will not be allowed to drop a client in order to shift resolution of the conflicts question from Rule 1.7 dealing with current clients, to the more lenient standard in Rule 1.9 dealing with former clients.

El Camino Res., LTD. v. Huntington Nat'l Bank, No. 1:07-cv-598, 2007 U.S. Dist. LEXIS 67813, at *39–40 (W.D. Mich. Sept. 13, 2007) quoting Ethics Committee of the State Bar of Michigan Opinion RI-139 (Aug. 7, 1992).

Fish & Richardson has plenty of defenses, including that they didn't summarily drop the client but in fact gave them extended notice of the problem, albeit in a vague form, without identifying the client. And, of course, there's the big "so what?" question arising from the fact that, in reality, it's unlikely Aliph will be prejudiced by F&R representing Plantronics.

Moreover, "The finding of an ethical violation, however, does not automatically require disqualification. The court should order disqualification only where some 'specifically identifiable impropriety' has actually occurred and the balance of relevant factors requires vindication of the integrity of the legal profession over defendant's interest in retaining counsel of its choice." Id., at *54.

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The San Francisco Chronicle writes,

The Web 2.0 movement, which ushered in an interactive Internet, sought to put power in the hands of the people by tapping the so-called wisdom of the crowds to change the world - and to keep such a digital democracy in check.

A decade later, as defamation lawsuits have begun to mount, some are questioning the wisdom of the crowds, and wondering if it hasn't turned into mob rule.

"I don't know why this has taken so long," said Andrew Keen, author of a controversial book, "The Cult of the Amateur: How Today's Internet is Killing Our Culture." "The Internet is a culture of rights rather than responsibilities. We have no coherent theory of digital responsibility. The issue has broken through, broken out of Silicon Valley - now it affects real people with real reputations to defend."

I guess I'm supposed to be impressed by the "rights" and "responsibilities" distinction. I'm not. Every legal "right" is an enforceable legal "responsibility" upon another.

Take the First Amendment. The right to free speech imposes on the government the responsibility -- whether the government wants it or not -- to let you speak freely.

But back to the subject at hand, defamation law:

Meanwhile, the review site Yelp, based in San Francisco, has found itself in the crosshairs of the free e-speech debate.

Yvonne Wong, a pediatric dentist in Foster City, recently sued Los Altos couple Tai Jing and Jia Ma after they criticized her treatment of their son in a posting on Yelp. They questioned her use of laughing gas and said they were angry she had used fillings containing mercury.

Wong's lawyer, Marc TerBeek of Oakland, said the review is false, and Yelp has since taken it down.

That reminds me of a Pennsylvania case, a lawsuit brought by another physician who felt he had been slandered with regard to his methods:

There were four counts in the declaration.

1st count. "He, (the plaintiff,) is not a physician, but a two-penny bleeder."

2d count. "He, (the plaintiff,) was called to a man near the new bridge, who had injured his leg, and by his (plaintiff's) bad treatment the man must have been lame for life had not I, (defendant, Dr. Small,) been called to him."

3d count. "Foster had given a child stuff to butcher it."

4th count. "He, (the plaintiff,) had butchered a child."

That case was Foster v. Small, 3 Whart. 138 (Pa. 1838)(upholding directed verdict for defendant because "Now though words which impute professional ignorance are certainly actionable, yet to say of a physician that he is a two-penny bleeder, imputes not want of professional skill, but want of professional dignity manifested by a petty attention to the humbler employments of the art. They are, in fact, words of mere contempt.").

Did you catch the year? That virtually identical doctor-slander case was decided one-hundred and seventy-one years ago, long enough ago that calling a doctor a "bleeder" -- one who treated by bleeding the patient -- was a sufficiently accepted practice that it wasn't defamatory to accuse a doctor of being a "bleeder."

Defamation -- whether written ("libel") or spoken ("slander") -- is among the oldest claims recognized by the legal system, dating back to ancient Rome and likely before.

The law isn't changing. People aren't changing. Only one thing is changing: people are more connected.

Here's an example. Based on a suggestion from Robert Scoble, whom I've never met, I search Friendfeed for "defamation" posts (with 5 comments and 5 "likes") and find a Twitter post (with about 50 comment and 50 "likes") from Mona L, who I've never met, that says:

“Should you be held accountable for what you publish online? - Cnet "Yelp user faces lawsuit over negative review" http://tinyurl.com/7uwtom”

The link is to a story on a different Yelp defamation suit. We don't even have to consider the story to see how powerful the internet is at spreading commentary -- the tweet and the Friendfeed post alone were viewed by hundreds, more likely thousands, of people.

With every single off-the-cuff comment about that story effectively permanent, broadcast-worldwide, and easily accessible world-wide.

But that's it. People haven't become more disgruntled with one another, nor more prone (or able) to sue, nor have we suddenly left a responsible and respect world for "mob rule." The allegedly defamatory comments just spread faster, travel farther and last longer.   

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Erik Sherman at Corporate Secretary Magazine wades into the law of corporate / employee blogs, quoting yours truly:

A company cannot stop blog readers from drawing unfortunate inferences. ‘An unofficial employee blog may end up being confused with the company itself, as unfortunately happened to the ‘Patry copyright blog’, formerly run by a lawyer who had the misfortune, so to speak, of becoming Google’s chief copyright counsel,’ says Maxwell Kennerly, a litigator with the Beasley Firm and a blogger himself. ‘No matter what he did, his posts were construed as representing Google’s official position, so he gave up.’

You can read William Patry's "End of Blog" post here. Here's a portion:

I started the blog when I was still in private practice with the above goals in mind and one more: I felt there was no blog devoted to the geekery of copyright; meaning a blog where people who loved copyright could come and discuss copyright issues in a non-partisan way. In order to encourage open discussion I permitted not only comments but anonymous and pseudonymous comments. I did that because I wanted to encourage the largest number of people to participate, and after four years I believe that was the right decision. But it is also the right decision to end the blog. While in private practice I never had the experience of people attributing my views to my firm or to my clients. I moved from private practice to Google I put a disclaimer to the effect that the views in the blog (as in the past) were strictly mine. I also set a policy, which I strictly adhered to, of never discussing cases Google was involved in, and I refrained from criticizing those with whom Google was involved in lawsuits. I did not run ads, including not using Google's AdSense program. I cannot see what more I could have done to make what was a personal blog more separate from my employer.

For the first year after joining Google, with some exceptions, people honored the personal nature of the blog, but no longer. When other blogs or news stories refer to the blog, the inevitable opening sentence now is: "William Patry, Google's Senior Copyright Counsel said," or "Google's top copyright lawyer said... ." There is nothing I can do to stop this false implication that I am speaking on Google's behalf. And that's just those who do so because they are lazy. Others, for partisan purposes, insist on on misdescribing the blog as a Google blog, or in one case involving a think tank, darkly indicating also a la Senator Joe McCarthy, that in addition to funding from Google, there may be other sources of funding too. On Blogger, blogs are free. The blog had no funding because it doesn't cost anything, because I don't run ads, and because it was my personal blog, started before I joined Google.

On the whole, I don't see corporate blogs to be as great a risk as the Corporate Secretary article makes them out to be, but I see why the story was framed that way. Corporate directors and officers usually want to hear risks first, rewards second.

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Kevin LaCroix at The D&O Diary delivers news that surprises no one, a securities class action based upon Bank of America's untimely disclosure of Merrill Lynch's catastrophic losses:

As has been well-publicized, within a matter of weeks of closing its acquisition of Merrill Lynch, Bank of America announced previously undisclosed 4Q08 operating losses at Merrill of $21.5 billion that required BofA to obtain an emergency $20 billion cash injection from the U.S. Treasury, as well as an additional $118 billion asset backstop. BofA’s stock market valuation has dropped more $100 billion since the day before the merger was announced through the company’s January 16 earnings release.

As the Wall Street Journal reported (here), questions immediately arose following BofA’s announcement of the Merrill losses, such as why BofA’s CEO Kenneth Lewis "didn’t discover the problems prior to the Sept. 15 deal announcement" and "why he didn’t disclose the losses prior to the vote on the Merrill deal on Dec. 5 or before closing the deal on Jan. 1."

With these kinds of questions circulating, it comes as no surprise that plaintiffs’ attorneys have initiated litigation. There were actually two different lawsuits announced on January 21, 2009 relating to these circumstances. Both of the lawsuits purport to be filed on behalf of persons who held BofA securities on October 10, 2008, the record date for the December 5, 2009 special meeting of shareholders to approve the merger.

LaCroix, no stranger to director and officer liability, has a thorough take on it, and Ideoblog raises the possibility of a "national interest" exception to securities disclosure laws due to the circumstances: on December 17, Lewis had become so concerned that he went to DC to meet with Bernanke and Paulson for guidance, both of whom, Lewis said, "[were] firmly of the view that terminating or delaying the closing...could result in serious systemic harm."

The Fed denied they requested Lewis to keep quiet. Either way, Lewis obviously knew of the trouble by the December 17 meeting with the Fed, but didn't report the losses publicly until Bank of America's next earnings statement on January 16. That's problematic.

The WSJ Law Blog also flags another action, this one brought by Susman Godfrey, alleging the same, with a particular paragraph of interest in their complaint:

As reported in The Wall Street Journal, just three days after shareholders voted to approve the merger, on December 8, 2008, Merrill’s CEO John Thain addressed a meeting of Merrill’s Board of Directors. Thain reported that Merrill suffered significant losses in November, which Thain described as one of the worse months in Wall Street history. Despite the size of these losses, Thain told Merrill’s board the losses were in line with BOA’s estimates. Neither BOA nor Merrill, nor any of the Individual Defendants, ever disclosed any such estimates . . . to their shareholders in the Proxy Statement. Likewise, no loss estimates were disclosed in any subsequent filings.

Ruh-roh!

• September 15 -- Deal is reached. BoA and ML get to work on details.
• October 31 -- Proxy statement issued to shareholders (you can find it here) in conjunction with the special meeting.
• December 5 -- Special meeting of shareholders, who vote to approve the deal.
• December 8 -- Thain tells ML board of significant losses in November, losses "in line with BOA's estimates."
• "Mid December" -- Lewis learns of ML's losses.
• December 17 -- Lewis meets with Bernanke and Paulson
• January 16 --  BoA discloses losses to shareholders.

Lewis & Thain's stories are not consistent. Either:

1. BoA didn't provide ML estimates like Thain suggested;
2. Lewis didn't know about BoA's own estimates, even though Thain did; or,
3. Lewis knew sbout ML's losses sometime significantly before December 8.

The plaintiffs are betting on #3, though they could make hay out of #2. It's hard to see how anyone could sue for #1 -- the BoA deal was the best thing that could have happened to ML, without which ML probably would have collapsed.

Of course, there's another issue here: both Bank of America and Merrill Lynch were effectively insolvent throughout the plaintiffs' class period. Both are completely dependent upon emergency government policies to stay operating, and the government has already stepped in to convert the messy merger into a complicated loan and guarantee program.

That is to say, anyone who bought shares of Bank of America in this time frame knew they were buying an effectively insolvent company, and the damages of the Merrill transaction may be, at most, to rearrange the form of Bank of America's insolvency -- possibly to its advantage.

(If you're not familiar with Section 14(a) shareholder class actions, there's a little background below the fold.)

Continue Reading...

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Overlawyered leads us to this line from a Posner opinion in Mirafasihi v. Fleet Mortgage Co., decided December 30, 2008:

It is an example of the typical pathology of class action litigation, which is riven with conflicts of interest ...

The case alleged numerous violations of state (every state) consumer protection statutes and the federal Fair Credit Reporting Act. Specifically, Fleet Mortgage Corporation wrongfully used private financial and personal information it had on home mortgages to solicit (with deceptive practices, no less) 1.6 million of its homeowners with offers for financial services. 190,000 of them took the bait and purchased some of these services.

Suit was filed with two proposed classes, one for the 15% who were financial victims and one for the 85% who were 'merely' privacy victims. A settlement was eventually negotiated and approved simultaneously with class certification.

It was an awesome deal: the 1.4 million who merely had their privacy illegally violated so that a national bank could attempt to swindle them received nothing. Nothing despite state statutes imposing an average penalty-per-violation of over $1,000.

Wait, that's not fair, they did get something: they were to be precluded from ever filing suit individually.

Judge Posner was right: the situation presented a huge conflict of interest. Fleet almost certainly exploited the fact that the same lawyers represented both classes, and so likely deliberately negotiated with the intent to split the 190,000 financial victims from the 1.4 million privacy victims. The quote referenced above comes from this passage in Posner’s opinion:

We are disheartened that the litigation by the information-sharing class has been allowed to drag on for eight years, when it had no merit—and that as a matter of law, without need to take evidence. It is an example of the typical pathology of class action litigation, which is riven with conflicts of interest, as we discussed recently in Thorogood v. Sears, Roebuck & Co., supra, 547 F.3d at 744–46. The lawyers for the class could not concede the utter worthlessness of their claim because they wanted an award of attorneys’ fees. The lawyers for Fleet were reluctant to argue the utter worthlessness of the claim because they were able to negotiate a settlement that cost their client virtually nothing—provided they did not take such a strong stand that it jeopardized the class lawyers’ shot at a generous award of attorneys’ fees, and hence the settlement.

That’s all well and good, and it is exactly why we permit members of a proposed class action settlement to file objections to the proposed settlement.

And that is what happened here: some of the 1.4 million homeowners whose privacy was intentionally violated as part of a fraud objected to the settlement on the grounds that they would receive nothing and no steps were going to be taken to ensure that neither Fleet nor anyone else would do this again.

The district court denied the first objection and approved the settlement, so the objectors appealed and won. The district court then approved a newly negotiated settlement with the privacy victims getting nothing, but with a quarter million going to consumer law public interest attorneys.

The objectors appealed again and won again.

The district court then went back, looked at the value of their claims, and concluded it was right the first two times. It also awarded, for the twice-successful appeals, $18,750 to the objectors' attorneys.

For reference, an appeal in a basic slip-and-fall case will cost at least $15,000 in hourly fees. Most humdrum state tort appeals cost between $20,000 and $50,000.

So what did Posner do on the third appeal? Blamed the objectors and their lawyers, forced them to be part of a settlement that extinguishes their claims for nothing, and affirmed the paltry attorneys' fee award for two prior successful appeals to the exact same court for which Posner was writing, the Seventh Circuit Court of Appeals. Then he accused the objectors' attorneys of "chutzpah" for daring to request fees on par with the original attorneys, the one's Posner accused of representing clients amid a conflict of interest.

