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

Via Sports Law Blog, I saw a new paper: Aaron Zelinsky, The Justice as Commissioner: Benching the Judge-Umpire Analogy, 119 Yale L.J. Online 113. [After writing this post, I saw the WSJ Law Blog covered it, too.]

Here's the abstract:

The judge-umpire analogy has become “accepted as a kind of shorthand for judicial ‘best practices’” in describing the role of a Supreme Court Justice. However, the analogy suffers from three fundamental flaws. First, courts historically aimed the judge-umpire analogy at trial judges. Second, courts intended the judge-umpire analogy as an illustrative foil to be rejected because of the umpire’s passivity. Third, the analogy inaccurately describes the contemporary role of the modern Supreme Court Justice. Nevertheless, no workable substitute for the judge-umpire analogy has been advanced. This Essay proposes that the appropriate analog for a Justice of the Supreme Court is not an umpire, but the Commissioner of Major League Baseball.

I agree with his argument regarding Supreme Court Justices. Given the Justices' policy-making focus and their practice of deciding cases based on the long-term consequences rather than the particular facts of the case, the umpire analogy makes little to no sense for them.

But that's not the whole story. The judges-as-umpires analogy does not work for trial judges either, because the analogy downplays the inherent uncertainty in the law and diminishes the significance and breadth of what trial judges do.

There are a handful of situations in which a trial judge, like an umpire, must draw upon their experience and intuition to quickly exercise discretion in applying a general rule, like when ruling upon evidentiary objections at trial.

Most of the time, however, trial judges have plenty of time to contemplate the issues before them, like when ruling upon motions to dismiss, motions for summary judgment, and motions for post-trial relief — the three most important dispositive motions.

In those instances, the judge is not merely called upon to decide whether or not a pitch was within the strike zone. Indeed, in many situations, the judge is not even asked to decide if the pitch really was within the strike zone (i.e., whether the allegations made by one side are true or false), because they are required to accept the truth of what one of the parties says or of what the jury found. (There are a handful of exceptions, like sentencing decisions, but those, too, are fraught with uncertainty.)

In most situations, the judge is asked to figure out where the strike zone should be. It is as if there were different strike zones for fastballs, breaking balls, and changeups, and the umpire had to determine — based on nothing more the players' arguments about the pitch (i.e., the briefs and the oral argument) — which rule should apply.

But that's not the hard part. In many situations, trial judges must decide not just which rule should apply based on imperfect and incomplete information, but what the rules even are.

Imagine there were different strike zones for different pitches, yet no one agreed what a sinker, curveball, slider, screwball, palmball, or knuckleball even was, and the umpires were supposed to decide which pitch was really used by reviewing dozens of calls by prior umpires, many of which seemed to reach contradictory results and none of which involved the exact same style pitch as the situation at hand.

Making matters worse, imagine, too, that the players themselves don't know for sure what the rules are, and that, after each pitch, the coaches run out to argue over what type of pitch it was.

Does that sound like baseball to you? It sounds like Calvinball to me.

And it sounds like a heckuva game to play.

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Via Overlawyered, Eric Goldman and others favor HR 4364, the “Citizen Participation Act of 2009,” which would establish a federal anti-SLAPP law.

Around half the States have anti-SLAPP (i.e., Anti-"Strategic Lawsuit Against Public Participation") statutes which make it easier to dismiss suits allegedly filed to chill freedom of speech. If the lawsuit arises from the Defendants' exercise of their rights to free speech — which in the post-Citizens United era means virtually every time a corporation advances an agenda — then the Defendant can file, at the very beginning of the lawsuit, a "special motion" that requires the Plaintiff show concrete evidence proving each element of their claims.

The laws make sense, in theory. “The hallmark of a SLAPP suit is that it lacks merit, and is brought with the goals of obtaining an economic advantage over a citizen party by increasing the cost of litigation to the point that the citizen party’s case will be weakened or abandoned, and of deterring future litigation.” United States ex rel. Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963, 972-73 (9th Cir.1999). The purpose of anti-SLAPP laws is to ensure the prompt dismissal of “legally meritless suits filed in order to obtain a political or economic advantage over the defendant, not to vindicate a legally cognizable right of the plaintiff.” Condit v. Nat’l Enquirer, Inc., 248 F. Supp. 2d 945, 952 (E.D. Cal. 2002)(internal quotation omitted). “The paradigm SLAPP suit is an action filed by a land developer against environmental activists or objecting neighbors of the proposed development.” Id.

All well and good. Indeed, anti-SLAPP Acts are sometimes used to dismiss bogus suits in which one side really was trying "to obtain a political or economic advantage" over someone with inadequate resources to defend themselves. See Melius v. Keiffer, 980 So. 2d 167, 170 (La. Ct. App. 2008)(granting motion to strike complaint brought by owners of a bar against area resident who had opposed an expansion of the bar); Lamz v. Wells, 938 So. 2d 792, 794 (La. Ct. App. 2006)(dismissing case filed one week before election by one judicial candidate against another); Darden v. Smith, 879 So. 2d 390, 393 (La. Ct. App. 2004)(dismissing case filed by public official against individual who filed a complaint with the Louisiana Board of Ethics).

Goldman gives his own example where an anti-SLAPP motion allowed a party with limited legal resources to avoid the cost and burden of full-fledged litigation:

All too often, vendors use actual or threatened litigation to take down content that criticizes their offerings. The proposed federal anti-SLAPP law applies to those lawsuits. Thus, if enacted, the federal anti-SLAPP law will help consumers share their true feeling about marketplace offerings with less fear of meritless lawsuits from vendors who would rather fight in court than compete.

BoingBoing’s recent resolution of a lawsuit brought by MagicJack nicely illustrates the virtues of anti-SLAPP laws. BoingBoing blogged some criticisms of MagicJack’s offerings, and MagicJack unwisely responded to that post with a lawsuit. Fortunately for BoingBoing, MagicJack sued it in California, which has a robust anti-SLAPP law. As a result, BoingBoing was able to end the lawsuit early (BoingBoing won its anti-SLAPP motion less than 3 months from complaint filing) and get the court to order MagicJack to pay its attorneys’ fees of over $50k.

But it's not always David using anti-SLAPP laws against Goliath; it's often the other way around.

Consider the BoingBoing case. Let's assume that, instead of suing BoingBoing, MagicJack retaliated by secretly hiring a spam company to inundate BoingBoing and other widely-read blogs with hostile comments questioning BoingBoing's motives and favorably referring to MagicJack.

BoingBoing, having no other options, sues MagicJack.

Would those allegations show MagicJack's "acts" were "in furtherance of the right of free speech?" Sure; MagicJack has just as much a right as BoingBoing to talk about other companies. So the anti-SLAPP Act would be available.*

At the beginning of the case, then, BoingBoing would be required to prove — prior to conducting any discovery, since HR 4364 automatically stays all discovery — that MagicJack was behind the posts, that the posts were false, that the posts were capable of a defamatory meaning, and that MagicJack was at "fault" in publishing the comments (defined in many states as "acting with malice or reckless intent").

How could BoingBoing prove all that immediately after filing suit? Most of that information would be in MagicJack's possession.

Odds are, BoingBoing wouldn't be able to do it. Their case would be dismissed, and MagicJack could continue to harass BoingBoing at will.

The law of unintended consequences, as they say.

Put simply, the problem with HR 4364 is that it's an extraordinarily powerful device — one that substantially increases the costs of bringing meritorious cases and will undoubtedly result in the inadvertent dismissal of many meritorious cases — with few limitations on its use.

Often the only means that "David" has to challenge "Goliath" is through a lawsuit, like when ordinary individuals are powerless to repair the damage caused by sloppy or sensationalized journalism. Yet, if Goliath wants to use the Act to dismiss David's lawsuit, he can and will.

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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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It's no secret: plaintiffs like state court and defendants like federal court.

The reasons include: 

• federal juries, by virtue of their larger geographic range, include fewer urban jurors and more rural jurors, and thus (according to lawyers' lore) will award lower verdicts;
• the Federal Rules of Civil Procedure place express limits on the amount of discovery available;
• federal courts are (and were even before Ashcroft v. Iqbal) more prone to grant motions to dismiss (and motions for summary judgment) than state courts.

Even if a plaintiff files their lawsuit in state court, the defendant can "remove" the case to federal court if the case could have been filed in federal court.

There are two ways a case 'could have been filed in federal court': first, if the claim arises under federal law; second, if all plaintiffs and all defendants are citizens of different states. The latter is called "diversity" jurisdiction, and it has a long history of being "disfavored" by federal courts. As I wrote before, in discussing one of the games defendants play to remove cases, "much like how we prefer federal courts preside over cases bringing federal claims, we prefer state courts preside over cases bringing state claims."

So how do we determine of which States a corporation is a "citizen?" 28 U.S.C. § 1332(c)(1) says, "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business."

Incorporation is simple enough; all corporations are incorporated in one, and only one, state, most commonly Delaware.

But where is the corporation's "principle place of business?"

The Supreme Court's answered that question yesterday in Hertz Co. v. Friend et al. Here's the facts from the opinion, with substantial edits for clarity by yours truly:

In September 2007, Melinda Friend and John Nhieu, two California citizens, sued the Hertz Corporation in California state court for violations of California’s wage and hour laws as part of a potential class action on behalf of other California citizens similarly-situated to them.

Hertz removed the case to federal court claiming that the plaintiffs and the defendant were citizens of different States, and thus the federal court had diversity jurisdiction over the claims. Friend and Nhieu, however, claimed that the Hertz Corporation was a California citizen, like themselves, and that, hence, diversity jurisdiction was lacking.

To support its position, Hertz submitted a declaration by an employee relations manager that claimed Hertz’s “principal place of business” was in New Jersey, not in California, because — though its California operations accounted for 273 of Hertz’s 1,606 car rental locations, about 2,300 of its 11,230 full-time employees, about $811 million of its $4.371 billion in annual revenue and about 3.8 million of its approximately 21 million rentals — the leadership of Hertz and its domestic subsidiaries is located at Hertz’s corporate headquarters in Park Ridge, New Jersey, where its core executive and administrative functions are carried out, except for some lesser, but still substantial, administrative operations in Oklahoma City, Oklahoma.

Let's start with the big picture: this case has no business being in federal court. It's a class action brought solely by California residents alleging solely California-law claims against a company that has more business in California than anywhere else. None of the concerns underlying federal jurisdiction are present. There is no reason to believe that Hertz would be prejudiced by having the case heard by a California state court, and there are no federal issues in the case.