Posner continued by blaming the district court for insufficiently analyzing the merits of plaintiff’s claims, apparently missing the irony of his own court waiting for the third appeal to point out that plaintiffs’ federal claims were "waived" before the first appeal and that the objectors' state claims had been “worthless” on their face the whole time.

And so the “typical pathology of class action litigation, which is riven with conflicts of interest” continued unabated, with the objectors and their attorneys penalized with foreclosed claims and massive losses in fees for only winning two out of three appeals, on grounds that evaded everyone for years except Posner.

Chutzpah, indeed.

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On Christmas Eve, Judge Feess in the Warner Brothers / Fox dispute over the movie rights to the noir comic The Watchmen gave Fox what might be a nine-figure Christmas gift: granting, in part, Fox’s motion for summary judgment. You can read a copy of the initial order, which Judge Feess has promised to expand upon, over at Corante's Copyfight.

If you are not familiar with the dispute, here is all you need to know if you don't want to read my prior post): Fox initially purchased the movie rights to Watchmen, was unable to do anything useful with them and so entered into a series of complicated agreements with a producer, Lawrence Gordon, and his company, agreements which, arguably, preserved Fox’s distribution rights for the movie, and provided for a number of options and scenarios that were never exercised (even though many of them could have been exercised).

Initially, Judge Feess ruled that a jury trial would be necessary because, even though the dispute rose entirely under legal interpretations of undisputed documents, there were a number of factual ambiguities that a jury would have to decide before the court could rule on the legal issues. Trial is scheduled to begin this month.

Such was the case until, as Judge Feess’ order describes it,

Gordon’s testimony regarding the facts, circumstances, and events surrounding the negotiation of the 1994 agreements would have been of assistance to the Court in evaluating the objectives of the parties at that time. However, Gordon refused to testify on that subject during his deposition because he supposedly could not separate what he knows based on his own recollection from what he learned from counsel. Gordon’s counsel therefore asserted the attorney/client privilege and instructed Gordon not to answer any questions on the subject.

There are a couple of potential explanations for Gordon’s lawyer recommending Gordon assert privilege to avoid discussing the most pivotal issues in the case, including:

• A genuine concern that, in the middle of the deposition, his multi-millionaire successful businessman client would blurt out damaging and heretofore privileged conversations with his attorney;
• A concern that every arguable waiver of privilege necessarily translates into a complete and total waiver of attorney-client privilege for every discussion relating to the case;
• A reflexive expression of years of habitually frustrating opponents depositions with each and every potentially viable objection; or,
• A fit of madness.

Judge Feess was, shall we say, unimpressed with this tactical decision:

The Court takes a dim view of this conduct and questions whether the assertion of the privilege was proper. Moreover, the assertion of the privilege does have a consequence: having now reached a decision based on the record before it, the Court will not, during the remainder of this case, receive any evidence from Gordon that attempts to contradict any aspect of this Court’s ruling on the copyright issues under discussion.

Thus, with a single obtuscatory tactic at a deposition, Gordon’s lawyer was able to permanently foreclose Gordon from contesting Fox’s version of the facts, resulting in there being no further genuine issues of material fact, making summary judgment appropriate.

I was not there and I do not know what potentially privileged information Gordon and his lawyer were trying to keep secret.

I do know, however, that one of the worst things a party to a lawsuit can do is to refuse to answer a question in discovery, at a deposition or at trial. You might as well paint a target on your back. A half-decent trial lawyer will have no trouble forging the molten steel of a refusal into the weapon of the trial lawyer’s choice.

And that’s the best case scenario. The worst case scenario is for the court to conclude that you are trying to play games with the legal system and to destroy your claims accordingly.
 

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The blog "How Appealing" has plenty of links on the $90 million settlement of the donor-intent suit brought against Princeton University by the heirs to the Great Atlantic & Pacific Tea Co. (and now A&P supermarket) fortune, alleging misuse of a 1961 donation of $35 million which had swelled in value to over half a billion dollar.

The case was scheduled to go to trial in New Jersey state court in January. Pretrial litigation costs were $40 million for each side. Princeton expected its own trial costs to reach $20 million; it's fair to assume that the Robertson's trial costs would have been the same if not greater.

$80 million to litigate and another $40 million to try a breach of fiduciary duty, accounting and breach of contract dispute between two parties. No appeals, certs, or retrials included.

How could that be? Let's look at how those numbers compare to other complicated cases like patent infringement, white collar criminal defense, and antitrust.

According to the American Intellectual Property Law Association, the average per-party cost to take through litigation and trial a large (over $25 million at stake) patent infringement / dispute is $5 million. (For all patent cases, the average is $1 million). Patent cases are document intensive, involve numerous expensive experts, and typically require dozens of depositions and motions. They're often more complicated than large commercial litigation or breach of fiduciary duty cases.

Yet, the Robertson case would have cost twelve times what the biggest patent cases typically do.

Remember the white collar criminal defense that got WilmerHale sued? That "feeding frenzy" of billing was over $12 million in hourly fees, less than one-third what either side here charged, and it involved more than double the documents of Robertson.

So what happened in Robertson?

Sure, the case wasn't a slip-and-fall:

The university says it produced more than half a million pages of documents in pretrial discovery. The trial witness list had 124 names, 80 witnesses had been deposed, 3,000 pages of briefs were required and 5,000 trial exhibits were identified.

But it wasn't that big. Here's how the District Court described the Visa / Mastercard merchant and debit card antitrust case, which settled just before trial a few years ago:

Class Counsel have litigated this case -- which did not culminate in settlement until the eve of trial -- for seven years. During that time, there were almost 400 depositions of witnesses, including 21 experts who issued 54 expert reports; four rounds of class certification briefing (through the Supreme Court); 16 summary judgment motions, 31 motions in limine, and three Daubert motions; and a pretrial order identifying 230,000 pages of trial exhibits, 730 trial witnesses, and more than 17,000 deposition designations

In re Visa Check/Mastermoney Antitrust Litig., 297 F. Supp. 2d 503 (E.D.N.Y., 2003). Now that's big.

Yet, that much work -- several orders of magnitude larger than Robertson -- resulted in a "lodestar" (hours times prevailing rates) fee calculation of $62,545,603 for plaintiffs' counsel, or one and a half times each side's bill in Robertson.

The Robertson case was filed July 17, 2002. In the 6 years, 4 months, and 24 days leading up to the settlement announcement, the parties averaged $34,202.65 in costs every single day, or about the same as if each side had one of the most expensive partners in the country (each at $1,000 an hour) and two of the most expensive associates in the country ($600 an hour per associate) working every single day, including weekends and holidays, from 8am to 6pm, taking no more than 2.2 hours in their work day to do anything else, including eating, twittering or answering angry phone calls from their abandoned spouses.

Using more reasonable numbers, like an average rate of $348 an hour, and seven hours of actual, billable hours per day, we still end up with the ridiculous conclusion that each side had seven lawyers working full time for them every day, including weekends and holidays.

Some of these numbers may be unfair. For instance, both sides hired major accounting firms to prepare extensive expert reports. So let' s very generously assume that these firms performed the same level of accounting work as required for companies with under $1 billion in annual revenue to ensure complete Sarbanes-Oxley compliance: $2.8 million (which I think is a high estimate) for each side.

Let's also assume "costs," like copying, postage, phone calls and research equal about 5% of overall billing, as is often the case in business representation. I think that's actually generous here -- $2 million per side will get you an awful lot of copies.

Adding in those expert fees and costs drops the attorneys' fees to $70.4 million, or a mere $30,098.33 every single day. Using our "reasonable" hourly rates and billable hours, that's a team of six lawyers working full time every day, including weekends and holidays. For each side.

That's outrageous: other than the fees, Robertson was closer in size to complicated personal injury litigation than a large, complex commercial dispute like a patent, antitrust, or securities case.

Multi-defendant, multi-claim personal injury cases -- e.g., a catastrophic injury or wrongful death at a construction site that raises both product liability and negligence issues -- frequently exceed 100,000 documents, 100 potential witnesses, 50 depositions, and 1,000 trial exhibits. I can't judge what the article meant by 3,000 pages of "briefs," but, based on the motions and orders available online, I assume that number includes pleadings, motions and exhibits, which is not at all impressive.

Tomorrow we'll look at how not to spend $120 million bringing a case to trial.

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Thomas Friedman misses the boat:

I have no sympathy for Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the "legal" scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody's or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn't a pyramid scheme, what is?

Funny thing is, there really was a "legal" scheme connected to Madoff: it appears a substantial part of the money invested with him was not directly from clients, but through investment advisers who were specifically being paid huge sums of money (some on the 2% investment / 20% returns hedge fund fee scale) to perform due diligence and to ensure the investments were safe.

A number of these "advisers" -- perhaps all of them given the obviousness of the fraud -- did absolutely nothing at all to earn their money other than hand the money over to Madoff, no questions asked.

Textbook breach of fiduciary duty. If they misrepresented what due diligence they did, it's fraud, too.

There will be a reckoning.

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Above The Law refers us to Newsday's coverage of the ugly mess that has become of the Martin Garbus, Esquire vs. Samantha Ronson vs. Perez Hilton suits, which now stand a good chance of becoming far more embarrassing for Lindsay Lohan than the blog post which prompted the original defamation suit.

Here are the facts in the underlying dismissed Ronson vs. Perez suit:

At the bottom of the failed libel suit and the pending malpractice action is a one-car crash: Lohan's Mercedes-Benz versus some shrubs in Beverly Hills on May 26, 2007. Police reported finding a small amount of cocaine in her car. The actress eventually entered rehab and pleaded guilty to driving under the influence.

About a week later, according to the libel suit, Hilton, whose real name is Mario Lavandeira, posted an item on his blog linking to a juicy story on an another blog called Celebrity Babylon. Citing unnamed sources, Celebrity Babylon reported the cocaine belonged to Ronson. Additionally, according to the suit, the story said Ronson "has accumulated a substantial side income taking her pal in front of paparazzi cameras for money."

"With friends like Samantha Ronson, Lindsay doesn't need enemies," Hilton blogged. Two weeks later, he posted a picture of himself on perezhilton.com wearing a sweatshirt emblazoned with "Blame Samantha" and referred to her as a "lezbot dj", according to the libel suit.

There's fodder there for a defamation suit, but not much. Hilton didn't post the original defamatory facts, he linked to them with some of his own comments. As a journalist -- and Hilton absolutely is a journalist, he reports more than full-time with substantial resources for investigation -- Hilton has some duties to assess in his own mind the likely veracity of the story, but he doesn't have to confirm it's entirely true unless he gives the story's facts his own stamp of approval. As far as I can tell, he didn't, he linked to it. (In an affidavit, he asserted his own good faith in linking to the story based upon dozens of reports he had received of Ronson's drug use).

"Blame Samantha" sure is obnoxious, but it's hard to see what defamatory facts are implied there given the context of Hilton publishing the story as coming from a separate source.

First, a word on the unusual and apparently excessive fees here. I typically represent defamation plaintiffs on a contingent fee basis; doing so presents a substantial risk of losing money given the nature of defamation cases (more on that later), but it's also par for course. Ronson hired Garbus at $750 an hour. Based on the little bit that comes through the article, Garbus seems to have billed her at least $142,000 without even getting to the anti-SLAPP hearing (part of California's preemptive strike against wrongful use of civil proceedings) or taking Perez Hilton's deposition.

Which is to say, Garbus charged her a boatload for nothing, as he did not even get past the very first hurdle in the case, the anti-SLAPP hearing, the equivalent of a motion to dismiss in other state courts.

Garbus also allegedly promised the whole case would cost $75,000; I suppose that's possible at $750 an hour (i.e., 250 hours once you consider that an associate at half the price will be doing two-thirds of the time) if you streamline the process and the other side doesn't go crazy with motions or discovery. Given the parties and issues here, I don't see how that would have been possible. Obviously, Hilton's lawyers are going to go straight to the drug use and will do their best to dig into Ronson and Lohan's personal lives (as Garbus himself is now doing). For comparison, Hilton's attorneys made it up to $85,000, or at least that's how much Ronson was ordered to pay for Hilton's attorneys' fees.

Second, what did Garbus and Ronson, respectively, expect to happen? Perez Hilton did not originate the story, Celebrity Babylon did, and Ronson was arguably at least a limited-purpose public figure (and/or Lohan was with regard to the source of the cocaine found in her car), making it much harder to prove the requisite intent ("malice") to get by First Amendment protections.

So it was a tough case from the start, which Garbus should have known and should have told Ronson. Given Hilton's hearsay repetition of the actual defamatory facts, odds were high he'd get out on anti-SLAPP, which Garbus should have told Ronson. Moreover, Ronson should have been told that, even if she had "won," she could have "lost" once Hilton started digging into her personal life and, perhaps worse, Lohan's personal life.

Maybe Garbus did tell her all of that. Yet, in the article, Hilton's lawyer is quoted as saying that Garbus' anti-SLAPP motion response was garbage. There are also references to Garbus not "worrying" about Ronson's case until Hilton's lawyers filed their motions. If true, those cast doubt on Garbus' whole story, since he should have recognized the anti-SLAPP problems from the start and should have been preparing for that from the start. If I had pursued Ronson's case here in Pennsylvania, from day one I would have been working on my First Amendment arguments.

But let's give Garbus the benefit of the doubt and assume that the truth lies somewhere in the middle between Garbus and Ronson's allegations. If so, there still seems to be a fundamental problem that Ronson, no matter what she was told, did not recognize just how tenuous the case against Hilton was. Nothing else explains her conduct, even if she was at times out of touch or hard to reach.

Which brings me to the main point here: defamation cases present a unique problem in client relations for trial lawyers, as they are among the hardest cases to win and usually involve the most emotionally-invested clients.

Defamation cases frequently lose. Indeed, sometimes even when they win, they lose, in the form of lost privacy or nominal jury verdicts.

Did Ronson know that? Regardless of what Garbus told her, the facts strongly suggest that she didn't get it, and that this whole mess could have been avoided if she had a better understanding of the issues and the case from the start. That presents a lesson for all of us trial lawyers -- do your clients really get what's going on?

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This time in New Jersey, as described at Electronic Discovery Law:

State v. M.A., 954 A.2d 503 (N.J. Super. Ct. App. Div. 2008)

In this case of first impression in New Jersey, defendant argued that personal information found on his work computers should be suppressed because his employer had no authority to consent to the search. ...

Rejecting his arguments as “implausible”, the court found ownership properly resided with the employer in light of several facts, including, among other things, the employer’s payment for the computers, the placing of the laptop on the depreciation schedule of the employer’s corporate tax returns and the specific instruction to defendant that all computers were company property.  Accordingly, the court upheld the validity of the warrantless search and denied the defendant’s motion to suppress.