As the Supreme Court noted yesterday, two-hundred-and-one years ago, the Supreme Court, in a unanimous opinion by Chief Justice Marshall, scoffed at the very notion that a corporation was a "citizen" entitled to diversity jurisdiction: “the term citizen ought to be understood as it is used in the constitution, and as it is used in other laws. That is, to describe the real persons who come into court, in this case, under their corporate name.” Bank of United States v. Deveaux, 5 Cranch 91–92 (1809); see Slip op., p.5. If that was the law today, Hertz would not be entitled to remove any state-law case from any state court, since it would be a "citizen" everywhere.

But that was then, this is now. The statute we have today says Hertz is a citizen "of any State by which it has been incorporated and of the State where it has its principal place of business." If Hertz is sued anywhere else, it can remove the case to federal court. So where is its "principle place of business?"

Prior to the Hertz opinion yesterday, the answer depended upon the Circuit in which the case was brought. Friend's case was brought in the Ninth Circuit,

which instructs courts to identify a corporation’s “principal place of business” by first determining the amount of a corporation’s business activity State by State. If the amount of activity is “significantly larger” or “substantially predominates” in one State, then that State is the corporation’s “principal place of business.” If there is no such State, then the “principal place of business” is the corporation’s “‘nerve center,’” i.e., the place where “‘the majority of its executive and administrative functions are performed.’”

Slip op., p. 3. Other courts, like those in the Seventh Circuit, jumped straight to the "nerve center" approach.

Yesterday, the Supreme Court held that the "nerve center" test is the only test, that "the phrase 'principal place of business' refers to the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities." Slip op., p. 1.

The opinion is a classic example of Justice Breyer's methodology; long on "administrative simplicity" (p. 13), short on the plain meaning rule. I will leave, as an exercise for the reader, the question of whether the Court's unanimous opinion is consistent with the originalism and formalism pressed by four, sometimes five, members of the Court.

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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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Back in December, the Supreme Court held oral argument on Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection. Though the case raises several issues, the primary question is:

The Florida Supreme Court invoked “nonexistent rules of state substantive law” to reverse 100 years of uniform holdings that littoral rights are constitutionally protected. In doing so, did the Florida Court’s decision cause a “judicial taking” proscribed by the Fifth and Fourteenth Amendments to the U.S. Constitution?

(See the summary at SCOTUSWiki for more.) "Judicial taking" is in quotes for a reason: the claim has never been recognized by any Federal court.

The founder of our firm, James E. Beasley, Sr., used to say "law is made on a lawyer's desk."

Let me explain.

Brown v. Board of Education was not a simple change of heart by the Supreme Court. It was the culmination of a century of litigation challenging the treatment of African Americans in education.

Even the reasoning of Brown v. Board of Education — striking down Plessy v. Ferguson by holding "separate but equal" was inherently unequal — was born not in the Supreme Court's chambers in 1954, but on Charles Hamilton Houston's desk in the 1930s. Whole books have been written on the strategy and the years of internal debates within the NAACP as to how to best frame the issue for a favorable Supreme Court opinion.

Courts do not, and cannot, change the law on their own. Federal courts in particular need a "case or controversy" to act at all.

To make new law, Federal and state courts need lawyers who can envision how the law should change before even filing suit, lawyers who can carefully guide the case — from the factual record to the preservation of arguments — through the trial courts and to the Supreme Court with the issue properly framed for judicial disposition. 

All of that happens on a lawyer's desk.

Back to Stop the Beach Renourishment, Inc. How do you get a court to recognize a claim that has never been recognized before?

First, you argue that precedent has implicitly supported the claim all along:

This Court’s prior cases provide a sound doctrinal basis for adopting a judicial takings doctrine. Specifically, this Court should adopt the judicial takings test articulated by Justice Stewart in Hughes that a state judicial decision effects a taking under the U.S. Constitution when it “constitutes a sudden change in state law, unpredictable in terms of relevant precedents.” See Hughes v. Washington, 389 U.S. 290, 296 (1967) (Stewart, J., concurring).

This Court has expressly held that the Equal Protection and the Due Process Clauses apply to state judiciaries. The Takings Clause should apply to state courts as well. Without such a doctrine, a state is free to clothe one of its agents with the power to violate the U.S. Constitution. Ex Parte Virginia, 100 U.S. 339, 346 (1879).

Merits Brief, pp. 17–18.

Second, you argue why recognizing the claim is a good idea anyway:

First, nothing in the text of the Fifth Amendment suggests that it applies to one branch of government and not others. ... Second, the Takings Clause is founded upon basic notions of fairness and justice. ... Third, this Court’s takings jurisprudence provides no basis for distinguishing between action of a state’s court and those of its legislative or executive branches. ... Fourth, if state courts are free to reorder property rights insulated from the Takings Clause’s requirement to pay compensation, then the legislative and executive branches will no longer change the law themselves (and pay for it); rather they will encourage the judiciary to make the change so that the state does not have to pay compensation. ... Fifth, the stability of property rights is the foundation for a healthy economy.

Id., pp. 44–47.

Finally, you address why recognizing the claim will not 'open up the floodgates' to further litigation:

Despite suggestions to the contrary, a judicial takings doctrine based on Justice Stewart’s test is workable and will not result in a flood of litigation. Lower courts have had little trouble recognizing a sudden and dramatic change in property law. ... Moreover, the proposed ad-hoc test can be applied easily just like other ad-hoc tests this Court has developed.

Id., p. 48. Whoever is opposing the claim will inevitably argue that your claim will "open the floodgates," so it is essential that you use some form of the "flood" metaphor. (Don't believe me? Here's all 101 times in the last two years the "floodgates" metaphor has been used in briefs filed with the Supreme Court.)

Will it work? It's hard to tell. Justice Stevens, a Florida property-holder, recused himself, creating the possibility of a 4-4 split, which would leave the Florida Supreme Court's opinion intact and would not create new law.

Moreover, the Supreme Court is typically hesitant to second-guess a state Supreme Court's interpretations of its own laws (unless, of course, the case is Bush v. Gore). Property law, in turn, is purely a creation of state common law, unmoored from even the canons of statutory construction, much less Federal constitutional principles.

If new law is made by this case, it will have been made not in the chambers of the Supreme Court, but rather on the desk of the many lawyers who developed the theory of "judicial taking" over the years and the lawyers filed Stop the Beach Renourishment's petition back in 2004.

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Warren Buffet often gets credit for coining the phrase "skin in the game" — even though it's not his — and his definition is, shall we say, on the money. "Skin in the game" makes a difference:

Mutual funds whose directors have "skin in the game" significantly outperform their competitors, according to a study by Syracuse University Prof. David Weinbaum. His results confirm the commonly held belief that directors who are invested in the funds that they oversee act as better stewards than directors who don't have any money on the line.

It's not the first time Prof. Weinbaum has shown that.

I'm a big believer of "skin in the game" — virtually all of my clients are on a contingent fee — and have written before about how contingency fees reduce frivolous litigation and how third-party investment in lawsuits can level the playing field against well-funded defendants.

So I was happy to read Why Investment Bankers Should Have (Some) Personal Liability at The Harvard Law School Forum on Corporate Governance and Financial Regulation:

We have written a short paper for a symposium on the work of Adolf Berle in which we advocate reintroducing some measure of personal liability for bankers, as was the case in Berle’s day, and indeed up through the 1980’s. We describe in our paper the broad outlines of a proposal to impose some measure of personal liability for a bank’s debts on the most highly paid bankers. The proposal would revive two mechanisms that imposed personal liability in an earlier era: general partnership, which was common for investment banks prior to the 1980s, and assessable stock, which was relatively common in corporations including some commercial banks through the 1930s.

It is difficult to imagine the investment banking business returning to the partnerships of old. General partnership – with the illiquidity and liability it imposes on general partners and the constraints it imposes on a bank’s ability to raise capital – probably will not be considered a viable option. It is also difficult to imagine corporations in the financial services industry issuing assessable stock to all of their shareholders or regulators seeking to require them to do so.

Our objective is to design another way to impose some of the risks of unlimited liability on the most highly compensated managers and other decision makers at investment banks and other financial services and trading firms. We seek to do so without requiring the firm itself to switch to general partnership form or to make any other change in its organizational or capital structure. We discuss below two alternatives, each one based on historical precedent.

We could argue all day about whether the theoretical incentives investment bankers have are good enough to keep them from crashing the whole financial system — a whole cottage industry has developed in the pages of the Wall Street Journal, Forbes and Business Week to do just that. But the facts are undeniable: our banking industry is broken, dangerously so.

I don't see how we can fix that without giving the bankers some "skin in the game."

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Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003) is, as I wrote before, the Tale of Genji for electronic discovery. It is as widely-cited as all but the most prominent of Supreme Court opinions.

Gregory P. Joseph brings us selections from Judge Scheindlin’s new magnum opus on the subject, Pension Comm. of Univ. of Montreal, 2010 U.S. Dist. LEXIS 4546 (S.D.N.Y. Jan. 15, 2010):

In an era where vast amounts of electronic information is available for review, discovery in certain cases has become increasingly complex and expensive. Courts cannot and do not expect that any party can meet a standard of perfection. Nonetheless, the courts have a right to expect that litigants and counsel will take the necessary steps to ensure that relevant records are preserved when litigation is reasonably anticipated, and that such records are collected, reviewed, and produced to the opposing party. As discussed six years ago in the Zubulake opinions, when this does not happen, the integrity of the judicial process is harmed and the courts are required to fashion a remedy. Once again, I have been compelled to closely review the discovery efforts of parties in a litigation, and once again have found that those efforts were flawed. As famously noted, "[t]hose who cannot remember the past are condemned to repeat it." By now, it should be abundantly clear that the duty to preserve means what it says and that a failure to preserve records — paper or electronic — and to search in the right places for those records, will inevitably result in the spoliation of evidence.

The Court granted sanctions in the form of an adverse inference / spolitation instruction and monetary compensation to opposing counsel.

Going forward, courts will no longer accept excuses when corporations allow relevant evidence to be destroyed by failing to implement adequate controls:

After a discovery duty is well established, the failure to adhere to contemporary standards can be considered gross negligence. Thus, after the final relevant Zubulake opinion in July, 2004, the following failures support a finding of gross negligence, when the duty to preserve has attached:

• to issue a written litigation hold;
• to identify all of the key players and to ensure that their electronic and paper records are preserved;
• to cease the deletion of email or to preserve the records of former employees that are in a party's possession, custody, or control; and
• to preserve backup tapes when they are the sole source of relevant information or when they relate to key players, if the relevant information maintained by those players is not obtainable from readily accessible sources.

(Emphasis and formatting added).

Consider yourselves warned.

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Sometimes, a police officer's hunch is right:

Columbia [Missouri] Police Officer Jessica McNabb pulled over then-19-year-old Daniel Sanders at Stadium Boulevard and Audubon Drive for running a red light and failing to use his headlights at night. Sanders didn't have a license. He asked for an attorney almost immediately.

After a search of the trunk, McNabb found the body of Sanders' mother beneath a tire — next to a new shovel with the price tag still on it.

Sometimes not:

Jordan Miles, who is black, thought his life was in jeopardy when three white men jumped out of a car on the night of January 11 as he walked not far from his home.

"My son tried to run thinking his life was in jeopardy," Terez Miles said. "He made three steps before he slipped and fell." After that, she said, the [Pittsburgh] police used a stun gun and beat him, pulling out a chunk of his hair.

The criminal complaint says the officers, considering Jordan Miles' appearance suspicious, got out of the car and identified themselves as police. He tried to flee, fell, and then struggled to escape.

The officers "delivered 2-3 closed fist strikes to Miles' head/face with still no effect," and then a "knee strike to Miles' head causing him to momentarily stop resisting," so that he could be handcuffed, the document says.

Miles' mother said the officers did not identify themselves as police to her son, a viola player and student at the city's Creative and Performing Arts High School.

The complaint says the police officers believed Miles was engaged in criminal activity and possibly armed with a "large heavy object." The object turned out to be a bottle of Mountain Dew.

There's a law for both:

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Ironically, Daniel Sanders might have a better chance of avoiding a conviction for his mother's murder than Jordan Miles has of recovering compensation for his injuries.

Last year, the Supreme Court held in Arizona v. Gant that the Fourth Amendment prohibits "a vehicle search incident to a recent occupant’s arrest after the arrestee has been secured and cannot access the interior of the vehicle," with a limited exception for such searches "when it is reasonable to believe that evidence of the offense of arrest might be found in the vehicle."

Sanders was not pulled over or arrested for his mother's murder, so the exception doesn't apply. There's no doubt that he was "secured" — he didn't even put up a fight, he just asked for his lawyer.

His lawyer has moved to exclude from the trial all evidence found from the search of Sanders' car, including, of course, his mother's body:

In that motion, [Sanders' lawyer] Slusher said McNabb continued to question Sanders after he asked for an attorney and that the search of the car was conducted without a warrant or probable cause. Slusher characterized the search and the continued questioning as unconstitutional and thus inadmissible in trial.

He might win it. I'm sure the district attorney's office is burning the midnight oil to find some daylight in Arizona v. Gant.*

Returning to Miles, it's quite possible that the officers identified themselves as police and that Miles didn't hear them. Police confrontations are often fraught with confusion. Consider this instance:

Defendant Murphy approached the driver's side window and asked Plaintiff to produce his identification and credentials for inspection. (Frohner Dep. at 39.) Plaintiff, who kept his credentials in the door pocket of the driver's side door when driving, (Pl.'s Br. Ex. C at 4), began to reach down to retrieve his credentials. (Frohner Dep. at 39.) As Plaintiff was reaching down, Defendant Murphy shouted at Plaintiff, "keep your hands where I can see them." (Id. at 39-40.) Plaintiff, "[n]ot immediately understanding what was transpiring," continued to reach for his credentials in the door pocket, which prompted Defendant Murphy, who by this time had drawn his firearm, to again shout to Plaintiff to keep his hands in view. (Id. at 39-42.) Plaintiff complied with Defendant Murphy's second order and ceased reaching down to the door pocket. (Id. at 40.)

Frohner v. City of Wildwood, 07-1174 (D.N.J. 2008).

Plaintiff there — who was almost shot — was an on-duty undercover FBI agent. He was approached by a uniformed police officer who had pulled him over in a marked police car. Yet, even he didn't "immediately understand what was transpiring."

Consider what Miles would have "immediately understood" when three men in plainclothes jumped out of a car and started chasing him.

To win in a civil lawsuit, though, Miles has to show more than that the officers made a mistake.

First, he has to show his constitutional rights were violated. Then, he must overcome qualified immunity by showing "it would be clear to a reasonable officer that his conduct was unlawful in the situation he confronted." Curley v. Klem, 499 F.3d 199, 206-07 (3d Cir. 2007). Neither is easy to prove; most plaintiffs alleging violations of their constitutional rights lose their cases.

Miles has two constitutional rights that were potentially violated: the right to be free from false arrest and the right not to be subjected to excessive force during an arrest. I don't know what about his "appearance" was "suspicious," but the article reports "the police officers believed Miles was engaged in criminal activity and possibly armed with a large heavy object." From that, we can presume their nominal purpose was to perform a Terry v. Ohio stop and frisk to see if the Mountain Dew was an illegal weapon. If either the judge or the jury believes that, then the officers (really, the City of Pittsburgh, which will indemnify them) are free from liability for the false arrest claim.

When it comes to the excessive force claim:

In deciding whether challenged conduct constitutes excessive force, a court must determine the objective reasonableness of the challenged conduct, considering the severity of the crime at issue, whether the suspect poses an immediate threat to the safety of the officer or others, and whether he is actively resisting arrest or attempting to evade arrest by flight. Other factors include the duration of the officer's action, whether the action takes place in the context of effecting an arrest, the possibility that the suspect may be armed, and the number of persons with whom the police officers must contend at one time.

Couden v. Duffy, 446 F.3d 483, 496-97 (3d Cir. 2006). 

Hence the emphasis on the Mountain Dew: the officers want to justify their conduct by arguing "the possibility that the suspect may be armed." It also likely that, at some point, Miles was "actively resisting arrest or attempting to evade arrest by flight," given that he thought he was being assaulted. Such resistance, under excessive force precedent, makes the officers' punching and kicking less "objectively unreasonable."

After showing all of the above, Miles must also show the judge "it would be clear to a reasonable officer that his conduct was unlawful in the situation he confronted" to overcome qualified immunity. Miles can't just show what the officers did was wrong; he has to show it was so wrong that the officers had to know it was illegal.

Can Miles do that? Maybe so. Then again, a lot of constitutional rights / qualified immunity cases — like Curley v. Klem, in which a police officer was accidentally shot — end with a jury verdict for the defendant and a speech from the appellate court like so:

The mistake Klem made has undoubtedly been terrible in its long-term consequences for Officer Curley and his family, and we do not for a moment discount the pain, sorrow, expense, and frustration that it has visited on them in their innocence. But a mistake, though it may be terrible in its effects, is not always the equivalent of a constitutional violation. ... "[P]olice officers are often forced to make split-second judgments — in circumstances that are tense, uncertain, and rapidly evolving — about the amount of force that is necessary in a particular situation." Graham, 490 U.S. at 397, 109 S.Ct. 1865. Those were the circumstances facing both Trooper Klem and Officer Curley at the George Washington Bridge toll plaza. Viewed from that perspective, Saucier, 533 U.S. at 205, 121 S.Ct. 2151, the seizure effected by the mistaken shooting was not unreasonable under the Fourth Amendment. It therefore was not a constitutional violation.

Courts of law, not of justice.

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[UPDATE: The WSJ Law Blog rounds up reactions by the parties, while SCOTUSBlog rounds up reactions from the media and bloggers.]

[UPDATE II: For a peek behind the corporate curtain, see the memo that Republican election lawyer Benjamin L. Ginsberg (of Patton Boggs) is circulating. I think he's going too far in his conclusions; as much as he and his clients would like corporations' electioneering to drown out candidates' and parties' own communications, the disclosure requirements — which were upheld by the Court 8-1 — put a significant damper on that, since the money can still be traced to some extent, and since voters can generally discern if an ad is from a campaign or from some shadow group with an Orwellian name.]

The Citizens United v. FEC opinion has been released, with a majority opinion, two concurrences, and two concurrences-dissents, totaling 183 pages. For those of you keeping score at home:

KENNEDY, J., delivered the opinion of the Court, in which ROBERTS, C. J., and SCALIA and ALITO, JJ., joined, in which THOMAS, J., joined as to all but Part IV, and in which STEVENS, GINSBURG, BREYER, and SOTOMAYOR, JJ., joined as to Part IV.

ROBERTS, C. J., filed a concurring opinion, in which ALITO, J., joined.

SCALIA, J., filed a concurring opinion, in which ALITO, J., joined, and in which THOMAS, J., joined in part.

STEVENS, J., filed an opinion concurring in part and dissenting in part, in which GINSBURG, BREYER, and SOTOMAYOR, JJ., joined.

THOMAS, J., filed an opinion concurring in part and dissenting in part

Here's how Justice Kennedy (joined by Scalia, Thomas, Alito and Roberts) describe the statute at issue:

The law before us is an outright ban, backed by criminal sanctions. Section 441b makes it a felony for all corporations—including nonprofit advocacy corporations—either to expressly advocate the election or defeat of candidates or to broadcast electioneering communications within 30days of a primary election and 60 days of a general election. Thus, the following acts would all be felonies under §441b: The Sierra Club runs an ad, within the crucial phase of 60 days before the general election, that exhorts the public to disapprove of a Congressman who favors logging in national forests; the National Rifle Association publishes a book urging the public to vote for the challenger because the incumbent U. S. Senator supports a handgun ban; and the American Civil Liberties Union creates a Web site telling the public to vote for a Presidential candidate in light of that candidate’s defense of free speech. These prohibitions are classic examples of censorship.

That would, indeed, be unconstitutional.

But it's not actually the law.

Corporations, unions, and nonprofits can do all of the above, they just have to do it through a Political Action Committee. To the five conservative Justices, that, apparently, is too much:

Section 441b is a ban on corporate speech notwithstanding the fact that a PAC created by a corporation can still speak. See McConnell, 540 U. S., at 330–333 (opinion of KENNEDY, J.). A PAC is a separate association from the corporation. So the PAC exemption from §441b’s expenditure ban, §441b(b)(2), does not allow corporations to speak. Even if a PAC could somehow allow a corporation to speak—and it does not—the option to form PACs does not alleviate the First Amendment problems with §441b. PACs are burdensome alternatives; they are expensive to administer and subject to extensive regulations. For example, every PAC must appoint a treasurer, forward donations to the treasurer promptly, keep detailed records of the identities of the persons making donations, preserve receipts for three years, and file an organization statement and report changes to this information within 10 days. ...

PACs have to comply with these regulations just to speak. This might explain why fewer than 2,000 of the millions of corporations in this country have PACs. ... PACs, furthermore, must exist before they can speak. Given the onerous restrictions, a corporation may not be able to establish a PAC in time to make its views known regarding candidates and issues in a current campaign.

For shame. You run a multi-billion-dollar company and, before you can spend millions of dollars to influence an election, the mean old government demands you spend a couple grand on lawyers to set up a separate, regulated entity with disclosure requirements so that the public can actually know who is spending millions of dollars to influence an election.