Not the first such holding and certainly not the last.

It bears repeating again and again: if you keep non-work materials on your computer, or send/receive "personal" e-mail on your work servers, you are taking a risk of either waving attorney-client privilege or consenting to a warrantless search.

 

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California, intent on proving it has too much democracy, has bought itself some tricky legal questions.

First, did the voters just revise or amend their constitution (and does that matter)? LATimes reports:

Lawyers for same-sex couples argued that the anti-gay-marriage measure was an illegal constitutional revision -- not a more limited amendment, as backers maintained -- because it fundamentally altered the guarantee of equal protection. A constitutional revision, unlike an amendment, must be approved by the Legislature before going to voters.

The state high court has twice before struck down ballot measures as illegal constitutional revisions, but those initiatives involved "a broader scope of changes," said former California Supreme Court Justice Joseph Grodin, who publicly opposed Proposition 8 and was part of an earlier legal challenge to it. The court has suggested that a revision may be distinguished from an amendment by the breadth and the nature of the change, Grodin said

Still, Grodin said, he believes that the challenge has legal merit, though he declined to make any predictions. Santa Clara University law professor Gerald Uelmen called the case "a stretch."

Second, was it (and could it) be retroactive? As  WSJ Law Blog reports:

 Voters in California seem to have spoken clearly: under the state’s constitution, marriage shall exist only between a man and a woman. One result that’s far from clear, however: what happens to all those same-sex couples who rushed to wed prior to the election?

It’s hard to say, reports the LA Times — but a “legal chaos” could follow. Seven legal scholars recently interviewed by the Times were largely divided over which side the law favors. “There is no clear answer,” said Erwin Chemerinsky, dean of UC Irvine Law School. “This is ultimately going to have to be litigated by the courts.”

“Until it is litigated, every same-sex couple with a marriage license is going to be hanging in limbo,” added Glen Lavy, senior counsel to the Alliance Defense Fund, which opposes gay marriage.

...

Still, other scholars cite a long tradition of courts making constitutional amendments retroactive only if the authors clearly intended them to be so. “I would think both under federal and state constitutional principles you can’t have a retroactive application that would result in a removal of what had been recognized and protected as a fundamental right,” said UC Berkeley family law professor Joan Holloway.

Maybe. Fact is, there's no consensus at all about how to interpret these referenda. Here's an example discussion from "Taking State Constitutions Seriously," by Marvin Krislov and Daniel M. Katz, published in the Spring 2008 Cornell Journal of Law and Public Policy (17 Cornell J. L. & Pub. Pol'y 295):

What role should the courts play in interpreting ballot measures? Legal scholars have debated the question of differential treatment - whether courts should take a "hard look" at direct democratic initiatives that they would not employ for legislation passed by a deliberative body. The late Professor Julian Eule argued that courts should look more closely when the voters enact a law without a complementary legislative action, particularly where minority interests are implicated. His famous "hard judicial look theory" suggests a more aggressive approach to judicial review for this set of direct democratic measures. Professor Eule asserts that it is unlikely that state courts will rule that popular enactments, either statutory or amendatory, violate existing state constitutions. Professor Eule finds it especially unlikely that searching review will occur in the sixteen states that are the focus of this article - where constitutions can be amended directly without legislative review or  veto. According to Eule, in these sixteen states, "sovereignty truly vests in an electoral majority." Since state courts, particularly in those sixteen states, will likely defer to the voters, federal courts step into the role of actively arbitrating democratically-enacted laws.

Other scholars have attempted to create rules for interpreting democratically enacted measures. In her study of state court decisions from 1984 and 1994 concerning the interpretation of legislative initiatives, Professor Schacter focuses on the difficulty of courts determining popular "intent." Ultimately, she argues for a different method - a set of "metademocratic" rules. These rules guard against two distinct problems of popular democracy - lack of information by the voters, and inequity or lack of clarity in the initiative process. To address the information gap, she proposes liberal rules for amicus participation and intervention. When the process appears biased or the language confusing, she proposes construing the language narrowly.

Professor Frickey contends that one should combine Professor Eule's focus on federal constitutionality and Professor Schacter's focus on statutory interpretation by relying on a quasi-constitutional interpretive approach. In balancing both popular sovereignty and constitutional values, Professor Frickey imports interpretive canons - 1) avoiding constitutional invalidation, 2) narrowly construing propositions when there is a conflict with existing law, and 3) paying more attention to established canons of law (such as the rule of lenity) where direct democracy is involved.

By contrast, Professor Tushnet rejects the notion of "differential standards of review." He argues that the three reasons proffered for reviewing direct democracy differently than legislative action - lack of deliberation, the bifurcated decision (and lack of logrolling), and structural  or political concerns - do not support more aggressive judicial review.

Simple, huh? Of course, keep in mind there's no legislative history upon which the courts can rely, as they would for a normal legislative statute or constitutional convention. At best, the courts can dive right into the politics and campaigning to ascertain the meaning, which is the very last thing any court wants to do.

The great irony: the question of interpretation falls to the California Supreme Court, which issued the ruling later apparently rejected by the voters.

If I may be so bold, perhaps "constitutional rights" should not be left up to simple majority ballot referenda. Can you imagine if Loving v. Virginia had been on the ballot in 1968 when Nixon was swept in by the South?

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Good news for everyone:

The agreement also resolves lawsuits that were brought against Google in 2005 by a group of authors and publishers, along with the Authors Guild and Association of American Publishers (AAP). While Google, the Authors Guild and the AAP have disagreed on copyright law, we have always agreed about the importance of creating new ways for users to find books and for authors and publishers to get paid for their works.

...

With this agreement, in-copyright, out-of-print books will now be available for readers in the U.S. to search, preview and buy online -- something that was simply unavailable to date. Most of these books are difficult, if not impossible, to find. They are not sold through bookstores or held on most library shelves, yet they make up the vast majority of books in existence. Today, Google only shows snippets of text from the books where we don't have copyright holder permission. This agreement enables people to preview up to 20% of the book.

What makes this settlement so powerful is that in addition to being able to find and preview books more easily, users will also be able to read them. And when people read them, authors and publishers of in-copyright works will be compensated. If a reader in the U.S. finds an in-copyright book through Google Book Search, he or she will be able to pay to see the entire book online. Also, academic, library, corporate and government organizations will be able to purchase institutional subscriptions to make these books available to their members. For out-of-print books that in most cases do not have a commercial market, this opens a new revenue opportunity that didn't exist before.

...

As part of the agreement, Google is also funding the establishment of a Book Rights Registry, managed by authors and publishers, that will work to locate and represent copyright holders. We think the Registry will help address the "orphan" works problem for books in the U.S., making it easier for people who want to use older books. Since the Book Rights Registry will also be responsible for distributing the money Google collects to authors and publishers, there will be a strong incentive for rightsholders to come forward and claim their works.

In addition to expanding the commercial market for these books, Google, the authors and the publishers have worked hard with our library partners at Stanford, the University of Michigan, the University of California and the University of Wisconsin-Madison to ensure this agreement advances libraries' efforts to preserve, maintain and provide access to books for students, researchers and readers. The agreement gives public and university libraries across the U.S. free, full-text viewing of books at a designated computer in each of their facilities. That means local libraries across the U.S. will be able to offer their patrons access to the incredible collections of our library partners -- a huge benefit to the public.

The agreement also authorizes Google and the libraries to create new services that will help people with disabilities such as visual impairment better experience these books. We are grateful to our library partners for investing so much painstaking effort over so many years to maintain their book collections, and we are excited at the prospect of their participation in this landmark project.

You can read the 300+ page settlement agreement here.

 

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The plain meaning rule is to litigators what hammers are to contractors. It may be easy to use, but since you're going to use it on every job, you need to get good with it.

When interpreting a statute, rule, regulation, contract, or other legal document, courts first look to the plain meaning of the language in the document itself. If the language is unambiguous, then that plain meaning will be applied, regardless of any external factors or policy interpretations.

The bailout bill added the following to Section 13(c) of the Federal Deposit Insurance Act (12 U.S.C. 1823(c)) [the bolded language is the most relevant here]:

(11) UNENFORCEABILITY OF CERTAIN AGREEMENTS. No provision contained in any existing or future standstill, confidentiality, or other agreement that, directly or indirectly

"(A) affects, restricts, or limits the ability of any person to offer to acquire or acquire,

"(B) prohibits any person from offering to acquire or acquiring, or

"(C) prohibits any person from using any previously disclosed information in connection with any such offer to acquire or acquisition of,

all or part of any insured depository institution, including any liabilities, assets, or interest therein, in connection with any transaction in which the Corporation exercises its authority under section 11 or 13, shall be enforceable against or impose any liability on such person, as such enforcement or liability shall be contrary to public policy.

Assume Citigroup has an "agreement"  with Wachovia, an "insured depository instutition," that contains a "provision" that "directly... limits the ability of any person to offer to acquire or acquire" Wachovia. Then Wells Fargo comes in and acquires Wachovia.

Citigroup sues for damages. What result?

There is no law whatsoever interpreting the above language. Thus, Wachovia offered a restrained 15 pages explaining how the above is so unambiguous it needs no further argument, while Citigroup filed a downright svelte 7 pages of argument as to how the statute reflectled a precisely contrary unambiguous meaning. (Both briefs are available at the WSJ Law Blog).

I believe Congress did not mean what it wrote, and that the Court will ignore the "plain meaning" rule to get at what Congress probably did mean.

Citigroup has a very strong argument that 126(c) limits enforceability and liability only of the "person" described immediately above, which would be the acquirer (Wells Fargo), and not the institution (Wachovia). If Congress, say, wanted to void the provision entirely, they could have do so by writing:

Any provision in an agreement that purports to limit the ability of a person to acquire, or to offer to acquire, all or part of any insured depository institution is hereby declared void.

In that case, the provision would have been blown up, eliminating all liability. It's not like Congress didn't know how to "void" an agreement. Here's what happens if a shifty promoter tries to skirt securities exchange regulations protecting investors, as per 15 USCS § 78cc:

(a) Waiver provisions. Any condition, stipulation, or provision binding any person to waive compliance with any provision of this title [15 USCS §§ 78a et seq.] or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void.

Blammo! The "provision ... shall be void."

And here's what happens when a Member of Congress tries to make a deal with the United States or its agencies, as per 18 USCS § 431:

Whoever, being a Member of or Delegate to Congress, or a Resident Commissioner, either before or after he has qualified, directly or indirectly, himself, or by any other person in trust for him, or for his use or benefit, or on his account, undertakes, executes, holds, or enjoys, in whole or in part, any contract or agreement, made or entered into in behalf of the United States or any agency thereof, by any officer or person authorized to make contracts on its behalf, shall be fined under this title.
 
All contracts or agreements made in violation of this section shall be void; and whenever any sum of money is advanced by the United States or any agency thereof, in consideration of any such contract or agreement, it shall forthwith be repaid; and in case of failure or refusal to repay the same when demanded by the proper officer of the department or agency under whose authority such contract or agreement shall have been made or entered into, suit shall at once be brought against the person so failing or refusing and his sureties for the recovery of the money so advanced.

Wham! "All ... agreements ... shall be void."

Here, however, in 126(c), Congress didn't do that. They gave us a long, detailed description of a "provision" they thought should not "be enforceable against or impose liability on such person," a "person" they specifically described above as one who was attempting to acquire or actually acquiring an institution.

Congress knew how to "void" an unwanted provision of an agreement and chose not to do so here. That weighs heavily in Citigroup's favor.

But there's a problem: how would an agreement between Citigroup and Wachovia ever "be enforceable" or "impose [ ] liability" on Wells Fargo? 

Wells Fargo is a third-party to the agreement between Citigroup and Wachovia. The agreement creates much that can be enforced against, and which imposes liability on, Wachovia, because it is a party to the agreement. Wells Fargo, though, is not bound at all by the agreement.

That's not to say Wells Fargo is without liability. The claim here is simple: Citigroup is suing Wachovia for breach of contract and Wells Fargo for tortious interference with contractual relations. That's it; Citigroup's claim against Wells Fargo arises as a matter of tort, not as a matter of contract.

Citigroup thus has not and cannot allege that Wells Fargo somehow breached an agreement with Citigroup, since there isn't one.

So here's our problem: if you read the the statute literally, the plain meaning destroys a type of "enforceability" and "liability" that rarely, if ever, exists. Not unless the acquirer had some type of non-competition agreement with a second company not to attempt to acquire a third-party institution, which is not the case here. Frankly, such an agreement — e.g., Wells Fargo agreeing with Citigroup not to acquire Wachovia — would likely invite an antitrust inquiry, not to mention a very upset Hank Paulson asking why they're trying to deep freeze an already frozen market.

So 126(c) is like a law excusing me from enforcement or liability arising from the agreement you have with your phone company. I was never obligated to follow that agreement in the first place.

So, now what? Here is where I suspect the plain meaning rule will fail, and the court will disregard an unambiguous meaning to reach the result it believes Congress intended.

As described above, I think the "plain meaning" interpretation of the section is clear: any agreement in which a potential acquiring company has agreed not to acquire an FDIC-institution is unenforceable. That's not the situation in the Citigroup versus Wells Fargo case (since Wells Fargo was not party to any such agreement), and so the statute is wholly inapplicable. Period. The suit goes forward against both Wells Fargo and Wachovia.

But that is probably not what will happen. 126(c) was obviously intended to apply to this deal specifically, hence the "in connection with any transaction in which the Corporation exercises its authority under section 11 or 13," which describes the FDIC-approved Citigroup/Wachovia deal. As such, I predict the court will read this statute as an attempt by Congress to protect Wells Fargo from liability arising from that agreement, even if the "plain meaning" would seem only to apply if Wells Fargo itself signed on to that agreement.

Wachovia, however, has a much longer road ahead. I think it's fatal to their defense that Congress didn't just up and void the whole agreement.

Given how Congress works, maybe the above really is what they intended: Wells Fargo gets Wachovia, but in the process they have to pay Citigroup's damages. Indeed, Citigroup's "negotiated" agreement to withdraw the request for injunctive relief suggests to me that's precisely the compromise, likely entered into with Federal, shall we say, persuasion.

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If you've been following the multi-billion-dollar fight going on for Wachovia (Scribd copy of the Exclusivity Agreement at issue here, courtesy of Dealbook), you may have noticed the following:

In the Sunday night ruling, the Appellate Division of [New York] State Supreme Court threw out an order by Justice Charles Ramos issued late Saturday at the request of Citigroup; the order would have extended the time under which Wachovia and Citigroup had to complete their deal.