It's all so unfair.

Justice Stevens' dissent (joined by Ginsburg, Breyer and Sotomayor) starts off with that malarkey: 

The real issue in this case concerns how, not if, the appellant may finance its electioneering. Citizens United is a wealthy nonprofit corporation that runs a political action committee (PAC) with millions of dollars in assets. Under the Bipartisan Campaign Reform Act of 2002 (BCRA), it could have used those assets to televise and promote Hillary: The Movie wherever and whenever it wanted to. It also could have spent unrestricted sums to broadcast Hillary at any time other than the 30 days before the last primary election. Neither Citizens United’s nor any other corporation’s speech has been “banned,” ante, at 1. All that the parties dispute is whether Citizens United had a right to use the funds in its general treasury to pay for broadcasts during the 30-day period. The notion that the First Amendment dictates an affirmative answer to that question is, in my judgment, profoundly misguided. Even more misguided is the notion that the Court must rewrite the law relating to campaign expenditures by for-profit corporations and unions to decide this case. ...

Pervading the Court’s analysis is the ominous image of a “categorical ba[n]” on corporate speech. Ante, at 45. Indeed, the majority invokes the specter of a “ban” on nearly every page of its opinion. Ante, at 1, 4, 7, 10, 11, 12, 13, 16, 20, 21, 22, 23, 26, 27, 28, 29, 30, 31, 33, 35, 38, 40, 42, 45, 46, 47, 49, 54, 56. This characterization is highly misleading, and needs to be corrected.

In fact it already has been. Our cases have repeatedly pointed out that, "contrary to the [majority's] critical assumptions,” the statutes upheld in Austin and McConnell do “not impose an absolute ban on all forms of corporate political spending.” Austin, 494 U. S., at 660; see also McConnell, 540 U. S., at 203–204; Beaumont, 539 U. S., at 162–163. For starters, both statutes provide exemptions for PACs, separate segregated funds established by a corporation for political purposes. See 2 U. S. C. §441b(b)(2)(C); Mich. Comp. Laws Ann. §169.255 (West 2005). “The ability to form and administer separate segregated funds,” we observed in McConnell, “has provided corporations and unions with a constitutionally sufficient opportunity to engage in express advocacy. That has been this Court’s unanimous view.” 540 U. S., at 203.

But what of the so-called "original meaning" of the Constitution — did the Framers intend the First Amendment's broad language to prohibit regulatory requirements for corporate speech?

[W]hereas we have no evidence to support the notion that the Framers would have wanted corporations to have the same rights as natural persons in the electoral context, we have ample evidence to suggest that they would have been appalled by the evidence of corruption that Congress unearthed in developing BCRA and that the Court today discounts to irrelevance. It is fair to say that “[t]he Framers were obsessed with corruption,” Teachout 348, which they understood to encompass the dependency of public officeholders on private interests, see id., at 373– 374; see also Randall, 548 U. S., at 280 (STEVENS, J., dissenting). They discussed corruption “more often in the Constitutional Convention than factions, violence, or instability.” Teachout 352. When they brought our constitutional order into being, the Framers had their minds trained on a threat to republican self-government that this Court has lost sight of.

So much for "originalism."

Stevens' conclusion puts the case in proper perspective:

In a democratic society, the longstanding consensus on the need to limit corporate campaign spending should outweigh the wooden application of judge-made rules. The majority’s rejection of this principle “elevate[s] corporations to a level of deference which has not been seen at least since the days when substantive due process was regularly used to invalidate regulatory legislation thought to unfairly impinge upon established economic interests.” Bellotti, 435 U. S., at 817, n. 13 (White, J., dissenting). At bottom, the Court’s opinion is thus a rejection of the common sense of the American people, who have recognized a need to prevent corporations from undermining self government since the founding, and who have fought against the distinctive corrupting potential of corporate electioneering since the days of Theodore Roosevelt. It is a strange time to repudiate that common sense. While American democracy is imperfect, few outside the majority of this Court would have thought its flaws included a dearth of corporate money in politics.

It's Kennedy's, Scalia's, Thomas', Alito's and Roberts' country; the rest of us just live in it.

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Fred Wilson links to his partner Brad Burnham's post, "We need an independent invention defense to minimize the damage of aggressive patent trolls:"

I know of no case where the engineers in one of our companies were aware of the patents that are now being used to attack them. The moral rightness of this screams at me. If, as an engineer focused on solving a problem, I happened to come up with an idea that is in some way similar to yours, then that in itself should suggest that it was obvious and not patentable. Unfortunately, that does not really help. There, the burden of proof is still on the startup and it is still smarter to settle than to burn precious capital on a defense.

If, on the other hand, the troll was required to show the startup had some prior knowledge of their technology, the burden would be shifted to the attacker, and this blatant abuse would come to a grinding halt. If you believe as I do that innovation is key to social progress, please support patent reform. It is a complicated issue, but an independent invention defense is an obvious place to start.

(Emphasis mine; keep reading to see why.)

Though I sympathize with Brad's concerns — patent infringement litigation is both high stakes and notoriously expensive, and thus risky and burdensome even for defendants likely to prevail at trial — I have a couple issues with an independent invention defense. 

First, the defense already exists to some extent in the form of differing damages for "infringement" compared to "willful infringement." If the plaintiff cannot prove at least "objective recklessness" — which is quite hard to do in the wake of In Re Seagate Technology, since the defendant has no affirmative duty to avoid infringement — then the plaintiff cannot recover treble damages or attorneys' fees. The stakes are thus lower in genuine "independent invention" cases.

Second, an independent invention defense would discourage individuals and businesses from doing an adequate patent search before investing resources into novel solutions. One of the primary reasons we have a public patenting process (rather than merely protection of private trade secrets) is to make inventions easily available to the public for use. How many times would the wheel have been reinvented if it had been kept secret? Though frustrating to businesses, from a societal standpoint patent licensing is generally preferable to the redundant investment of time, effort and money into solving problems with known solutions.

Third, an independent invention defense would be ripe for abuse. Independent invention is already a defense to to a willful patent infringement claim; making independent innovation a complete defense would give defendants an even greater incentive to manufacture "evidence" showing their "independent" invention. Worse, genuine invention is often quite messy; the independent invention defense could thus perversely protect only those defendants who from the start knew to create a trail of "evidence."

That's not to say we don't have problems with our patent system. We do. I just don't think an independent invention defense is the way to go.

So let's talk about the part of Brad's post I emphasized: obviousness and the burden of proof.

A recurring theme in the comments to Brad's post and Fred's post is the complaint that many patented "inventions," particularly in the Silicon Valley industries, are not particularly inventive. Patent law is supposed to guard against this problem. Indeed, the most common defense in patent suits is a counterclaim by the defendant that the patent is invalid because it is too obvious.

35 U.S.C. § 103 forbids patents where "the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." The Supreme Court has explained the analysis as such:

Under § 103, the scope and content of the prior art are to be determined; differences between the prior art and the claims at issue are to be ascertained; and the level of ordinary skill in the pertinent art resolved. Against this background the obviousness or nonobviousness of the subject matter is determined. Such secondary considerations as commercial success, long felt but unsolved needs, failure of others, etc., might be utilized to give light to the circumstances surrounding the origin of the subject matter sought to be patented.

More pertinent here is how a finding of "obviousness" is the only tool courts have to mitigate the high stakes and high expense of patent infringement cases with questionable, but not outright dubious, merit.

Finding "obviousness" as a matter of law is a nuclear option; it requires the court dismiss the case, simultaneously creating precedent barring the defendant from any future litigation on the patent in the future and creating a basis for any current licensees to stop payment to the defendant. Courts' hesitation to use that nuclear option — particularly given the standards governing summary judgment and courts' unfamiliarity with the state of innovation in highly technical industries — is understandable.

So what to do?

Change the burdens.

It's not a new idea; employment-discrimination cases routinely apply the McDonnell-Douglas burden-shifting framework at summary judgment.

Right now, in terms of "obviousness," a court has two options:

1. Find the patent "obvious" as a matter of law, thereby blowing up the case and invalidating the patent;
2. Leave "obviousness" up to the jury, where the defendant has the burden of proving the patent is "obvious."

As Brad complains, #2 may be a hollow remedy.

So why not add another option? Why not allow the court to put the burden of nonobviousness upon the plaintiff if the defendant shows, pre-trial, a "cogent and compelling" argument that the patent was obvious? ("Congent and compelling" isn't foreign to courts either; such a showing is required in securities fraud cases under Tellabs.)

A court could further mitigate the pre-trial risk to the defendant by ordering bifurcation of the trial; i.e., first there's a trial on "obviousness," and then, if the patent is "nonobvious," there's a trial on infringement. Adding some element of fee-shifting — e.g., a plaintiff who loses the "obviousness" trial has to pay the trial fees of the defendant — would create a market for contingent fee defense of patent infringement suits, and thereby mitigate the "burn[ing] of precious capital ..."

Just a thought.

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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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[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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As The Legal Intelligencer is reporting, yesterday the Pennsylvania Commonwealth Court affirmed an order by the Orphans’ Division of the Philadelphia Court of Common Pleas prohibiting the City from leasing part of Burholme Park to Fox Chase Cancer Center for use in a substantial expansion of Fox Chase.

Under the agreement, 19.4 acres of the Park would have been leased to Fox Chase for 80 years, with options to renew the lease for up to 80 more years. The bulk of the Park was donated to the City 130 years ago by Robert W. Ryerss for use “as a public park … to be called Burholme Park … for the use and enjoyment of the people forever.”

Most of Philadelphia — including the City Council and Mayor, both of whom approved the lease — seems to believe that the Cancer Center expansion would be a good thing.

But a private cancer center is not “a public park.” Does that matter?

As every law student who takes Wills, Trusts and Estates has drilled into their heads, for hundreds of years, the common laws of England and America have held that little is more important than specific word choices in transfers of real estate, wills, and the establishment of trusts. Fortunes have changed hands — and held protected — on nothing more than a word or a comma.

Although the strict common law rule has waned over the past few decades (consider the relocation of the Barnes Museum), numerous states have passed statutes affirming the same ideas. One such state, as the Commonwealth Court described, is Pennsylvania:

We note that underlying the arguments made in this case is a question as to the continuing viability of the public trust doctrine in light of the [Donated or Dedicated Property Act]. We believe that the DDPA essentially incorporates the common law public trust doctrine by imposing a duty on political subdivisions to ensure that donated or dedicated property held in trust is used for its originally intended purpose, but, at the same time, creates a mechanism by which a political subdivision may be relieved of that duty where the originally intended use of the property is no longer practicable or possible and has ceased to serve the public interest. We discern no intent on the part of the Legislature to allow a political subdivision to change the use of donated or dedicated property where the originally intended use of that property remains practicable or possible and continues to serve the public interest.

And that’s a big problem for Fox Chase Cancer Center and City of Philadelphia:

While we agree that, pursuant to Erie Golf Course, the decision of a political subdivision is entitled to considerable deference, political subdivisions do not have the authority to exceed what is permitted under the DDPA. Section 4 of the DDPA permits a political subdivision to apply to an orphans’ court for relief from fulfilling its duty under Section 3 where, “in the opinion of the political subdivision . . . , the continuation of the original use of the particular property held in trust as a public facility is no longer practicable or possible and has ceased to serve the public interest.” 53 P.S. § 3384 (emphasis added). Thus, based on this statutory language, in order to be relieved of its duty to hold the property as a trustee for the benefit of the public under Section 3, a political subdivision must establish that the original use of the property is: (1) no longer practicable or possible; and (2) has ceased to serve the public interest.
 
Here, Appellants did not meet either of these requirements. First, Appellants did not establish that the continued use of the Property as parkland is no longer practicable or possible. While the term “practicable” is not defined in the DDPA, this Court has previously relied on that term’s common usage, explaining that “[t]he word ‘practicable’ is defined in Webster’s Third New International Dictionary 1789 (2002) as ‘1: possible to practice or perform: capable of being put into practice, done or accomplished: FEASIBLE . . . .” Erie Golf Course, 963 A.2d at 613. This Court has also recognized that the term “practicable” is not limited to physical feasibility but, rather, also includes financial feasibility. Id. at 613-14. Appellants, here, do not really dispute that the City can physically and financially continue to maintain the Property as part of the Park. Instead of focusing on the practicability of the continued use of the Property as parkland, Appellants focus on the potential negative economic consequences if the Property cannot be used by Fox Chase. While we understand that Fox Chase’s inability to expand at its present location may have negative economic consequences, this is not a consideration for which the DDPA allows the City to obtain relief from its duty to continue holding the Property in trust for its originally intended use as parkland.

(emphasis in original)

It's hard to see how Philadelphia can get around the DDPA's strict, conjunctive requirements unless they can convince the Pennsylvania Supreme Court that the DDPA doesn't even apply. To those expecting a 'political' decision by the Court, bear in mind that only two Justices — Castille and McCaffery — are from Philadelphia.

Then again, unlike the common law public trust doctrine, the DDPA is a statute like any other, open to amending or rescinding at the will of the General Assembly and the Governor, the latter indeed being from Philadelphia.

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As Patently-O reports this morning, 

The Supreme Court recently rejected Medela's petition for certiorari arguing that the conclusion of obviousness should be made by a judge rather than a lay jury.

In the wake of Medela's failure, Acushnet (maker of Titleist) is now asking the Supreme Court to hold that "a court reviewing a jury's [obviousness] verdicts must always independently render its own legal conclusion regardless of whether one or all of the jury's underlying findings are accepted as adequately supported by the evidence." Taking that a step-further, Acushnet argues that a jury's verdict on the question of obviousness should be seen as "entirely advisory as to the ultimate legal conclusion." 

Medela was intriguing — and Acushnet would be even more intriguing — because many believed that the Supreme Court's unanimous opinion in KSR International Co. v. Teleflex, Inc. gave the courts even more power to dispose of patent infringement cases prior to reaching a jury trial by making the court involved even further in determining the "nonobviousness"* of new inventions.

The denial of certiorari in Medela, however, implied the opposite, thereby preserving the primary role of juries — to resolve factual disputes — in patent cases.  A denial of certiorari in Acushnet would be a big win for plaintiffs, since it would empower them to argue that the district court can only grant summary judgment if there is no way the jury could find the patented invention "nonobvious."

On the merits of the petition, Acushnet's argument is incompatible with the civil litigation and jury trial system envisioned by the Federal Rules of Civil Procedure. We don't demand jury service from ordinary citizens, particularly the weeks of jury service required for patent trials, just so they can render "advisory opinions." We demand jury service to evaluate the material facts over which there is a "genuine" dispute.

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Another interesting statutory construction case arising from allegations scientists at Cornell University Medical College and Thomas Jefferson University "misrepresented the findings of their DNA research when they applied for National Institute of Health research grants and did not correct the misrepresentations on subsequent progress reports and renewal applications." Problem is, the grants in question were filed back in the 1990s.

As Judge Savage recounts,

The [False Claims Act] prohibits 'any person from making false or fraudulent claims for payment to the United States.' Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, 545 U.S. 409, 411, 125 S. Ct. 2444, 162 L. Ed. 2d 390 (2005); 31 U.S.C. § 3729(a). Any person found liable for violating the FCA is subject to a civil penalty of $ 5,000 to $ 10,000 per violation and treble damages. 31 U.S.C.A. § 3729(a) (West Supp. 2008); Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 181 (3d Cir. 2001).

An action under the FCA may be commenced in one of two ways. The attorney general may sue on behalf of the United States government; or, a private individual, known as a relator, can bring a qui tam action. 31 U.S.C.A. § 3730(a), (b)(1); Graham County, 545 U.S. at 411-12 (citing Vermont Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 769-72, 120 S. Ct. 1858, 146 L. Ed. 2d 836 (2000)). Because the relator brings the action on behalf of the government, he must give the government notice of the action. The government has sixty days from the filing of a qui tam complaint to elect to intervene in the action, and, for good cause shown, can petition the court to permit it to intervene at a later date. Graham County, 545 U.S. at 412; § 3730(b)(2) and (c)(3).

A civil action under the FCA must be brought within six years of the violation or within three years of the date when the government learned or should have learned the facts material to the violation, whichever is later. Id. §§ (b)(1), (2). In no event may an action be brought after ten years of a violation. Id. Specifically, the FCA statute of limitations provides:

(b) A civil action under [the False Claims Act] may not be brought -

(1) more than 6 years after the date on which the violation of [the False Claims Act] is committed, or

(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed,

whichever occurs last.

31 U.S.C.A. § 3731(b) (2003).

The critical difference between § (b)(1) and (b)(2) is that under § (b)(1), the statute of limitations begins to run when the violation occurs, whereas under § (b)(2), it begins to run when the appropriate person learned or should have learned facts putting him on notice that a violation occurred. A conflict arises from the interplay between the unusual procedure allowing a private party to bring a qui tam action on behalf of the government and the language of the tolling provision, which appears to relate only to the government. It is this conflict that raises the issues confronting us in this case."

United States ex rel. Bauchwitz, No. 04-2892, 2009 U.S. Dist. LEXIS 111919, at *23–25 (E.D. Pa. Dec. 1, 2009).

There's no obvious right answer:

The circuits and district courts that have considered the issue are split as to whether § 3731(b)(2) applies to private relators in actions where the government has not intervened. The Courts of Appeals for the Fourth, Fifth and Tenth Circuits have held that the tolling provision does not apply to qui tam actions where the government has not intervened. United States ex rel. Sanders v. N. Am. Bus Indus., 546 F.3d 288 (4th Cir. 2008), cert. denied, 129 S. Ct. 2793, 174 L. Ed. 2d 291 (2009); United States ex rel. Erskine v. Baker, 213 F.3d 638, 2000 WL 554644 (5th Cir. 2000) (unpublished table opinion); United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 725 (10th Cir. 2006). In contrast, the Ninth Circuit, as well as district courts in Massachusetts, Georgia and Illinois, apply § 3731(b)(2) to private actions even where the government has not intervened. United States ex rel. Hyatt v. Northrup Corp., 91 F.3d 1211, 1214, 1217 (9th Cir. 1996); United States ex rel. Ven-A-Care v. Actavis Mid Atlantic LLC, ___ F. Supp. 2d ___, 2009 U.S. Dist. LEXIS 92945, 2009 WL 3171798 (D. Mass. 2009); United States ex rel. Lewis v. Walker, No. 3:06-CV-16, 2007 U.S. Dist. LEXIS 68208, 2007 WL 2713018 (M.D. Ga. Sept. 14, 2007); United States ex rel. Bidani v. Lewis, No. 97 C 6502, 1999 U.S. Dist. LEXIS 3530, 1999 WL163053 (N.D. Ill. Mar. 12, 1999). The Third Circuit has not decided the issue.

Id. at *51–52.

Although the Third Circuit's precedent leans towards allowing relators in non-intervention cases to rely on statutory provisions arguably meant only for use by the government when it intervenes, the Supreme Court says otherwise:

The Third Circuit's view of the relator's status vis-a-vis the government is no longer viable in light of the Supreme Court's recent holding in United States ex rel. Eisenstein v. City of New York, 129 S. Ct. 2230, 173 L. Ed. 2d 1255 (2009). There, the Supreme Court held that the relator in a non-intervened FCA case cannot invoke the sixty-day deadline applicable to the United States as a party for filing a notice of appeal under Fed. R. App. P. 4(a)(1)(B). Resolving the circuit split, the Supreme Court determined that the government's retaining an interest in an FCA case in which it has not intervened does not make it a 'party.' 129 S. Ct. at 2233. It concluded that this interest does not convert the government's status as a real party in interest to that of a 'party' in the litigation in which it has declined to intervene. Id. at 2235. Consequently, the relator cannot be deemed to have the same status as the government.

Because the Third Circuit's rationale regarding the relator's status in Rodriguez has been rejected, it cannot support a holding that would permit a relator to take advantage of a tolling provision applicable only to the government. 54 It has been replaced by the reasoning of the Supreme Court in Eisenstein. Therefore, following that reasoning, we conclude that the three-year tolling period in § 3731(b)(2) does not apply in cases where the government does not intervene.

Id. at *55–56.

Summary judgment granted, case dismissed. It's not good material for appeal or certiorari, either, as the Eastern District of Pennsylvania also held "Even if the tolling provision applies, as [plaintiff] argues it does, the result would be the same. Because [relator] possessed knowledge of the facts underpinning his allegations regarding all three areas of the defendants' fraudulent statements by 1999 and their probable connection to grants, the claims that are barred by the six-year limitations period would also be barred by the three-year tolling period."