Citigroup, which announced on Sept. 29 that it had received federal government backing to acquire the banking assets of Wachovia Corp. for $2.1 billion, or the equivalent of about $1 a share, said it would appeal the decision.

The fight was also waged in federal court, where Wachovia asked U.S. District Judge John Koeltl to declare invalid part of the Citigroup deal that would have restricted Wachovia from considering competing bids.

Citigroup sued Wachovia and Wells Fargo in state court to enjoin them and order specific performance of the agreement, while Wachovia filed in federal court for a declaratory judgment affirming the enforceability of the Wells Fargo deal. The claims are analytically distinct, but factually exactly opposite: C wants to blow up WF's deal and enforce C's deal, while W & WF want to blow up C's deal and enforce W & WF's deal.

Now what?

Of course, the issue could have been partly resolved back when C and W reached their agreement by choosing a single court in which the agreement and its enforceability would be interpreted, but instead they went for the same boilerplate language you will find on almost all business contracts:

This agreement shall be governed by, and construed in accordance with, the laws of the State of New York. The parties hereby irrevocably and unconditionally submit to the exclusive jurisdiction of any state or federal courts sitting in New York City, Borough of Manhattan, over any suit, action or proceeding arising out of or relating to this letter agreement.

Why do businesses always consent to "state or federal" jurisdiction? Presumably, the advanages of one over the other are apparent at the time of the signing, so it would make sense to pick one or the other. "Flexibility" doesn't make sense as an explanation — you just end up with the situation we have here.

One would think the problem of simultaneous federal and state suits would have been addressed by the Constitution itself, but it's wholly silent on the issue. The answer arises from the Anti-Injunction Act of 1793, which in its current form reads:

A court of the United States may not grant an injunction to stay proceedings in a state court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.

The Act has teeth: unless one of the statutory exceptions applies, a federal injunction restraining prosecution of a lawsuit in state court is absolutely prohibited. Mitchum v. Foster, 407 U.S. 225, 228-29, 32 L. Ed. 2d 705, 92 S. Ct. 2151 (1972). Moreover, "The mere existence of a parallel action in state court does not rise to the level of interference with federal jurisdiction necessary to permit injunctive relief under the 'necessary in aid of' exception." Lou v. Belzberg, 834 F.2d 730 (9th Cir., 1987).

Thus, the federal court cannot stop the state court even if it wanted to, nor can the state court stop the federal court.

So what happens? Usually, one of them voluntarily bows out.

In Pennsylvania, the challenge of a "prior pending action" falls under the general rubric of lis pendens, requiring the challenger establish the following three prongs:

A plea of former suit pending must allege that the case is the same, the parties the same, and the rights asserted and the relief prayed for the same...

Hillgartner v. Port Auth., 936 A.2d 131 (Pa. Commw. Ct., 2007). In Hillgartner, the state court pulled out in light of a parallel federal court action "because the first action in federal court includes and therefore adequately protects all Plaintiffs' state claims for compensatory and punitive damages. Thus, Plaintiffs seek the same amount of money damages measured in the same way in both federal and state courts ..."

On the flip side, Federal courts will frequently decline to exercise jurisdiction over primarily state law questions (like the interpretation of contracts), which is what everyone expects to happen here, hence Wachovia's novel "federal" argument:

Wells and Wachovia went to federal court to argue that a provision in the new $700 billion Economic Stabilization Act, signed into law on Friday, made the dispute a federal matter. Last night, U.S. District Court Judge John G. Koetl gave lawyers until tomorrow to file briefs. According to Tulane law prof Elizabeth Nowicki, who reached out to us yesterday, Wachovia is arguing that, under federal law, Section 126(c) of the bailout bill voids the exclusivity agreement between itself and Citi, meaning that that Wachovia is free to negotiate with any entity it pleases. While Judge Koetl is apparently willing to entertain that argument, Professor Nowicki tells us she thinks the argument is a non-starter.

You can read more about Section 126(c) at the link above, then you can pause to marvel how the Senate passed a bill specifically addressing this exclusivity deal fewer than 48 hours after it was reached, in spite of Art. I, Sec. 10 of the Constituion, which prohibits laws impairing the obligations of contracts. Now that's what I call lobbying power.

At the end of the day, there's more than enough leeway in the law for both courts to keep going simultaneously, engaging in the dreaded and unseemly 'race to judgment.' My bet is that the Federal court will either bow out or drag its feet as a lesson to those who would try to make a federal case out of their humdrum multibillion-dollar contracts.

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The Boston Globe details the $175 million settlement of the 200 injured or killed persons who filed civil suits against 75 defendants:

An analysis of the tentative settlements in US District Court in Rhode Island reveals a stark fact: Several defendants whom plaintiffs blamed most for the disaster will likely pay relatively little because of negligible assets; other defendants with more tenuous links to the tragedy - but deeper pockets - will pay more.

"I don't think there's any logic to it at all," said SuS Longiaru, whose disabled 23-year-old son, John, was killed in the fire, which erupted moments after the band took the stage.

Still the 51-year-old Johnston, R.I., woman said she is eager for the settlements to be accepted so she and her family can begin to heal. Corporations and local governments linked to the disaster, even loosely, she said, must take responsibility.

They even have a proportional graph. Of course, we're all supposed to look at that breakdown, where the defendants with the closest causal link to the harm apparently pay the lowest amounts, and conclude that the companies were scared into settlement to avoid a runaway jury abandoning all reason and common sense to throw a jackpot justice verdict at the bereaved, as they always do in wrongful death or catastrophic injury cases.

And so the article dutifully quotes a law professor with no apparent experience in torts practice (whose CV reveals a stint at the insurance-company funded American Enterprise Institute):

Peter H. Schuck, who specializes in tort law at Yale Law School, said some well-heeled companies likely settled to avoid bad publicity and the possibility of huge jury awards.

"The prospect of a jury verdict with punitive damages is one that casts a shadow over these negotiations, even if the defendants feel they have a strong case and aren't liable," he said.

But let's backup. Polyurethane foam has been known since its widespread use to be extraordinarily flammable, and the industry has operated since the early 1970s under a consent decree banning them from the previously-widespread practice of describing their materials in misleading ways to conceal their flammability.  I do not know what the specific allegations were against the polyurethane foam manufacturers and distributors, but it's not crazy talk to say that for decades they have been making a profit off of an extraordinarily dangerous material, the risks of which they have not always been candid about. Would it be surprising if, say, they had not been candid about the risks when selling this foam or that they had manufactured it in a way known to increase the risk of fire deaths? That's over $60 million of the settlement.

Then there's over $40 million from the radio station and beer distributors who paid money to attach their name to and to promote a traveling nightclub pyrotechnic show which apparently possessed none of the required licenses and training to conduct such an event.

Then there's $30 million from the TV station that employed a cameraman who allegedly hindered people from escaping, and $10 million each from the town and state which repeatedly inspected the nightclub and found nothing wrong with its blatant fire code violations.

The balance then comes largely from the more obvious defendants, like the club owners.

Tellingly, there's no indication whatsoever if any of these defendants with "tenuous links to the tragedy" are paying any of the settlement out of pocket, or if it's all insurance coverage. Based on that, I'd assume it's all or nearly-all insurance coverage.

At the end of the day, there is a simple lesson to this settlement: if you have a history of intentionally or recklessly wrongful conduct (like the polyurethane manufacturers), or you are profiting from the intentional or reckless wrongful conduct of others (like the promoters), you should expect to foot the bill for any tragedy relating to that wrongful conduct.

Want to avoid liability in the future? Don't intentionally mislead consumers about matters of life-and-death. Pay attention to what your ostensible agents are doing, particularly with regard to the safety of the public.

Most of the big settlements and verdicts I've seen arise from one problem: the failure to give a second's thought about one's fellow citizen. That's all it would have taken here.

 

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A victory for open governance and consumer safety — there's no good reason to keep this information from the public. Here's the current list:

 

Potential Signals of Serious Risks/New Safety Information Identified by the Adverse Event Reporting System (AERS) January - March 2008

Product Name: Active Ingredient (Trade) or Product Class	Potential Signal of Serious Risk/New Safety Information
Arginine Hydrochloride Injection (R-Gene 10)	Pediatric overdose due to labeling / packaging confusion
Desflurane (Suprane)	Cardiac arrest
Duloxetine (Cymbalta)	Urinary retention
Etravirine (Intelence)	Hemarthrosis
Fluorouracil Cream (Carac) and Ketoconazole Cream (Kuric)	Adverse events due to name confusion
Heparin	Anaphylactic-type reactions
Icodextrin (Extraneal)	Hypoglycemia
Insulin  U-500 (Humulin R)	Dosing confusion
Ivermectin (Stromectol) and Warfarin	Drug interaction
Lapatinib (Tykerb)	Hepatotoxicity
Lenalidomide (Revlimid)	Stevens Johnson Syndrome
Natalizumab (Tysabri)	Skin melanomas
Nitroglycerin (Nitrostat)	Overdose due to labeling confusion
Octreotide Acetate Depot (Sandostatin LAR)	Ileus
Oxycodone Hydrochloride Controlled-Release (Oxycontin)	Drug misuse, abuse and overdose
Perflutren Lipid Microsphere (Definity)	Cardiopulmonary reactions
Phenytoin Injection (Dilantin)	Purple Glove Syndrome
Quetiapine (Seroquel)	Overdose due to sample pack labeling confusion
Telbivudine (Tyzeka)	Peripheral neuropathy
Tumor Necrosis Factor (TNF) Blockers	Cancers in children and young adults

As the FDA says:

 

The table below lists the names of products and potential signals of serious risks/new safety information that were identified for these products during the period January - March 2008 in the AERS database. The appearance of a drug on this list does not mean that FDA has concluded that the drug has the listed risk. It means that FDA has identified a potential safety issue, but does not mean that FDA has identified a causal relationship between the drug and the listed risk. If after further evaluation the FDA determines that the drug is associated with the risk, it may take a variety of actions including requiring changes to the labeling of the drug, requiring development of a Risk Evaluation and Mitigation Strategy (REMS), or gathering additional data to better characterize the risk.

FDA wants to emphasize that the listing of a drug and a potential safety issue on this Web site does not mean that FDA is suggesting prescribers should not prescribe the drug or that patients taking the drug should stop taking the medication. Patients who have questions about their use of the identified drug should contact their health care provider. FDA will complete its evaluation of each potential signal/new safety information and issue additional public communications as appropriate.

So now you know.

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Well, this sounds fair:

Last week, the Senate Judiciary Committee gave the green light to S. 3325, "The Enforcement of Intellectual Property Act of 2008." Among other things, this intellectual property enforcement bill lets the DOJ enforce civil copyright claims and lets the government do the MPAA and RIAA’s intellectual property rights enforcement work for them—at tax payers’ expense.

We've setup Cause Caller to help you talk to Senators that we believe would be receptive to the message, but you should call your Senators, too.

The bill is already out of committee and could get sign-off from Senators for streamlined passage as soon as today, so we need you to call in now!

The bill is opposed by (at least) the following:

American Association of Law Libraries
American Library Association
Consumer Federation of America
Consumers Union
Digital Future Coalition
Electronic Frontier Foundation
Essential Action
IP Justice
Knowledge Ecology International
Medical Library Association
Public Knowledge
Special Libraries Association

Click the first link to contact your Senator and ask if they'll fund and pursue your personal civil litigation, too, in lieu of catching and convicting child predators, terrorists, gangsters, and pension fund embezzlers. Don't forget to ask the same for me, too.

Or just ask they call the whole thing off.

(via Boing Boing)

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Consumer Law & Policy is on the story:

A new entry in the contest for “grossest abuse of trademark law to suppress speech the plaintiff doesn’t like” comes from Chicago, where the giant law firm Jones Day has sued BlockShopper.com, a web site that reports on real estate purchases in two upscale specific Chicago neighborhoods, as well as in Las Vegas, Palm Beach, and St. Louis.  The defendant’s crime?  In discussing condo purchases by Jones Day associates Dan Malone and Jacob Tiedt here and here, BlockShopper used the name “Jones Day” to identify the employer of each of the two associates, and linked from each associate’s name to Jones Day’s own web site here and here. 

According to Jones Day, linking to its web site dilutes its trademark and creates a likelihood of confusion.    But that is preposterous.  The link is in connection with a comment on Jones Day; when a trademark is used to comment on the trademark holder, the use reinforces the association with the trademark holder, rather than blurring it, and besides use for commentary is expressly protected as fair use under the Lanham Act as amended in 2006.   Moreover, nobody could visit the BlockShopper web site and think that it is sponsored by or affiliated with Jones Day, even if they follow the links from BlockShopper’s mention of Jones Day associates to Jones Day’s own web site.  That is what web sites do – they link to other web sites (that’s what makes it a “World Wide Web”).   

Indeed, throughout the first paragraph above, I used Jones Day's name (because I am writing about that firm) and linked to Jones Day’s web site and elsewhere.  Is Public Citizen equally liable for trademark infringement and dilution?   If Jones Day is right here, it is hard to see how the Web could survive.

There's much more at CL&P. In case you're wondering, no, it's not a privacy claim and, yes, Jones Day was able to pressure the website into an agreed-upon TRO.

Shame on you, Jones Day. Let me toast CL&P for bringing light to this abuse in anticipation of you guys paying BlockShopper's attorney's fees.

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Via Electronic Discovery Law:

Based on the evidence presented, the court found that:

...

•  Defendant reinstalled his computer's operating system after he had received plaintiffs’ requests for copies of various files on his computer

•  Defendant downloaded a program called Aevita Wipe & Delete shortly after he filed his answer in the case, then, in the middle of the discovery period, used that program to permanently delete all traces of certain files on his computer

...

The court found that defendant’s “brazen destruction of evidence” had wholly undermined the integrity of the proceedings and made it impossible to decide the case on the merits.  It concluded that the prejudice to the court and to the recording companies was irretrievable, and that default judgment was the only appropriate sanction, both for its deterrent effect and to remedy the prejudice inflicted on plaintiffs and on the court.

Accordingly, the court struck defendant’s answer and entered default judgment against defendant for $40,500 in statutory damages.

More at EDL, including the opinion.

Sounds like an appropriate remedy, right?

Except that this remedy is rarely applied when a large corporation does it, even if the evidence is clear that they willfully destroyed evidence that would have made the proof or defense of the claim very simple and obvious, like surveillance tapes, internal investigations, and satellite tracking data. The Qualcomm / Broadcom hiding-of-emails case comes to mind (here's the primary sanction order, currently vacated awaiting further fact-finding, check EDL for plenty of info), but other than that few examples come to mind.

Typically, blatant destruction of evidence gets you, at most, a spoliation charge, allowing you merely to argue to the jury that it would have been helpful. Not an instruction that the jury should or must believe it would have been helpful; just an instruction that the jury may infer it was helpful to the other side. And corporations have an escape hatch for that, too, Federal Rule of Civil Procedure 37(e):

(e) Failure to Provide Electronically Stored Information.

Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.

Someday, someone will explain to me why this provision was needed, considering that "good faith" conduct by definition won't result in sanctions. All it does it muck up sanction arguments, to the benefit of evidence-destroying defendants.

 

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Congratulations, Paul:

The estate of legendary sports announcer John Facenda has scored another major victory in its court battle with NFL Films that centers on whether Facenda's distinctive voice -- known in football circles as the "Voice of God" -- was improperly used in a promotional film for a John Madden video game.

In its 60-page opinion in Facenda v. NFL Films Inc., a unanimous three-judge panel of the 3rd U.S. Circuit Court of Appeals ruled Tuesday that NFL Films violated Pennsylvania's "right of publicity" statute.

Now the only issue left to be decided on that claim is how much Facenda's estate should be awarded in damages.

The panel rejected NFL Films' argument that the "standard release" contract Facenda signed was a "complete defense," noting that while the release gave the NFL the right to use Facenda's voice in future film projects, it also explicitly prohibited any use that would "constitute an endorsement" of any product.

"Facenda consented to participation in films documenting NFL games, not an advertisement for a football video game," 3rd Circuit Judge Thomas L. Ambro wrote in an opinion joined by Judges Michael A. Chagares and Robert E. Cowen.

...

The NFL's lawyer, Bruce P. Keller of Debevoise & Plimpton in New York, argued that the 22-minute film, titled "The Making of Madden," was a documentary and was therefore a work of artistic expression entitled to First Amendment protection.

But Paul A. Lauricella of The Beasley Firm, who represented John Facenda Jr., argued that the film was nothing more than an "infomercial" for the video game "Madden NFL 06," and was therefore purely commercial speech.

In the lower court, Hart sided with Lauricella and concluded that the film was not a documentary because it "lacks the journalistic independence typical of the maker of a documentary" and because NFL Films had a "direct financial interest" in the success of the video game.

Ambro agreed with Hart, saying "like an infomercial, the program focuses on one product, explaining both how it works and the source of its innovations, all in a positive tone."

As a result, Ambro concluded that the NFL's First Amendment defense failed.

Although "commercial speech does receive some First Amendment protection," Ambro said, the Lanham Act "customarily avoids violating the First Amendment, in part by enforcing a trademark only when consumers are likely to be misled or confused by the alleged infringer's use," he wrote.

Opinion's worth the read if you're in the copyright, right of publicity, or misleading advertising fields. The NFL ran the full gambit of defenses, from preemption to "actual confusion," and lost on all of them.*

* Technically, the Third Circuit moved one issue back from summary judgment to the jury. Here in plaintiff's land, when something goes to the jury, we call it a win.

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Interesting:

A federal jury in Riverside, Calif., just returned a $100 million verdict for Mattel, according to an early Reuters report, about $1.9 billion less than the company asked for. Quinn Emanuel’s John Quinn, who repped Mattel, asked the jury for $2 billion for stealing the conceptual drawings of the Bratz doll — at least $1 billion in Bratz profit and interest, and another nearly $800 million for the complicity of MGA’s CEO, Isaac Larian.

I say "interesting" because I doubt the $2 billion was pulled out of thin air. If you win liability, and get a real shot at serious damages, you try very hard not to overshoot and have the jury turn on you.

Maybe Quinn didn't follow the "don't kill the defendant" advice in asking for punitive damages, i.e. that juries will rarely award enough to destroy the defendant's business.

I wonder what drove that figure. Compromise on liability? Respect for the underdog, even where underhanded?

From what I know the infringement wasn't a complete and total slam dunk -- Bratz appeared to have substantially improved the design on its own. Maybe that was part of it.

We'll learn more over the next few days.

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We're aiming for new heights of nerdom here at Litigation & Trial, combining comic books, movies, old law school contract cases, equitable principles, permanent injunctions, and recent circuit splits in one post. The Watchmen lawsuit -- which is less copyright infringement and more commercial litigation, since the dispute is largely over contract terms -- gives us license (har har) to do so.

Graphic novels (née "comic books") are serious money these days, at least when adapted for the big screen. In addition to the normal superhero adaptations, like Iron Man and The Incredible Hulk (which have generally done quite well), particular attention has been paid to noir comics like Sin City and 300. (The Nolans' Batman adaptations are a hybrid, drawing from noir variations on Batman, like The Dark Knight Returns.)

Watchmen, published in 1986-87, is perhaps the most heralded of the noir comics, a complex and character-driven drama set in a alternative-history 1980s United States in which superheroes (the bulk of which have no obvious superpower) have been suppressed as unaccountable vigilantes, while Nixon is on his fifth term as president.

Such a complicated tale obviously presents numerous visual, thematic and temporal problems for moviemakers, in addition to normal stress of taking a work revered by a subculture and making it widely appealing without offending the subculture or alienating the masses. Multiple attempts to make the movie since the story was published have fizzled out; even Terry Gilliam, who has no trouble bringing madness to the big screen, deemed it unfilmable.

But Zack Snyder, who directed the enormously successful 300 (which made $450 million on a $60 million budget), has apparently done it and done it well.

Since he's appearing on this blog, you can guess what happened next: the production company, Warner Brothers, was sued.

The movie buzz is that the case has substantial merit and could turn the movie into a loss for WB, and the original documents are available online for your perusal. In essence, Fox bought the complete rights to Watchmen, tried to begin production, gave up, quitclaimed the rights to the producer (with the terms of that quitclaim disputed), then entered into multiple disputed subsequent agreements. Here's the Court's outline (as formatted by Deadline Hollywood):

1986-90: Fox acquires motion picture rights in The Watchmen.

1990: Fox enters into a domestic distribution agreement with Largo Entertainment, a joint venture of JVC Entertainment Inc., Golar (Larry Gordon), and BOH, Inc. The “Largo Agreement” established Fox’s domestic distribution rights, through a license from Largo, in “subject pictures” as defined in the agreement.

June 1991: Fox enters into a “Quitclaim Agreement” with Largo International, through which Fox “quitclaims to Purchaser all of Fox’s right, title and interest in and to the Motion Picture project presently entitled Watchmen, which included specifically described literary materials. Notably, the agreement provides that, “if Purchaser elects to proceed to production, the Picture shall be produced by Purchaser and shall be distributed by Fox as a Subject Picture pursuant to the terms of the Largo Agreement ...” In consideration for the rights to Watchmen, Fox was to be reimbursed for its development costs ($435,600) plus interest plus a profit participation in the worldwide net proceeds of any Watchmen picture.

Nov. 1991: The Largo Agreement was amended; Watchmen was listed as a project quitclaimed to Largo.

Nov. 1993: Larry Gordon, through Golar, withdraws from the Largo Entertainment joint venture; Largo conveys any rights it has in Watchmen to Gordon/Golar. Based on the 1991 quitclaim, the Court may infer that Gordon now stood in the shoes of Largo with respect to Watchmen and held whatever rights it acquired through the 1991 Quitclaim, which left Fox with the distribution rights it retained through that agreement.

1994: Fox negotiated a “Settlement and Release” agreement with Gordon which contemplated that the Watchmen project would be put in “perpetual turnaround” to Lawrence Gordon Productions, Inc. The “turnaround notice” gave Lawrence Gordon Productions “the perpetual right . . . to acquire all of the right, title and interest of Fox [Watchmen] pursuant to the terms and conditions herein provided.” The turnaround notice then described the formula for determining the buy-out price in the event that Gordon elected to acquire Fox’s interest. Thus, the document suggests that Gordon acquired an option to acquire Fox’s interest in Watchmen for a price. In fact, the notice obligated Gordon to pay the buy-out price on the commencement of any production of a Watchmen film. The notice also provided that the agreement was personal to Gordon and that, “prior to payment of the Buy-Out Price,” he could not assign rights or authorize any person to take any action with respect to the project.

(emphasis mine) WB now argues the full rights were quitclaimed multiple times; Fox claims they granted an option the producer failed to exercise, so the rights are still their's. A court last week denied WB's motion to dismiss. Variety summarizes:

At the heart of Fox’s suit, filed in February, is the contention that it never ceded rights to the property. And according to the federal Judge Gary Allen Feess, Fox retained distribution rights to the graphic novel penned by Alan Moore and illustrated by Dave Gibbons through a 1991 claim. Furthermore, Feess appears to agree that under a 1994 turnaround deal with producer Larry Gordon, Gordon acquired an option to acquire Fox’s remaining interest in "Watchmen," which was never exercised, thereby leaving Fox with its rights under the 1994 agreement.

Frankly, I agree with the Court's ruling (denying the motion to dismiss) but not the reasoning, which I'll get to below. For now, it's a motion to dismiss: all disputed facts and ambiguities are resolved in the plaintiff's favor and all reasonable inferences are  made in the plaintiff's favor. The meaning could be as Fox alleges, but that'll require some testimony and extrinsic evidence.

But that's not what this post is about. This post is about the remedy requested in paragraph 30 of Fox's complaint:

Fox is entitled to preliminary and permanent injunctive relief enjoining and preventing Defendants, their agents' and employees, and all persons acting in concert or participation with Defendants, from having, copying, distributing, displaying or making any other unauthorized use of The Watchmen in a manner inconsistent with Fox's rights as detailed herein.

As a practical matter, I can assure all graphic novel fans that no one wants to stop or even delay this movie. Fox doesn't want to scrap the picture, they want as big a piece as they can get, and they want the injunction for leverage. We're watching a negotiation-by-litigation.

Yet, as a legal matter, if they prevail, they can halt distribution entirely.

But, you say, recalling first year contract law, wouldn't that be a tremendous waste of money, the type of economic destruction generally discouraged by a long line of post-formalist, legal realism cases, like Jacob & Youngs v Kent, 230 NY 239; 129 NE 889 (N.Y. 1921, Cardozo, J.)(denying specific performance where home contractor used wrong brand of plumbing pipes)? Yes, but that's the choice you made through your elected representatives and the copyright laws they have enacted.

So how can the law allow Fox to sit by while WB (and their producers, directors, actors, etc) pours their sweat, tears and money into a work, just to later bring a lawsuit requesting not a cut of the profits but total destruction of the work?

It may not sit by. The doctrine of laches was created to thwart people to squat on their rights, lie in wait, and choose not to sue until it will most damage and prejudice the other party.

The doctrine of laches is a judicial escape hatch enabling courts to dismiss or limit lawsuits that, though brought within the statute of limitations, would be inequitable to permit because of the conduct of the party bringing the lawsuit. It's closely related to the doctrine of unclean hands, a similar tool courts use to deny equitable remedies to those who have behaved badly in the context of the dispute.

Since the doctrine of laches has its roots back in the English common law, the elements in all 50 states are roughly the same, so we might as well look to Pennsylvania:

Laches bars relief when the plaintiff's lack of due diligence in failing to timely institute an action results in prejudice to another. Because it is an affirmative defense, the burden of proof is on the defendant or respondent to demonstrate unreasonable delay and prejudice. See Weinberg v. State Bd. of Exam'rs. of Pub. Accountants, 509 Pa. 143, 147, 501 A.2d 239, 242 (1985). Thus, "[t]he party asserting laches as a defense must present evidence demonstrating prejudice from a lapse of time . . . [such as] that a witness has died or become unavailable, that substantiating records were lost, or that the defendant has changed [her] position in anticipation the opposing party has waived his claims." Richard, 561 Pa. at 496, 751 A.2d at 651. Furthermore, "[t]he question of laches is factual and is determined by examining the circumstances of each case." Weinberg, 509 Pa. at 148, 501 A.2d at 242 (quoting Leedom v. Thomas, 473 Pa. 193, 200-01, 373 A.2d 1329, 1332 (1977)).

Commonwealth ex rel. Corbett v. Griffin, 946 A.2d 668, 676-677 (Pa. 2008). Like most equitable doctrines, it has essentially no elements: the court finds it or it does not.

Obviously, such equitable powers apply to common law claims. Can it apply to statutory claims like copyright infringement?

In most circuits, yes. The Eleventh Circuit just grappled with that in Peter Letterese & Assocs. v. World Inst. of Scientology Enterprises et al, 2008 U.S. App. LEXIS 14496; Copy. L. Rep. (CCH) P29,589 (July 8, 2008). They unearthed a fantastic Learned Hand quote:

It must be obvious to every one familiar with equitable principles that it is inequitable for the owner of a copyright, with full notice of an intended infringement, to stand inactive while the proposed infringer spends large sums of money in its exploitation, and to intervene only when his speculation has proved a success. Delay under such circumstances allows the owner to speculate without risk with the other's money; he cannot possibly lose, and he may win.

That describes Fox's conduct precisely: they couldn't make it, so they waited for someone else to get it together then filed suit after WB tests Synder and crew out on 300, figures out a plausible script, puts together a cast and crew, films it, and makes its way through a good deal of post-production. But that was before there was an explicit 3-year federal statute of limitations for copyright claims. What now? The Eleventh Circuit sums up other responses:

In answering the question of whether the defense of laches may be interposed in a copyright infringement suit, therefore, we cannot agree with the conclusion of the Fourth Circuit, which is an unqualified "no." See Lyons P'ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789, 798 (4th Cir. 2001). Prather recognized the applicability of general equitable doctrines, and like tolling, laches falls into that category. Cf. Teamsters & Employers Welfare Trust of Ill. v. Gorman Bros. Ready Mix, 283 F.3d 877, 882 (7th Cir. 2002) ("What is sauce for the goose (the plaintiff seeking to extend the statute of limitations) is sauce for the gander (the defendant seeking to contract it)."). However, we remain mindful of the Fourth Circuit's invocation of separation of powers principles which counsel against the use of "the judicially created doctrine of laches to bar a federal statutory claim that has been timely filed under an express statute of limitations." Lyons P'ship, 243 F.3d at 798. We therefore answer this question with a presumptive "no"; there is a strong presumption that a plaintiff's suit is timely if it is filed before the statute of limitations has run. Only in the most extraordinary circumstances will laches be recognized as a defense. Cf. Chirco v. Crosswinds Communities, Inc., 474 F.3d 227, 234 (6th Cir. 2007) (noting the limited applicability of laches to copyright cases in "what can best be described as unusual circumstances"); Jacobsen v. Deseret Book Co., 287 F.3d 936, 951 (10th Cir. 2002) ("Although it is possible, in rare cases, that a statute of limitations can be cut short by the doctrine of laches, we see no reason to supplant the statute of limitations in this case." (internal quotation marks and citation omitted)).