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The Mohawk Industries v. Carpenter (08-678) slip opinion, written by Justice Sotomayor, is available here. Here is the core of the reasoning:

The crucial question, however, is not whether an interest is important in the abstract; it is whether deferring review until final judgment so imperils the interest as to justify the cost of allowing immediate appeal of the entire class of relevant orders. We routinely require litigants to wait until after final judgment to vindicate valuable rights, including rights central to our adversarial system.See, e.g., Richardson-Merrell, 472 U. S., at 426 (holding an order disqualifying counsel in a civil case did not qualify for immediate appeal under the collateral order doctrine); Flanagan v. United States, 465 U. S. 259, 260 (1984) (reaching the same result in a criminal case, notwithstanding the Sixth Amendment rights at stake). In Digital Equipment, we rejected an assertion that collateral order review was necessary to promote “the public policy favoring voluntary resolution of disputes.” 511 U. S., at 881. “It defies common sense,” we explained, “to maintain that parties’ readiness to settle will be significantly dampened (or the corresponding public interest impaired) by a rule that a district court’s decision to let allegedly barred litigation go forward may be challenged as a matter of favor.” Ibid.

We reach a similar conclusion here. In our estimation, postjudgment appeals generally suffice to protect the rights of litigants and assure the vitality of the attorney-client privilege. Appellate courts can remedy the improper disclosure of privileged material in the same way they remedy a host of other erroneous evidentiary rulings: by vacating an adverse judgment and remanding for a new trial in which the protected material and its fruits are excluded from evidence.

As hoped, Justice Sotomayor has brought her trial experience to bear, and has contributed a practical understanding of how the law works at the trial level previously unseen in Supreme Court opinions:

Moreover, were attorneys and clients to reflect upon their appellate options, they would find that litigants confronted with a particularly injurious or novel privilege ruling have several potential avenues of review apart from collateral order appeal. First, a party may ask the district court to certify, and the court of appeals to accept, an interlocutory appeal pursuant to 28 U. S. C. §1292(b). The preconditions for §1292(b) review—“a controlling question of law,” the prompt resolution of which “may materially advance the ultimate termination of the litigation”—are most likely to be satisfied when a privilege ruling involves a new legal question or is of special consequence, and district courts should not hesitate to certify an interlocutory appeal in such cases. Second, in extraordinary circumstances—i.e., when a disclosure order “amount[s] to a judicial usurpation of power or a clear abuse of discretion,” or otherwise works a manifest injustice—a party may petition the court of appeals for a writ of mandamus. Cheney v. United States Dist. Court for D. C., 542 U. S. 367, 390 (2004) (citation and internal quotation marks omitted); see also Firestone, 449 U. S., at 378–379, n. 13.3 While these discretionary review mechanisms do not provide relief in every case, they serve as useful “safety valve[s]” for promptly correcting serious errors. Digital Equipment, 511 U. S., at 883.

Another long-recognized option is for a party to defy a disclosure order and incur court-imposed sanctions. District courts have a range of sanctions from which to choose, including “directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action,” “prohibiting the disobedient party from supporting or opposing designated claims or defenses,” or “striking pleadings in whole or in part.” Fed. Rule Civ. Proc. 37(b)(2)(i)–(iii). Such sanctions allow a party to obtain post judgment review without having to reveal its privileged information. Alternatively, when the circumstances warrant it, a district court may hold a noncomplying party in contempt. The party can then appeal directly from that ruling, at least when the con-tempt citation can be characterized as a criminal punishment. See, e.g., Church of Scientology of Cal. v. United States, 506 U. S. 9, 18, n. 11 (1992); Firestone, 449 U. S., at 377; Cobbledick v. United States, 309 U. S. 323, 328 (1940); see also Wright & Miller §3914.23, at 140–155.

(emphasis added).

I wrote before about Mohawk Industries v. Carpenter. Essentially, a host of corporate defense interests and, disturbingly, the ABA, urged the Supreme Court hold that large corporate defendants with the financial wherewithal to over-litigate cases were special and thus entitled to more appellate review than individuals.

The Supreme Court today held otherwise. It is a good ruling — by a unanimous court — that eliminates a one-sided rule that large corporations routinely used to frustrate and to delay cases. One of the most common tricks played by corporate defense lawyers goes something like this:

• First, the defense files a motion attaching cherry-picked internal documents supporting their defense, some of which were either reviewed by, or drafted by, the corporation's counsel;
• Second, when the plaintiff requests information related to those documents, the defendant asserts attorney-client privilege;
• Third, when the district court rules against the defendant, the defendant immediately files an appeal.

That game alone would add two or more years to litigation.

No longer.

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As I’ve written before, health care is “one of the ugliest businesses in America.” Health care litigation is often just as contentious.

Today’s example comes from Robotics v. Deviedma, No. 09-cv-3552, 2009 U.S. Dist. LEXIS 112077 (E.D. Pa. Nov. 30, 2009), which denied in part and granted in part Defendants’ motion to dismiss.

The facts:

Health Robotics, S.r.L. ("HRSRL") is an Italian company that designs, develops, markets and licences robotic medical preparation products. Plaintiff, Devon Robotics, signed two agreements with HRSRL for the distribution of two robotic medication preparation products for hospitals and health care facilities, i.v.Station and CytoCare. … At the time these agreements were negotiated and signed, Mr. DeViedma, one of the Defendants, served as General Counsel for HRSRL. These contracts between Devon Robotics and HRSRL contained an identical arbitration clause which requires all disputes arising from the agreement to be arbitrated in Switzerland.

Plaintiffs claim that on March 1, 2009, Mr. DeViedma was hired as Devon Robotics' Chief Operating Officer ("COO"). In his position as COO, DeViedma was solely responsible for the management of sales, marketing, support and installation of CytoCare robots on Devon's behalf. All of Devon Robotics' employees reported directly to DeViedma. Additionally, Mr. DeViedma served as the primary contact between Devon and HRSRL.

* * *

In December 2008, Devon Robotics began negotiating a contract with McKesson Corporation, another defendant, which would give McKesson the right to distribute CytoCare within a certain territory in the United States. DeViedma played a key role in negotiating the contract as Devon Robotics' COO. On December 22, 2008, Devon Robotics and McKesson entered into a Confidential Disclosure and Non-Competition Agreement prohibiting McKesson from divulging or using any confidential information for any purpose other than analyzing its deal with Devon. After executing the agreement, McKesson engaged in extensive due diligence. According to Plaintiffs, around March 2009, McKesson and Devon reached an oral agreement regarding the material terms of the Exclusive Distribution, Licensing, Services and Support Agreement. The only thing that was needed to finalize the agreement was to allow McKesson's due diligence of HRSRL in Italy. However, DeViedma, in his capacity as an officer of HRSRL, refused to permit McKesson representatives to visit Italy and complete the due diligence.

Later, after McKesson and Devon Robotics failed to come to an agreement, HRSRL terminated the CytoCare Agreement with Devon Robotics on July 30, 2009. Then on August 10, 2009, McKesson and HRSRL entered into a five year agreement granting McKesson distribution rights with regard to CytoCare in various areas in North America which had previously been controlled by Devon Robotics.

Naturally, Devon sued everyone, alleging breach of fiduciary duty, tortious interference with current and prospective contractual relations, defamation, and conspiracy.

Defendants first moved under Rule 12(b)(1) to dismiss on the grounds that the Devon/HRSRL agreements compelled arbitration:

[A]s this Court noted in Miron, the presumption of arbitrability has never been extended to claims by or against non-signatories. Miron v. BDO Seidman, LLP, 342 F. Supp. 2d 324 (E.D. Pa. 2004); see, e.g., Medtronic Ave Inc. v. Cordis Corp., 367 F.3d 147, 100 Fed. Appx. 865 (3rd Cir. 2004) (quoting Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress International, Ltd., 1 F.3d 639, 642 (7th Cir. 1993)). Because arbitration is a matter of contract, exceptional circumstances must apply before a court will impose a contractual agreement to arbitrate on a non-contracting party. AT&T Tech., 475 U.S. at 650. However, as this Court again noted in Miron, there are five established theories under which non-signatories may be bound to the arbitration agreements of others: (1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; and (5) estoppel. Thomson-CFS v. American Arbitration Association, 64 F.3d 773, 776 (2d Cir. 1995). Furthermore, where the party seeking enforcement of the arbitration clause is a willing non-signatory an alternative theory of reverse estoppel may apply. Thomson-CFS, 64 F.3d at 779.

The only theory under which DeViedma may be able to enforce the arbitration clause is the alternative estoppel theory. The alternative estoppel theory binds a signatory to arbitrate at a non-signatory's insistence where there is an obvious and close nexus between the non-signatories and the contract or the contracting parties. E.I. DuPont, 269 F.3d at 199. The two-part test for alternative estoppel requires a court to determine whether there is a 'close relationship between the entities involved,' and examine the 'relationship of the alleged wrongs to the nonsignatory's obligations and duties in the contract.' E.I. DuPont, 269 F.3d at 199 (citing Thomson-CSF, 64 F.3d at 779); see also Bannett, 331 F. Supp. 2d at 360. To satisfy the second part of the test, the non-signatory seeking enforcement of an arbitration agreement must show that the claims against them are 'intimately founded in and intertwined with' the underlying obligations of the contract to which they were not a party. E.I. DuPont, 269 F.3d at 199 (citing Thomson-CSF, 64 F.3d at 779).

The essential question in situations such as these is whether plaintiffs would have an independent right to recover against the non-signatory defendants even if the contract containing the arbitration clause were void. 'The plaintiff's actual dependence on the underlying contract in making out the claim against the nonsignatory defendant is therefore always the sine qua non of an appropriate situation for applying equitable estoppel.' Price Plaintiffs v. Humana Ins. Co., 285 F.3d 971, 976 (11th Cir. 2002) (rev'd on other grounds, PacifiCare Health Sys. v. Book, 538 U.S. 401, 123 S. Ct. 1531, 155 L. Ed. 2d 578 (2002)). In In re Humana, the Eleventh Circuit held that equitable estoppel was inappropriate where plaintiffs brought a RICO suit against a non-signatory defendant, because the RICO claims were based on a statutory remedy apart from any available remedy for breach of the underlying contract. In re Humana, 285 F.3d at 976."

Robotics v. Deviedma, No. 09-cv-3552, 2009 U.S. Dist. LEXIS 112077, at *11–13 (E.D. Pa. Nov. 30, 2009). Three strikes, one hit for the defendants:

It is not proper to dismiss this claim in favor of arbitration because the breach of fiduciary duty claim does not arise out of the various agreements between Devon Robotics and HRSRL. …

Plaintiffs' claim of tortious interference with current and prospective contractual relations is not subject to the arbitration clauses in the various agreements between Devon Robotics and HRSRL. Count V of Plaintiffs claim is based on DeViedma's alleged interference with various validation contracts. These contracts are not intimately intertwined with the i.v.Station and CytoCare agreements. …

Plaintiffs' claim of defamation is not subject to the arbitration clauses in the various agreements between Devon Robotics and HRSRL. …

To the extent that Plaintiffs' claim of conspiracy is based on the termination of the CytoCare agreement, their claim is dismissed. Plaintiffs' Complaint alleges that the Defendants conspired to wrongfully terminate the CytoCare agreement. The determination as to whether the agreement was wrongfully terminated will be intimately related to the terms of the agreement. Additionally, there is an extremely close nexus between the non-signatory parties and Devon Robotics.