But we're not yet done:

Even where such extraordinary circumstances exist, however, laches serves as a bar only to the recovery of retrospective damages, not to prospective relief. As the former Fifth Circuit explained in a patent infringement action:

Although laches and estoppel are related concepts, there is a clear distinction between the two. The defense of laches may be invoked where the plaintiff has unreasonably and inexcusably delayed in prosecuting its rights and where that delay has resulted in material prejudice to the defendant. The effect of laches is merely to withhold damages for infringement which occurred prior to the filing of the suit.

Estoppel, on the other hand, "arises only when one has so acted as to mislead another and the one thus misled has relied upon the action of the inducing party to his prejudice." Estoppel forecloses the patentee from enforcing his patent prospectively through an injunction or through damages for continuing infringement.

Studiengesellschaft Kohle mbH v. Eastman Kodak Co., 616 F.2d 1315, 1325 (5th Cir. 1980) (internal citations omitted).

Arguably, the big damages here have yet to occur, and will occur when the film is distributed for hundreds of millions of dollars. But I still don't understand why WB didn't raise laches as an affirmative defense in their Answer to Fox's Complaint. There's a legitimate argument that the real infringement damages occured during scripting, casting, filming, and post-production, where Fox was shut out of the creative process it presumably wanted to control.

Moreover, the quitclaim agreement itself (the source of most of Fox's claimed rights) includes a clause where, if the movie is ever made, Fox is entitled to the money it initially spent (at least half a million, circa 1990) plus interest. That's serious money by now, at least enough to warrant adding one line about laches to your Answer and briefing the issue.

THE POINT (other than to learn):

There's been a lot of hoopla about this sentence in the judge's order:

It is particularly noteworthy that nothing on the face of the complaint or the documents supplied to the Court establishes that Gordon, the claimed source of Warner Brothers' interest in 'Watchmen,' ever acquired any rights in 'Watchmen.'

That's a problem, but it's not the end of the road. Let's presume Fox still legally has the rights to Watchmen. Now what? Do they get an injunction?

As the Eleventh Circuit continued,

Rather, under "well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief," and a court's decision to grant or deny such relief is within the exercise of its discretion.  [eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391, 126 S. Ct. 1837, 1839 (2006)]

A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

Id.

Even if laches doesn't directly apply, and even though "irreparable injury" is presumed in copyright cases, Fox may have waived its "irreparable injury" by allowing virtually all of Watchmen to be completed (excepting some post-production) before filing suit in February 2008. Fox did exactly what Learned Hand complained about: waiting for WB to finish what Fox could not, then suing when they got wind that it was good.

They're no longer in it for protection of their creative endeavor; they're in it just for the money. That won't do. WB's goal is to show that to the judge.

But I think Fox has a bigger problem: the 1994 agreement. Under that, the last of all agreements with Fox, Gordon (the producer) has a perpetual right to exercise his option to make the film. Fox's complaint mentions the 1994 agreement but does not claim breach of it, just breach of the 1991 quitclaim, which means Gordon (now WB) can still exercise the option, buying out the rights.

And that raises yet another problem for Fox when they then try to claim their due under the 1994 option: laches, which can completely bar a contract claim, not just pre-suit damages. When did Fox first know Gordon was trying to make the movie? Recall from the Court's outline, "The notice also provided that the agreement was personal to Gordon and that, “prior to payment of the Buy-Out Price,” he could not "assign rights or authorize any person to take any action with respect to the project."

Here's a 2001 article about an attempt, long after the relevant agreements with Fox. Did Fox move to protect its rights then? Did it tell Gordon not to "authorize any person to take any action with respect to the project?" Here's a rumor:

[P]rivately, Warner Bros execs are decrying to me what they say is Fox's "opportunistic claim," noting that "Fox sat on its so-called rights for years while other studios in town developed this property. In fact, Paramount greenlit the movie for production and Fox never said a word! Fox even had an opportunity to re-acquire the project at some point and it passed on it!"

Did Fox try to "speculate without risk with the other's money?"

I'd say "we shall see," but we probably won't. Once the injunction and the option are decided, the case will likely be sufficiently narrowed to be settled easily; the spread won't be worth the risk anymore.

 

UPDATE: On December 24, 2008, District Judge Gary A. Feess issued a brief ruling holding "Fox owns a copyright interest consisting of, at the very least, the right to distribute the Watchmen motion picture," with a promise to issue a more definite ruling soon. It's hard to say what the practical effect is of such a holding (it's obviously not good news for WB); I still believe an injunction is unlikely. I'll write more when the full order comes out.

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One of my favorite cases, Huber v. Taylor, filed 2002, loaded with allegations against the plaintiffs former attorneys and all kinds of fun remedies like disgorgement, just finished its second round on appeal, back down to the District Court for the third time.

The prior opinion, Huber v. Taylor, 469 F.3d 67 (3d Cir. 2006), was one of the more important recent opinions for "lawyer's lawyers" in the Third Circuit. The case is also a great example of how the paperwork these cases, e.g. attorney malpractice or disputes between lawyers, can quickly mushroom, and why they get so expensive.

Most importantly, it shows just how far the Third Circuit (and I'd say most appellate courts, federal or state) is willing to go to police the professional by enabling clients to recover from attorneys.

Let's start with the facts, as recounted by the second appeal:

Plaintiffs, all of whom have asbestosis, were previously represented by Defendants in asbestos personal injury actions in Mississippi state court. Asserting multiple claims on behalf of themselves and a putative class of asbestosis victims, Plaintiffs alleged that Defendants failed to disclose both the material terms of settlement offers as well as the fee-sharing arrangements among co-counsel during the course of the Mississippi litigation. They also  alleged, among other things, that Defendants (1) distributed less of the settlement funds--totaling hundreds of millions of dollars--to them than to other similarly situated clients, all to the benefit of Defendants; and (2) charged expenses that were inflated, inappropriate, and, in some instances, fictitious. Plaintiffs asked for compensatory damages, disgorgement of attorneys' fees, as well as punitive damages.

In the first appeal:

On appeal, this Court vacated the District Court's denial of class certification as well as its grant of summary judgment to Defendants on Plaintiffs' breach of fiduciary duty claims. Huber, 469 F.3d at 83. The majority determined that the District Court failed to apply the appropriate law, namely Texas law, which does not require a showing of actual injury in order to maintain a claim for breach of fiduciary duty when the remedy sought is disgorgement of attorneys' fees. The Court accordingly remanded the case for adjudication of Plaintiffs' breach of fiduciary duty claims in light of Texas law.

The first appeal took a stab at guessing Pennsylvania law on proving damages where only disgorgement is requested, too:

At first blush, Pennsylvania, Indiana, and Ohio law seem to indicate that claims for breach of fiduciary duty require actual harm. Mullen v. Cogdell, 643 N.E.2d 390, 401 (Ind. App. 1994); McConnell v. Hunt Sports Enters., 132 Ohio App. 3d 657, 725 N.E.2d 1193, 1215 (Ohio App. 1999); Pa. S.S.J. I. 13 § 4.15 (1991). Whether these states would require a showing of actual harm in a situation in which only disgorgement is requested is, however, an open question. The issue has never been resolved by these states' courts. Arguably, they might adopt the well-considered position of every jurisdiction that has considered the issue, which is to require harm only for damages, not for the equitable remedy of disgorgement.

The Third Circuit also blasted the defendants for trying to duck their professional responsibility:

It is well-settled law, regardless of jurisdiction, that attorneys owe their clients a fiduciary duty. Akron Bar Ass'n v. Williams, 104 Ohio St. 3d 317, 320, 2004 Ohio 6588, 819 N.E.2d 677 (Ohio 2004) ("The attorney stands in a fiduciary relationship with the client and should exercise professional judgment solely for the benefit of the client and free of compromising influences and loyalties."); In re Tsoutsouris, 748 N.E.2d 856, 859 (Ind. 2001); Office of Disciplinary Counsel v. Monsour, 549 Pa. 482, 486, 701 A.2d 556 (Pa. 1997) ("This public trust that an attorney owes his client is in the nature of a fiduciary relationship involving the highest standards of professional conduct."); Arce v. Burrow, 958 S.W.2d 239, 246 (Tex. Ct. App. 1997), rev'd on other grounds, 997 S.W.2d 229, 42 Tex. Sup. Ct. J. 932 (Tex. 1997). The duty includes undivided loyalty, candor, and provision of material information. Willis v. Maverick, 760 S.W.2d 642, 645, 31 Tex. Sup. Ct. J. 569 (Tex. 1998) (provision of information material to the representation).

Defendants argue that "the fiduciary duties of disclosure at issue in this case were properly assumed and performed by each plaintiff's individually retained local counsel in Pennsylvania, Ohio, or Indiana." The performance of the duty is a question of fact for the jury, although some acts, as a matter of law, cannot constitute performance. If Local Counsel did not perform their fiduciary duty, it does not matter that they assumed the duty because the fiduciary duty of co-counsel is a joint obligation. Even if the duty of disclosure is  itself delegable, the duty of loyalty is inherently not, and in this case disclosure was necessary to fulfill the duty of loyalty. Thus, Local Counsel's alleged failure to fulfill the fiduciary duty of disclosure could hardly excuse the Defendants.

In the second round before the District Court:

On remand, Plaintiffs sought leave to file a proposed third amended complaint, asserting breach of fiduciary duty claims under Texas law and again seeking certification of a class. The District Court denied Plaintiffs' motion for leave to file their third amended complaint, then dismissed Plaintiffs' six-year-old claims for want of jurisdiction. Specifically, the District Court was persuaded that no single plaintiff could satisfy the statutory minimum amount in controversy. The District Court also decided--sua sponte--that Plaintiffs' local counsel ("Local Counsel") were necessary and indispensable parties who had not been named in Plaintiffs' complaint. Plaintiffs now appeal the District Court's order of dismissal.

The Third Circuit reversed on the amount in controversy, reaffirming that diversity jurisdiction is based on the face of the complaint, so that later revelations may retroactively divest jurisdiction but subsequent events, even including dismissal of the original claims that were of a sufficient amount, do not:

We are unpersuaded that Plaintiffs' original complaint was so patently deficient as to reflect to a legal certainty that no Plaintiff could recover the jurisdictional amount ($ 75,000) alleged. Nothing in this record suggests that the damages alleged were feigned to satisfy the jurisdictional minimum or that Plaintiffs had no good faith basis for their claims, including not only their breach of fiduciary duty claims but also their claims of fraud, conversion, conspiracy to convert and defraud, professional malpractice, and violation of the Pennsylvania Deceptive Trade Practices and Consumer Protection Law.

We are further unpersuaded that there were subsequent revelations requiring dismissal. To be sure, Plaintiffs ultimately failed to prevail on their claims of fraud, conversion, conspiracy to convert and defraud, professional malpractice, and violation of the Pennsylvania Deceptive Trade Practices and Consumer Protection Law. They also failed to establish actual harm. These failures, however, are in the nature of subsequent events that do not oust the court of subject matter jurisdiction.

The Third Circuit also reversed on joinder, reaffirming that Federal Courts still don't have compulsory joinder:

That Defendants and Local Counsel may have "jointly owed fiduciary duties to their mutual clients" does not mean that they shared an "interest relating to the subject of the action" for
purposes of Rule 19(a) analysis. Indeed, an Advisory Committee Note to Rule 19(a) explicitly states that subdivision (a) of the rule "is not at variance with the settled authorities holding that a tortfeasor with the usual 'joint-and-several' liability is merely a permissive party to an action against another with like liability." Courts, moreover, have long recognized that "it is not necessary for all joint tortfeasors to be named as defendants in a single lawsuit." Temple v. Synthes Corp., Ltd., 498 U.S. 5, 7, 111 S. Ct. 315, 112 L. Ed. 2d 263 (1990) (per curiam); see also PaineWebber, Inc. v. Cohen, 276 F.3d 197, 204 (6th Cir. 2001) (noting that "a person's status as a joint tortfeasor does not make that person a necessary party, much less an indispensable party").

Naturally, res judicata and issue preclusion wouldn't apply to the joint tortfeasors, since they were not in privity with the original suit.
 

 

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The Financial Accounting Standards Board ("FASB") has proposed a rule whereby companies are to disclose to their investors the estimated costs of litigation.

Unsurprisingly, the Wall Street Journal objects to anything increasing transparency in our "free" market, raising two contradictory arguments:

Under the proposed change, a company facing a lawsuit would have to list on its financial statement its best-guess estimate of what that litigation could end up costing -- not just in attorney fees, but in any potential payout. For a company in high-stakes litigation, that means showing its hand to plaintiffs' attorneys, allowing them to gauge management's upper estimate of what the case is worth.

The effect will be to force corporate defendants to fight lawsuits with one hand tied behind their backs -- assuming the company can even figure the "fair value" of a lawsuit it has no idea if it will win or lose. Predicting the trajectory of complex, often multiyear litigation is inherently unscientific. As we saw with Merck and Vioxx, a company's stock price can jump or fall depending on jury verdicts whose results are impossible to predict.

So... the numbers are considered to be "inherently unscientific," just a guess at something "impossible to predict," and yet they will be interpreted by plaintiffs' attorneys as a precise "upper estimate of what the case is worth."

Look: I know how much a case might be worth. I even know what numbers you should, if you've got any brains, consider a possibility. If you tell your investors the same range of liability that everyone from the bailiff to the court reporter has already figured out, that won't change my settlement position one bit.

Before I took the case, I thought long and hard about the likelihood of winning and the size of damages. As more evidence comes in, I think about both again and again. Contrary to popular defense lawyer / defendant belief, telling me that my case is worthless will not dissuade me, it will encourage me, since I will interpret it as bluffing, a sign of fear and weakness, or baffonery, a failure to evaluate and to defend adequately.

Putting a public number on the case -- a number everyone recognizes is at best an approximation of a worst-case scenario you're working to avoid -- will only reveal to me that you're paying a sliver of attention.