Id. at 13–16.

Defendants next moved under Rule 12(b)(6) to dismiss the claims on the merits, with three strikes (on the breach of fiduciary duty, tortious interference with current contractual relations, and defamation claims) and hits on the rest. Most notably, “Devon Robotics has pled that it had several validation contracts with different hospitals, that DeViedma purposefully interfered with those contracts for his own benefit, without justification, and that as a result, Devon lost substantial amounts of business. These pleadings are sufficient to establish a claim for tortious interference with existing contractual relations.”

Though the Court “grant[ed] Plaintiffs leave to amend their tortious interference with prospective contractual relations to include any claims related to the McKesson negotiations,” it added the caveat that “Although the Court granted leave to amend the tortious interference claim and Plaintiffs may choose to attempt to amend their conspiracy claim, it should be noted that the Court likely lacks jurisdiction over any underlying torts asserted in support of the conspiracy claim based on the CytoCare or i.v.Station agreements due to the arbitration clauses in the agreements.”

A big win for Devon Robotics and a guide for future plaintiffs — in the face of an arguably applicable arbitration agreement, they kept alive the core of their suit: breach of fiduciary duty, tortious interference, and defamation.

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Years ago, Jonathan Turley, professor at George Washington University Law School, found himself unable to decide whether he wanted to be a professor or a litigator, so he cloned himself to be able to do both.

I am only half-joking; even after factoring in big firm co-counsel (including associates, paralegals, assistants, et cetera), being lead counsel on major litigation is no joke, particularly if you're up against a well-funded opponent who not only defends the rightness of their conduct, but who conceals and destroys the truth lying at the heart of the case.

Take, for example, Rayming Chang et al. v. United States et al., Civil Action 02-2010, United States District Court for the District of Columbia. Here's some background, courtesy of Washington City Paper:

On the morning of September 27, 2002, D.C. Police had set about to monitor anti-IMF/World Bank demonstrators. By then, the protests and the policing of the protests had become routine, almost boring. There were no major acts of violence, vandalism or unrest that day.

But then the police decided to move on people in Pershing Park. They had funneled protesters into the park. Video taken of the park shows the protesters looking bored, sitting around. There were also other non-protesters in the park including nurses in town for a convention, and lawyers on their way to work.  Without warning, police rounded them up and arrested them all.

Police then transferred the mass to its training  academy in Blue Plains; each citizen was then hogtied and left on a mat for hours. They were all arrested for "failure to obey" an officer's order.

We wrote  a cover story on the arrests. Cathy Lanier had a hand in developing the hogtie tactic.

The controversial arrests hounded then-Chief Charles Ramsey. Then-Councilmember Kathy Patterson conducted an investigation into the incident and issued a devastating report.

The report concluded that Ramsey and Co. did not have probable cause to arrest anyone in Pershing Park, failed to give any orders to the people in Pershing Park (they were arrested for "failure to obey"), and went on to question whether Ramsey lied to the council in his testimonies.

Prof. Turley, along with a number of lawyers at Bryan Cave, represent the plaintiffs, who filed suit in October 2002, less than a month after the incident. For seven years, plaintiffs and their lawyers have exercised their right to civil justice to investigate what happened.

Seven years, you ask? Indeed. The case is a classic example of how a determined, entrenched defendant can abuse the discovery process to bury the truth for years, forcing the plaintiffs to spend thousands of hours and hundreds of thousands of dollars to obtain basic information.

D.C. has undoubtedly failed to permit discovery: e.g., after filing a motion to dismiss attaching affidavits referencing events outside of the complaint (which is flatly prohibited), defendants turned around and objected to discovery into those affidavits and events. After agreeing to produce some discovery informally, defendants turned around and demanded formal discovery, to which they then objected. After scheduling depositions, defendants canceled them at the last minute, then turned around and claimed the depositions were inappropriate.

Adding insult to injury, all of this litigiousness — all the above attempts to delay and to deny justice in a blatantly obvious case, all 567 docket entries in the case — are paid for by taxpayers not once (paying the Court), not twice (paying the government defense lawyers), but thrice, since attorney's fees are available to plaintiffs who win in constitutional rights / 42 U.S.C. 1983 cases.

Plaintiffs have asked for simple stuff. Stuff that's preserved in the ordinary course of business even when there's no lawsuit. Stuff you'd expect the government that polices our national capitol city to hold on to when they throw hundreds of people in jail for doing nothing more than lawfully attending a protest.

Seven years of litigation later, the police's own activity log from that day (the "running resume") has never been found. Audiotapes of police radio communications from that day have been produced, but with significant gaps.

Gone.

The dog ate it.

The judge isn't buying it:

U.S. District Judge Emmet G. Sullivan last week blasted D.C. officials for mishandling evidence in a civil lawsuit brought by some of those arrested seven years ago. In an extraordinary rebuke that reduced D.C. assistant attorney general Thomas Koger to tears, Judge Sullivan likened the city's "shenanigans" to the kind of prosecutorial abuses he saw in the criminal case of former senator Ted Stevens (R-Alaska). The office of D.C. Attorney General Peter Nickles was singled out, but the questions extend to police and other officials.

Plaintiffs allege that critical evidence -- such as the "running résumé" of all events and decisions made on Sept. 27 -- was destroyed or lost. Even more troubling is their rather convincing charge that information was deleted from audiotapes supplied to them during discovery. Judge Sullivan has demanded that Mr. Nickles provide a full accounting of the city's "pattern of shortcomings" and "discovery abuses."

Mr. Nickles told us that he is taking the judge's admonition to heart. He has blamed the city's inability to properly manage records during discovery on a chronic lack of resources, but he said he is reserving judgment on exactly what went wrong in this case until he knows all the facts. It's encouraging that he enlisted former federal judge Stanley Sporkin, who is offering his considerable expertise on a pro bono basis, to advise him.

That was a few months ago. As Turley reported Saturday,

For those following the World Bank/IMF litigation, the Attorney General of the District of Columbia has been repeatedly referencing the forthcoming report of his adviser, former Judge Stan Sporkin, on the allegations of the destruction of evidence in the case. Judge Sullivan has previously indicated that he is considering a criminal referral and would wait for the Sporkin Report. The District waited until after 6 p.m. on a Friday night to file the report.

The report states the following:

* “Because the contradictory statement in the record are incapable of being reconciled, we cannot rule out the possibility of untruthfulness or something worse.” (Page 16)

* “We are particularly disturbed by the fact that not only have we been unable to retrieve a hard copy of the Running resume but also that the electronic copy was purged from the system. We have no way of knowing whether this was an act of intentional mischief or reflects a benign action. We do not believe it was the later” (sic) (page 15.)

* “We are particularly troubled by the fact that the group recordation system was purged. It is difficult to understand how something like this could occur innocently.” (Page 16)

Judge Sporkin wasn't hired by the plaintiffs; he wasn't even appointed by the Court. He's D.C.'s own advisor, and he thinks the running resume was intentionally destroyed.

Turley's role in the case precludes him from saying much about the case, but the truth is, everything can be summed up in one word: the whole case — from the arrests to the coverup to the stalling tactics in litigation — is a disgrace.

The Sporkin Report — by no means a whitewash, but an incomplete investigation since he left no paper trail — is only the beginning. If we cannot have the truth, then we must know at least where it went and why. Actions have consequences.

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Oh, Ashcroft v. Iqbal, will we ever stop blogging about you?

The newest online debate pits the class action defense lawyers at Drug & Device Law against University of Pennsylvania Law School Professor Stephen Burbank at PENNumbra, the online supplement to UPenn's Law Review.

Beck and Herrmann open with a defense of Iqbal on several grounds, including:

[C]ourts have no legitimate basis for favoring plaintiffs when interpreting pleading standards. A just system does not pick sides in advance, but instead establishes neutral rules. We reject the normative view that it is somehow “better” to let unmeritorious cases proceed than to risk that meritorious cases will be dismissed. Either way represents error, and neither error is inherently better than the other. Indeed, given the enormous transaction costs that litigation entails, Type II errors (false negatives) are probably preferable to Type I errors (false positives) from a purely economic perspective.

From a "purely economic perspective" it is better if corporations stop wrongfully causing damage in the first place, which they will only do if they have an economic incentive like the threat of legal liability.

But there's a bigger problem with Beck and Herrmann's argument.

It is an "error" when a court dismisses a meritorious case. It is a particularly unjust, unfair, and avoidable "error" when a court dismisses a meritorious case prior to any discovery.

It is not, however, an "error" for a court to refuse to dismiss a case that may be unmeritorious.

Why not? Because the case may be meritorious and, if it is not, the defendant has four more opportunities to resolve the case favorably by testing the merits of plaintiff's claim: judgment on the pleadings, summary judgment, trial, and post-trial relief. That is to say, even after the motion to dismiss, Plaintiff's claims will be assessed, re-assessed, re-re-assessed, then re-re-re-assessed. Then there's an appeal to re-re-re-re-assess each and every element of plaintiff's claims and each and every element of plaintiff's damages.

When a court declines to dismiss an unmeritorious case, there is ample room for error-correction down the road to ensure plaintiff's claims have merit. It's why we have a civil justice system: to provide a thorough airing and evaluation of disputes.

When a court dismisses a meritorious case, however, the only error-correction is a single appeal that will be evaluated under the same unfair anti-plaintiff standard established by Iqbal.

Beck and Herrmann have it exactly backwards: there is "no legitimate basis" for not favoring plaintiffs when interpreting pleading standards. Their "neutral" interpretation of pleading rules is not "neutral" at all, but rather a "normative view" that plaintiffs are not entitled to the same error-correcting procedures to which defendants are entitled.

A "just system" wouldn't pick defendant's side in advance.

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Following up on yesterday's post about "ex parte blogging," i.e. the possibility that the Supreme Court might see a newspaper editorial, article or blog post about a pending case, let's consider the supposed worst-case scenario, in which a Justice sees an editorial, article or blog post which has an effect on their interpretation of the case.

So what?

The Student Note that started the discussion at Balkinzation and Prawfsblog based its analysis on the Kennedy v. Louisiana fiasco, in which a military-justice blogger revealed a significant error in the Supreme Court's opinion, resulting in new briefing and a modification to the opinion.