I would write more, except that, seeing the source of this critique to be the editorial page of the Wall Street Journal, I expected it to be misleading and/or poorly researched. I was not let down. Reading the actual proposed FASB guideline  reveals this language:

For certain contingencies, such as pending or threatened litigation, disclosure of
certain information about the contingency may be prejudicial to an entity’s position (that
is, disclosure of the information could affect, to the entity’s detriment, the outcome of the
contingency itself). In those circumstances, an entity may aggregate the disclosures
required by paragraph 7 at a level higher than by the nature of the contingency such that
disclosure of the information is not prejudicial. In those rare instances in which the
disclosure of the information required by paragraph 7, when aggregated at a level higher
than by the nature of the contingency, or of the tabular reconciliation would be prejudicial
(for example, if an entity is involved in only one legal dispute), the entity may forgo
disclosing only the information that would be prejudicial to the entity’s position. In those
circumstances, an entity shall disclose the fact that, and the reason why, the information
has not been disclosed. In no circumstance may an entity forgo disclosing the amount of
the claim or assessment against the entity (or, if there is no claim amount, an estimate of
the entity’s maximum exposure to loss); providing a description of the loss contingency,
including how it arose, its legal or contractual basis, its current status, and the anticipated
timing of its resolution; and providing a description of the factors that are likely to affect
the ultimate outcome of the contingency along with the potential impact on the outcome.

I guess that takes care of everything they're worried about. The only thing a company can't do under these guidelines is intentionally or negligently fail to inform investors of a potential source of substantial liability. Is that really so hard? What are "senior litigators from 13 companies, including Pfizer, General Electric, DuPont, Boeing and McDonald's" so afraid of? What have they been hiding from investors all this time?

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What on earth were they doing?

 Following negotiations, on November 12, 2002, the parties entered into a settlement and release agreement (release agreement) ...

On November 8, 2004, [ESI] filed a praecipe for Writ of Summons. [ESI] thereafter filed a five count complaint on April 7, 2005. In their complaint, [ESI] asserted that the release agreement was invalid because [LSI] induced them to sign it by means of fraudulent misrepresentations. On May 1, 2006, by the consent of [ESI], the trial court issued an order discontinuing counts III, IV and V of their complaint. Accordingly, only counts I and II of [ESI's] complaint proceeded to resolution on summary judgment. ...

On August 7, 2006, the trial court granted LSI's motion for summary judgment and this Court affirmed that decision on October 1, 2007. ...

On October 18, 2006, counsel for ESI sent a letter to the American Arbitration Association (AAA), indicating that the CA entered into by the parties and two amendments to the CA provide for arbitration and that having received no response to its September 12, 2006 letter to counsel for LSI, ESI was "now request[ing] that the American Arbitration Association initiate the process through which an arbitrator will be appointed for the claim initiated by [ESI]." ...

By letter, dated October 30, 2006, ESI's counsel informed the AAA that its October 18th letter was not a formal demand for arbitration, but rather was a request for advice "as to how to proceed" and that if a case number had been assigned it should be voided. Thereafter, the AAA closed the matter, but on November 21, 2006, ESI again corresponded with the AAA and formally demanded that arbitration be initiated against LSI.  ...

LSI responded to ESI's November 21, 2006 letter, again asserting that the claim ESI was attempting to submit to arbitration was the same as the claim that ESI agreed to withdraw with prejudice during the pre-trial conciliation before Judge Scanlon and as memorialized by the May 1, 2006 court order. ...

Receiving no response to its December 1, 2006 letter, LSI filed a complaint on December 14, 2006, seeking "a declaratory judgment that [ESI] cannot re-litigate in arbitration a claim that was previously dismissed with prejudice…."

LSI Title Agency, Inc. v. Evaluation Servs., 2008 PA Super 126.

Big surprise: ESI lost. They can't arbitrate the same claims they permitted to be dismissed "with prejudice." (As an aside: they tried to get a new claim in by saying they were arbitrating "breach of the duty of good faith and fair dealing," which, the court reminded, is not an independent claim outside of breach of contract.)

It's simple: arbitration is not a parallel universe, where collateral litigation is but a passing fancy. If you submit your claim to one or the other, then that's that (like here). There are limited ways to preserve the options initially, but, once you go through the gauntlet, they're not going to let you try it again on the other side.

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The Recorder digs up this lawsuit by McAfee against WilmerHale for "fraud, theft, negligence and breach of fiduciary duty" for billing $12 million to defend their Chief Financial Officer in his accounting fraud case (he was convicted).

Here's the claim:

"[WilmerHale] intentionally overworked and churned the representation of Goyal; shamelessly employing over 100 WilmerHale timekeepers in the feeding frenzy," McAfee alleged in a complaint filed in the Eastern District of Texas earlier this year. "Defendant's bills reflect at least 16 partners, 34 associate attorneys, 10 legal assistants and 49 staff personnel -- how else could they amass this enormous trove of cash?" the complaint read.

...

Martin Rose, the Dallas lawyer representing McAfee in the fee dispute, alleges in his latest complaint that WilmerHale, which brought in East Coast lawyers to represent Goyal in a San Francisco trial, charged almost $200,000 in expenses for luxury hotel rooms, limousines and charges for room service and bar tabs. The software company described WilmerHale as "unrepentant in its greed."

And the response:

Paul Yetter, the Houston lawyer representing WilmerHale in the fee dispute, said by e-mail Monday that "over 80 percent of the defense work was done by two lead WilmerHale partners and a handful of associates. The bulk of other timekeepers were needed for review of 1.2 million documents in the case."

He stated that the fees were in line with similar cases, including the backdating trial of Brocade Communications CEO Gregory Reyes.

Yetter, of Yetter, Warden & Coleman, also provided a statement from WilmerHale that said its fees "reflect legal services that were necessary and reasonable in a lengthy and complex matter encompassing five separate cases, particularly one in which Mr. Goyal's very liberty is at stake. Indeed, the California judge commended the firm's efforts as 'extremely well-tried.'"

Initially, the above truly is "in line with similar cases." The pro bono defense of former Illinois Governor George Ryan was estimated to have been worth $10 million in fees, with another $10 million in lost business. 

More importantly, what, exactly, did McAfee expect from WilmerHale? Did they come to WilmerHale and say, "now, we know that, on average, your lawyers bring in over $900,000 in revenue every year, but we're hoping you can run this white collar case the way a small firm would, with, you know, a big emphasis on productivity and perhaps outsourcing review of the bulk of the 1.2 million documents to law students and paralegals?"

Or did they pass over dozens of former judges, former prosecutors, experienced trial lawyers, and leaders of the bar in solo, small and mid-sized firms to run to a gigantic corporate empire begging they spare no expense, leave no stone unturned, and dedicate their most expensive partners and associates to the case full time?

I have my suspicions. Maybe this can be a lesson to general counsels everywhere: if you demand big, you'll be billed big.

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If you are bringing a shareholder derivative suit, always make a demand:

The Complaint in this shareholder derivative action was filed on May 6, 2008, along with a motion for a temporary restraining order and preliminary injunction.  [*4] The Complaint asserts claims for breach of fiduciary duty, abuse of control, corporate waste, unjust enrichment and gross mismanagement, alleging that the Defendants, consisting of the entire Alcoa Board of Directors as well as certain senior executives and agents, breached their fiduciary duties to Alcoa  by participating in and/or failing to prevent the misconduct alleged in the Alba Action. All of the claims are derivative in nature. In connection with its action, Plaintiff also sought a TRO and preliminary injunction enjoining any Alcoa Directors or officers identified as subjects or targets of the DOJ investigation from participating in Board decisions relating to Alcoa's response to the investigation and any criminal charges ensuing therefrom.

Serious stuff! Oops:

The vast majority of Plaintiff's opposition to the motion to dismiss discusses allegations as to whether Alcoa's Board, the Special Committee appointed by the Board, and its counsel, are sufficiently independent to properly evaluate a demand. (See Pl. Opp. Br. at 10-19.) In the context of Defendants' motion to dismiss for failure to make a pre-suit demand, this discussion is wholly irrelevant. I reiterate: had Plaintiff made a demand on the Board back in late March or April, it may now have been in a position to raise these arguments. However, having chosen not to make a demand, Plaintiff must lie in the bed that it has made.

Note also the heavy reliance on the ALI Principles, which I noted earlier:

In furtherance of these principles, and to assist trial courts in their application, the Pennsylvania Supreme Court adopted certain provisions of 2 ALI, Principles of Corporate Governance: Analysis and Recommendations (1994), specifically sections 7.02 (standing), 7.03 (the demand requirement), 7.04 (procedure in derivative action), 7.05 (board authority in derivative action), 7.06 (judicial stay of derivative action), 7.07, 7.08, and 7.09 (dismissal of derivative actions), 7.10 (standard of judicial review), and 7.13 (judicial  [*15] procedures).

Hawaii Structural Ironworkers Pension Trust Fund, Derivatively on Behalf of Alcoa, Inc. vs. Alain J.P. Belda, et al., 2008 U.S. Dist. LEXIS 52888 (July 9, 2008).

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As deemed by the American Association for Justice (which, really, should have been renamed to The Justice League of America):

1.  Allstate

2.  Unum

3.  AIG

4.  State Farm

5.  Conseco

6.  Wellpoint

7.  Farmers

8.  United Health

9.  Torchmark

10.  Liberty Mutual

Lines up with this intriguing website, which also lists Allstate the worst and Chubb the best.

I'm inclined to agree. I've been very impressed by Chubb's claims handling. I once had to interpret their "Masterpiece" policy to see if it covered a particular act which a jury could easily find was intentional (and, if proven, would have been criminal). Amazingly, it did, and without any weasely insurance-coverage language designed to tie up such a question in the courts for years.

I switched my own homeowner's to it promptly.

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Fortune Legal Pad on the French eBay injunction:

On June 30, the Commercial Court of Paris granted a sweeping injunction sought by LVMH Moët Hennessy Louis Vuitton (LVMUY) that would not only require eBay to block all sales of counterfeit Louis Vuitton Malletier and Christian Dior Couture products on its site — a feat eBay has claimed is not technologically feasible — but  also to block all sales of genuine LVMH perfumes being sold there by unauthorized distributors.

The latter prohibition would effectively force eBay to block all sales of the specified perfumes — Christian Dior, Guerlain, Givenchy, and Kenzo — since no licensed LVMH distributor is authorized to sell over eBay. The practice of selling genuine products through unauthorized channels — sometimes called gray marketeering — is generally lawful in the United States because it is thought to benefit the consumer.

The commercial court also ordered eBay to pay various LVMH units $60.8 million in damages for past counterfeit or unauthorized sales. The key issues presented by the decision (available here in French) are well summarized in this New York Times article. (eBay’s official statement about the ruling is here; LVMH’s is here.)

The day the commercial court ruled, eBay asked the French Court of Appeals to stay the injunctive portion of it while it appealed the rest of the lower court’s ruling. Without the stay, the injunction — enforceable by daily fines of 50,000 euros (about $80,000) — takes effect as soon as copies of the decision have been formally delivered to eBay’s headquarters in San Jose, California, and its international subsidiary in Berne, Switzerland. (It’s unclear if that has happened yet.) LVMH has agreed to postpone enforcement, however, until the Court of Appeals rules on the stay application, according to an eBay spokesperson. That court told the lawyers today that it would rule Friday.

It's quite a fascinating case, particularly as it touches upon appealability in the European system, the distinction of internet service providers being merely a "host" versus a "broker," and Louis Vuittion's (I think outrageous) attempts to halt re-sale of their products.

My focus, however, is on how powerful the remedy here is -- the fine is huge and the equitable remedy requires eBay do something they claim they can't.

In normal commercial litigation, it is very rare for a court to order a losing defendant change their practices in a way that could potentially destroy the business. Normally, the defendant pays compensation for what they have done wrong and goes about their business again; indeed, in Pennsylvania and the general rule is that punitive damages are not available in breach of contract cases.

Such restraint vanishes in the realms of copyright and patent (particularly patent), where the very idea appears to be strong deterrence against either the defendant or anyone else behaving like that ever again.

The end result is, liking securities litigation, few copyright or patent claims actually reach a resolution on the merits, because the stakes are simply too high, and lawyers tend to believe that such cases are so complicated that there's a high likelihood jurors, judges or arbitrators will become confused even in a slam-dunk case, resulting in uncertainty about the outcome. (See this legal malpractice case arising from a large, complex commercial dispute where "The company claims Linklaters advised it that its case had a 70 percent chance of success if it were to go to arbitration, but at a later date reduced that to 50 percent. It says that, based on Linklaters' advice, it turned down three settlement offers.")

The initial application of bad for business lawyers is obvious, and, indeed, in most business lawyers will recommend their client cease and desist the moment there's any copyright or patent claim that isn't clearly frivolous.

But I think there is another lesson learned here. Big cases settle. Notice how eBay and LVMH are still trying to figure it out.

Except sometimes they don't. How about: big cases should settle; where the law forces the case to be big, it usually settles.

So how can we, as litigators and trial lawyers, make clear to the other side that our case is really big? I'll address that more in latter posts.

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Sounds delicious! Oh, wait:

According to CNN, “starting Monday, health inspectors will halt the shipment of ingredients common to Mexican cuisine from Mexico to the United States” – this will include cilantro, jalapeno peppers, Serrano peppers, scallions and bulb onions. I assume that it may still include tomatoes?

As for illnesses, the CDC reports that 943 persons infected with Salmonella Saintpaul with the same genetic fingerprint have been identified in 40 states, the District of Columbia, and Canada. Nearly 150 have been hospitalized. The number of ill persons identified in each state is as follows: Alabama (2 persons), Arkansas (10), Arizona (45), California (8), Colorado (12), Connecticut (4), Florida (2), Georgia (24), Idaho (4), Illinois (93), Indiana (14), Iowa (2), Kansas (17), Kentucky (1), Louisiana (1), Maine (1), Maryland (29), Massachusetts (22), Michigan (7), Minnesota (8), Missouri (12), New Hampshire (4), Nevada (11), New Jersey (9), New Mexico (98), New York (28), North Carolina (10), Ohio (7), Oklahoma (23), Oregon (10), Pennsylvania (8), Rhode Island (3), South Carolina (1), Tennessee (8), Texas (356), Utah (2), Virginia (29), Vermont (2), Washington (4), Wisconsin (10), and the District of Columbia (1). One ill person is reported from Ontario, Canada. 

Thanks for ruining everything, Salmonella Blog.

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The WSJ Law Blog on a malpractice suit, alleging that discovery mistakes led to a $107 million settlement [to which] the company would not have otherwise agreed:

According to the complaint, the North Carolina federal court in which the underlying litigation occurred, held that it was “under Kaye Scholer’s watch” that Celanese was sanctioned for “discovery abuse,” which the Court described as “egregious.” The North Carolina court, as quoted in the complaint filed against Kaye Scholer, wrote: “The court is not unmindful of the positions urged by [Celanese], but in the context of the trove of documents it held in the wings just out of sight of the non-class plaintiffs, these positions can’t be seen as coherent or compelling.”

In a June 2006 order, a North Carolina judge sanctioned Celanese $114,000 in fees and expenses, but said he would consider further sanctions on evaluating the impact of the discovery misconduct. An October 2006 sanctions motion by plaintiffs asked for a range of findings against Celanese, according to the NYLJ, including one that the company acted in bad faith and that an adverse inference should be drawn against it on key issues.

The judge said he would evaluate the need for such sanctions as the case proceeded. Celanese said in its suit that the prospect of sanctions that would have hampered its ability to defend itself at trial forced it to enter into a settlement in May 2008.

Hmmm. That is a tough argument. While an actual order instructing the jury to draw an adverse inference against the company would have prejudiced its interests, it is hard to say that a motion requesting an order is a but for cause of an unfavorable settlement.

Obviously, in the real world settlement takes place in the totality of circumstances, and I'm sure the pending motion was on their minds, but I have serious doubts that the motion would itself cause the defendants to settle for over $100 million.

I am willing to bet the documents withheld by Kaye Scholer were devastating to Celanese (otherwise, why withhold them?); once the plaintiffs had them, it was simply a discussion of numbers, with or without the adverse inference.

Moreover, an adverse inference would not have, standing alone, "hampered its ability to defend itself at trial." It would merely have been a unfavorable jury instruction at the end of trial, one that defense counsel would be permitted to argue to the jury was inappropriate because it was the lawyer's fault, not the client's. Every day in America defendants blame their lawyers at trial -- what would have stopped them here?

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At Electronic Discovery Blog, "Employee’s motion to quash granted where employer cannot establish that employee had no expectation of privacy in using employer’s computer system:"

Requestor defendant employer subpoenaed third party producer to produce “all electronically stored information on all computers, laptops, PDA’s, portable media or other devices” between plaintiff employee’s husband and plaintiff regarding the litigation. Employee moved to quash on the grounds of overbreadth and that the records were protected by the spousal privilege. Employer responded that the records were not protected because of the employer state’s system use policy, which provides that “’no user should have any expectation of privacy in any message, file, image, or data created, sent, retrieved, or received by use of the Commonwealth’s equipment and/or access’” and “that state agencies have the right to monitor e-mail sent or received by agency users;” although the policy did permit personal use of work computers. Employer stated that as both employee and her husband were employees of the state at the time, the policy prevented any expectation of privacy. Id. at *3-*4.

...

In the current case, there was “no…evidence…offered as to knowledge, implementation, or enforcement of the Policy:”

There is no showing that Mr. or Mrs. Sprenger were notified of the Policy by a log-on banner, flash screen, or employee handbook and whether Mr. or Mrs. Sprenger were ever actually aware of the Policy. It is unclear whether third parties had a right of access to the e-mails. The record also does not show whether the Policy was regularly enforced and whether the state employees’ computer use was actually monitored.

Id. at *13. The employer thus failed to meet its burden demonstrating employees’ waiver of the privilege. The court therefore granted the employee’s motion to quash, although inviting the employer to contact the Clerk of the Court to set up an evidentiary hearing on the waiver issue of they sought to pursue the matter further.

EDD notes that conflicts with U.S. v. Etkin, 2008 U.S. Dist. LEXIS 12834 (S.D.N.Y. Feb. 20, 2008), where the marital communication privilege could not be claimed in a different, but awfully similar, situation.

There is a serious conflict brewing here, one that I believe will inevitably end up in the Supreme Court.

On the surface, the question appears to be if e-mails sent from a work account can be privileged in a world in which an employer is free to monitor such e-mails, thereby eliminating any expectation of privacy (which is required to claim privilege).

Looking deeper, though, there is an even more basic question: who bears the burden of persuasion may in a privilege? In some sense, the answer is simple. Since a lack of expectation of privacy is generally thought of as a waiver of privilege, the burden is on the party requesting the information to show such privilege was waived. That's what was done in the case at bar.

But that interpretation is not set in stone. The burden of establishing any privilege at all lies with the party trying to raise the privilege, and there is a good argument that, where the communication began on the employers computer system, it was never privileged to begin with, and thus we never even reach the question of waiver.

In Pennsylvania, Nationwide Mut. Ins. Co. v. Fleming, 924 A.2d 1259 (Pa. Super. Ct., May 21, 2007), clearly requires the party claiming the privilege first establish the communication was privileged -- and as part of their analysis the court looked into the recipients of the email. A court could hold that, in a work email situation like the one at the beginning of this post, the email starts its life unprivileged, and so there's no issue of waiver at all. That would put the burden on the party claiming the privilege, rather than the party requesting the document.

Either way, clients should be encouraged to play it safe and not send e-mails relating to personal legal matters from work accounts. Ask your clients about it today.

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Kudos to David Boies:

Fresh off his depiction in “Recount” — the HBO movie about the 2000 election fiasco — David Boies, along with partner Don Flexner, have, on behalf of American Express, negotiated one of the largest antitrust settlements ever for an individual company: $1.8 billion. The settlement with Mastercard comes on the heels of a similar $2.25 billion settlement, also handled by Boies, between AmEx and Visa.

The background: The Supreme Court ruled in 2004 that Visa and MasterCard violated antitrust laws by prohibiting their member banks from offering credit cards that could be used on rival payment networks. AmEx and Discover sued. Here are reports from the WSJ and NYT.

Really, though, kudos to Mr. Feinberg:

Kenneth R. Feinberg, who handled the earlier settlement with Visa and who also oversaw administration of the 9/11 compensation fund, acted as arbitrator in the case during secret negotiations that lasted eight weeks.

And while we're at it, don't forget to review the AAA rules for large, complex commercial disputes. There are two myths about commercial arbitration worth dispelling while on the subject.

First, you are generally not entitled to three arbitrators; you can ask for them, but the only time you'll get them is if you and the other party cannot agree on arbitrators and the case is worth more than $1 million.

Second, there is no rule prohibiting discovery in commercial arbitration, there just isn't any entitlement to it. I frequently recommend following the Federal Rules of Civil Procedure with regard to written discovery, except for depositions, which are limited usually to just the principle witnesses.

Of course, the best part of arbitration from the plaintiff's perspective is the finality, where the pressure of an unappealable award strongly encourages settlement. When you litigate a case through the civil system, there is virtually no chance of settlement prior to scheduling of trial, and, indeed, a good number of cases have to get through verdict and at least some of the appeal before the offers become reasonable. That takes years.

As you can see from the AmEx arbitration, nearly $2 billion dollars changing hands took eight weeks.

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From the National Law Journal:

A study of court settlements in personal injury lawsuits against businesses estimated companies could save an average total of $114,000 per claim or $670,000 for severe injuries by promptly settling cases instead of fighting them in court.

The study, which was published this month in the Columbia Business Law Review, also projected $32,000 in savings from lower legal expenses, or about $211,000 for cases involving severe injuries.

Well, duh. Frankly, I am amazed by how vigorously most insurance companies will defend a certain set of cases.

If you're talking about a case with several million dollars in damages, the insurer (and possibly the defendant, since their coverage may be exceeded) has a substantial interest in probing the case, particularly the extent of damages, to determine how much the case is actually worth.

But those cases are, on the whole, few and far between. Far more common are cases ranging between $200,000 and $500,000 in damages with the insured her is more than happy to pay an equivalent or greater amount to the defense attorney to, well, I don't know. Scare off future attorneys? Keep the money in their reserves to earn interest? I cannot count the number of cases I've seen where, right from the beginning, it was clear that the defendant would be found liable for some number between $200,000 and $500,000, and yet we marched all the way to trial before actually receiving an offer at all, much less an appropriate value.

Intuitively, that doesn't make sense, not least because, as a trial firm, we have no problem preparing and trying cases to verdict, so on the eve of trial we are less likely to settle.

Apparently it doesn't make empirical sense either.

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From How Appealing (who represented the winning plaintiffs on appeal):

Supreme Court of Pennsylvania summarily reverses lower court ruling which held that an insurer's attempt to appoint guardian for minor plaintiff whose parents are refusing to accept the insurer's settlement offer is not an abuse of process: On Thursday of last week, Pennsylvania's highest court issued a summary reversal in a case captioned Cruz v. Princeton Insurance Co.

I of course mean "frivolous lawsuits" In the same way others use the term "malpractice lawsuits" or "personal injury lawsuits." That is, what the lawsuit is about.

The legal system truly is ripe with abuse. Every day, some party -- frequently a large, wealthy corporation, like an insurance company -- abuses another party, frequently a much weaker party.

Maybe by filing an unnecessary and untenable motion. Maybe by needlessly refusing to answer questions. Or, as here, attempting to terminate parental rights because the parents did not accept the insurance company's lowball offer.

Outrageous. Outrageous!

Apparently not for the trial judge who who thought it would be impossible -- impossible! -- for the plaintiff to prove such was an abuse of process.

Fact is, we need more lawsuits like Cruz, more lawsuits to keep people from abusing the system and engaging in vicious personal assaults with absolutely no foundation in law or fact.

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If you haven't been closely following Federal Civil Procedure, there has been a question over the past few months whether Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007) changed the 12(b)(6) pleading requirements or not. Twombly clearly rejected the rule that a complaint may not be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief," but no one has really figured out what the new standard is (other than the word "plausibility" shows up a lot), and the opinion specifically says it is not creating a new standard.

The Third Circuit addressed the question in detail yesterday, leaving much to the future, but generally holding:

The issues raised by Twombly are not easily resolved, and likely will be a source of controversy for years to come. Therefore, we decline at this point to read Twombly so narrowly as to limit its holding on plausibility to the antitrust context.Reading Twombly to impose a “plausibility” requirement outside the § 1 context, however, leaves us with the question of what it might mean. “Plausibility” is related to the requirement of a Rule 8 “showing.” In its general discussion, the Supreme Court explained that the concept of a “showing” requires only notice of a claim and its grounds, and distinguished such a showing from “a pleader’s ‘bare averment that he wants relief and is entitled to it.’” Twombly, 127 S. Ct. at 1965 n.3. While Rule 12(b)(6) does not permit dismissal of a well-pleaded complaint simply because “it strikes a savvy judge that actual proof of those facts is improbable,” the “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Id at 1965.

The Supreme Court's Twombly formulation of the pleading standard can be summed up thus: “stating . . . a claim requires a complaint with enough factual matter (taken as true) to suggest” the required element. Id. This “does not impose a probability requirement at the pleading stage,” but instead “simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of” the necessary element. Id.

...

This rule [8(a)(2)] requires not merely a short and plain statement, but instead mandates a statement “showing that the pleader is entitled to relief.” That is to say, there must be some showing sufficient to justify moving the case beyond the pleadings to the next stage of litigation.

The opinion is available here.

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Hot on the heels of a billionaire who didn't understand his settlement comes the widow of a fantastically wealthy real estate developer who also didn't understand her fee agreement or her settlement:

A 40 percent contingency fee negotiated by a Manhattan law firm retained by the widow of a real estate developer involved in a multimillion-dollar estate dispute was not “unconscionable on its face,” an appeals court ruled yesterday.

The court said that “at first blush,” the 40 percent fee — worth about $42 million — that was claimed by the law firm, Graubard Miller, from Alice Lawrence, the 83-year-old widow of the real estate developer Sylvan Lawrence, “might arguably seem excessive and invite skepticism.”

But a majority of the five-member panel of the court, the Appellate Division of State Supreme Court in Manhattan, ruled that whether the fee was reasonable should be determined at a trial, based on a further exploration of the discussions that led to the fee agreement and the difficulty of the case.

Like I said before, plenty of lawyers take advantage of their clients. But who could Ms. Lawrence -- who is certainly surrounded by dozens of advisers -- not recognize the consequences of a 40% contingent fee agreement and then the subsequent settlement?

Let's look at how "reasonable" the fee is:

In a dissent, one justice, James M. Catterson, called the fee “exorbitant.” He said that the retainer agreement was signed when a $60 million settlement offer was already on the table.

The estate was settled just five months later for more than $100 million, the judge said, meaning that the law firm’s fee was almost equal to the additional amount it won.

Read that carefully. Apparently, due to the firm's involvement, Ms. Lawrence will now receive the full amount of the original settlement offer, as opposed to $60 million minus a third or 40% or whatever her original agreement was. Is that unreasonable?

Back to the point: Ms. Lawrence obviously had the funds available to hire a large corporate firm on an hourly (or flat fee) basis, and to pay all costs of the litigation herself upfront. In so doing, she would have borne all the risk of spending enormous sums of money without a guaranteed return. Instead, she contracted with a firm to bear all of that risk; within five minutes, it had achieved a result with which she was content.

Maybe there's some mischief not identified by these stories; maybe she's mentally impaired and the firm took advantage of her. That would be a different story. As it looks now, an extraordinarily wealthy and well-advised businesswoman decided to give up a chunk of her recovery in order to avoid the risk of no (or little) recovery, and now wants more because it turned out the case wasn't as risky as she thought.

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Sam Wyly, Texas billionaire, apparently didn't understand he was settling a big case:

Sam Wyly, the colorful Texas billionaire, has sued Milberg Weiss and three other plaintiffs’ firms over their handling of a 2003 settlement of shareholders class-action lawsuit against Computer Associates.

Wyly’s beef? He claims that Milberg and the others left billions on the table by prematurely settling a case so they could bank some $40 million in attorneys fees. The suit was filed in state court in Manhattan and alleges legal malpractice, fraud, unjust enrichment and breach of fiduciary duty. Here’s the story from Newsday.

Newsday reports that Wyly’s lawsuit centers on two shareholder lawsuits filed against CA — one in 1998 following a sharp drop in CA’s share price, and another in 2002 following news of an accounting probe at the company. The plaintiffs law firms effectively dropped the 2002 claims, according to the story. Wyly’s lawyer, William Brewer, told Newsday that the firms’ decision to effectively drop the claims in the 2002 suit “one of the most egregious cases of [legal] malpractice I’ve seen in 23 years.”

Count me unconvinced. The billionaire did not know what was going on? He did not have teams of lawyers and financial advisors looking over the settlement to determine if he should accept it or should "opt out" and go for his own lawsuit?

Legal malpractice happens all the time. Clients accept settlements all the time without really knowing what's going on.Both happen to wealthy businessmen and businesswomen all the time. Moreover, it looks like Milberg Weiss did not always live up to the highest standards of the profession.

But come on: Will any jury really believe that this billionaire had no idea what was going on and that the evil lawyers swindled him out of a massive verdict (one that also would have lined those same lawyers pockets)? Does this lawsuit have any basis in fact?

Wyly became a major CA shareholder when it acquired his company, Sterling Software, for $4 billion in 2000. He’s a major contributor to conservative causes, and was a top supporter of George W. Bush in 2004 and helped fund the “swift boat” ads that helped defeat John Kerry.

Oh. Guess not.

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