Kennedy, however, does not show the danger lurking in "ex parte blogging," but rather exactly the opposite: Kennedy shows the danger in relying upon nine people (and their typically fresh-out-of-law-school staff of four clerks each) to set legal policy for the entire country based upon two merits briefs of 15,000 words each and two reply briefs of 7,500 words each. More words are spilled on the Wikipedia page listing the people in line to succeed to the British throne.

The re-hearing and re-writing of the Kennedy opinion was a good thing; we want the Supreme Court's opinions to be based on accurate facts and solid legal reasoning.

We also want those opinions to be as clear as possible; consider Washington v. Davis, the 2006 case in which the Supreme Court laid down an "objective and quite workable" rule that was, quite literally, interpreted differently in every state in the union.

Why wait until the damage has been done — why not invite public comment before the opinions become law?

That's what the other two branches of the federal government do. The United States Congress debates bills for weeks, sometime months, prior to passage, all of which you can see on the Library of Congress' Thomas service, or on the non-profit OpenCongress.org. The Executive Branch similarly posts each and every regulatory change to Regulations.gov for public review and comment prior to promulgating the regulations.

Just how powerful is the public comment process?

Consider epidemiology. As Jennifer Gardy, the co-head of British Columbia Centre for Disease Control explains in this fascinating talk (via), when the SARS coronavirus pandemic began in 2003, it took 19 days just to sequence the virus's genome. This year, after the H1N1/09 influence was declared a pandemic, by the 19th day dozens of virus genomes had been sequenced, the origin and spread of the virus had been established, and a vaccine was already in the works. (Read more from Gardy here; see late-breaking H1N1 research in progress at the Public Library of Science's Currents.)

Indeed, open access / public commenting is how most of academia functions these days. Draft social science and law journal articles are posted on SSRN prior to publication. Draft papers on physics, mathematics, and other complex quantitative papers are posted on arXiv.org.

It's hard to think of any field of government or scholarship today in which work not subject to public scrutiny is considered worthy of use by others; in cryptography, for example, any encryption method which doesn't make its source code available for public scrutiny, like even the government's own encryption standard is available, is presumed worthless.

Individual collegiate evaluation worked for Henry Oldenburg when he was peer-reviewing the Philosophical Transactions of the Royal Society back in 1665. It doesn't work so well when nine Justices are supposed to decide cases of national importance involving hundreds of thousands of pages of briefs, precedent, statutes, regulations, and appellate records at a rate of one opinion issued every four or five days, every word of which will be pondered, analyzed, scrutinized, and, unfortunately, misinterpreted by courts every day.

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Dan Markel is "singularly unimpressed" with the arguments in favor of prohibiting newspapers from editorializing about pending cases before the Supreme Court:

Over on Balkinization, Eugene Fidell has a post expressing sympathy with the idea that newspapers and others should forbear from trying to influence the Supreme Court on the same day that the Court is going to hear oral arguments in a case.  Fidell seems to be persuaded by the gist of this student note in the Stanford Law Review, which raises ethical concerns with "ex parte blogging."

With no disrepect to the competent job in the student Note, I find myself boggled at the suggestion that newspapers or other writers (including legal bloggers) should abjure from weighing in on matters before the Court.

Part of the concern raised by the Balkinization post appears to come from editorials on the day of oral argument:

Times editorial advice to the Supreme Court has, in fact, flowed very freely--increasingly, I believe, on argument days. For example, on October 6, 2009, in Animal Cruelty and Free Speech, the editorial page advised the Court to affirm in United States v. Stevens (No. 08-769), a case that was to be argued that same day. The following day, in The Constitution and the Cross, an editorial gave the Court advice on how to decide a case to be heard that day involving a cross that had been erected on federal land by the Veterans of Foreign Wars. The same thing happened on February 23 and 25 and March 2 and 24, when editorials titled Justice for American Indians, And Unequal Justice for Some, The Right to DNA Evidence, and Corporate Money and Campaigns ran. On January 9, November 4, 12 and 25, and December 10, 2008, editorials on The Court and Voter ID's, The Court and 'Fleeting Expletives,' A Case of Religious Discrimination, Indefinite Detention, and Accountability and the Court all appeared on the day of oral argument.

Sounds like a lot.

I assure you, the Justices don't care.

How do I know? Because the Justices don't care much for what even the parties to the case have to say on the day of oral argument:

Oral arguments are normally conducted during October through April. A 2-week session is held each month with arguments scheduled on Monday through Wednesday of each week. Unless the Court directs otherwise, each side is allowed one-half hour for argument. The Court generally hears argument in 2 cases (hours) each day beginning at 10 a.m. and adjourns after the argument in the second case ends, usually around noon. If more than two cases are to be argued in one day, the Court will reconvene at 1 p.m. to hear the additional arguments.

That's from the Supreme Court's own "Guide for Counsel in Cases to be Argued," which helpfully points out that 30 minutes may in fact be too much:

Your argument time is normally limited to 30 minutes. You need not use all your time. Counsel for the respondent in Whitfield v. United States, 543 U. S. 209 (2005) argued for only 10 of the allotted 30 minutes. Counsel for the respondent in Burgess v. United States, 553 U. S. ––– (2008) argued for only 7 of the allotted 30 minutes. Both respondents prevailed in unanimous decisions of the Court.

"Respondent" in Whitfield and Burgess was the United States government; the "Petitioners" there, both criminal defendants, did not pass Go, did not collect $200, but instead went straight to jail after combined oral argument shorter than a sitcom.

I digress. The bigger problem with the argument raised by the Student Note (Ex Parte Blogging: The Legal Ethics of Supreme Court Advocacy in the Internet Era, 61 Stanford L. Rev. 1535 (2008)) and the Balkinization post is that both miss the forest for the trees: the primary utility of such posts, articles and editorials on the day of oral argument is not to influence the Court but to influence everyone else.

When else — other than the day of oral arguments — are these arguments timely and interesting? When else can the raw power of the Supreme Court and the scope of its reach be highlighted for the hundreds of millions of citizens who have not a clue what the Court is doing this year? Even lawyers don't stay on top of the Supreme Court's docket; most of them learn of pending issues from their newspapers, from these day-of-argument editorials. The same goes for elected representatives.

But we are to ban this practice, one of the few ways we as a society have of keeping aware of what an entire branch of our federal government is doing because maybe, just maybe, 700 words in the newspaper will dislodge the Justices' decades of education, training, experience and ideology?

More on this subject tomorrow.

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As Justice Oliver Wendell Holmes wrote,

Great cases, like hard cases, make bad law. For great cases are called great, not by reason of their importance in shaping the law of the future, but because of some accident of immediate overwhelming interest which appeals to the feelings and distorts the judgment.

Northern Securities Co. v. United States, 193 U.S. 197, 400–401 (1904)(Holmes, J., dissenting).

That idea seems to be on David Feige's mind when he writes in Slate about the upcoming trial of admitted 9/11 mastermind Khalid Sheikh Mohammed:

No jury on this continent is going to acquit their client, the government is certain to insist on the death penalty, and KSM will almost certainly try to put the government on trial. So what's a team of hardworking criminal defense attorneys to do?

Everything they can, which, in this case, will mean a lot of futile maneuvering that will generate a tragic flood of bad law, rendering the defense team's valiant service not merely unsuccessful but actually hostile to the interests of all their other clients. ...

In an idealized view, our judicial system is insulated from the ribald passions of politics. In reality, those passions suffuse the criminal justice system, and no matter how compelling the case for suppressing evidence that would actually effect the trial might be, given the politics at play, there is no judge in the country who will seriously endanger the prosecution. Instead, with the defense motions duly denied, the case will proceed to trial, and then (as no jury in the country is going to acquit KSM) to conviction and a series of appeals. And that's where the ultimate effect of a vigorous defense of KSM gets really grim.

At each stage of the appellate process, a higher court will countenance the cowardly decisions made by the trial judge, ennobling them with the unfortunate force of precedent.

That's surely a possibility. The trial of the admitted mastermind of 9/11 is, due to "immediate overwhelming interest," most certainly "great" under Holmes' definition.

On the other hand, whatever apparent principles, rules or interpretations of law laid down by the courts in the prosecution admitted mastermind of 9/11 will be forever indelibly stamped with an annotation that the case involved no less than the admitted mastermind of 9/11.

Moreover, the courts, aware of the "greatness" and/or difficulty of the case, often make an extra effort to minimize the precedental value of their opinion.

Consider Bush v. Gore, certainly the "greatest" — at least in terms of immediate impact — legal ruling in recent memory, which openly instructed future courts to ignore it entirely: 

Our consideration is limited to the present circumstances, for the problem of equal protection in election processes generally presents many complexities.

Bush v. Gore, 531 U.S. 98, 109 (2000). Indeed, Bush v. Gore has been treated by many as a singular case that served a pre-determined goal rather than an evolutionary step in the progression of election law. For a number of courts, the case is downright radioactive due precisely to its "greatness."

Our Constitution's protections for the criminally accused were drafted by a generation among whom treason was commonplace, then sculpted over eleven score years of rebels, thieves, gangsters, murderers and even a protracted civil war followed by decades of reconciliation and the integration of oppressed minorities into equal society in the face of socially-approved violence. Those protections can handle a couple trials of admitted mass murderers.

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"Removal" is the process by which a defendant in a state court case "removes" the case to federal court. 28 U.S.C. § 1441(b) makes it sound so simple:

Any civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable without regard to the citizenship or residence of the parties. Any other such action shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.

There are two ideas behind removal, each expressed in their own sentence above. (If you're in the mood for some light reading of 18th century constitutional debates, here's primary source material on federal court jurisdiction.)

The first idea (in the first sentence) is that defendants have the right to have claims made against them under federal law heard by a federal court. For example, if plaintiff brings a claim under the RICO Act, a claim for violation of federal constitutional rights, or a claim under the Lanham Act, then the defendant has the right to remove the case to federal court so that a federal court will preside over the federal claims.

The second idea (in the second sentence) dates to the beginning of our Republic: federal courts, where the judges were appointed by the President and confirmed by the Senate, were (and still are) perceived as being less likely to be biased in favor of local litigants than state courts, where the judges were either elected by the public or appointed by state officials. The "other such actions" described by 28 U.S.C. § 1441(b) refer to cases brought under "diversity" jurisdiction, which allows plaintiffs in one state to sue defendants in another state in federal court, regardless of the claims brought. Thus, out-of-state defendants concerned about bias in a plaintiff's home state can remove cases if the case could have been filed in federal court in the first place under "diversity" jurisdiction.

Diversity jurisdiction, however, is disfavored by the federal courts. Personally, I think the most simple reason for the federal courts' dislike for diversity jurisdiction is because, much like how we prefer federal courts preside over cases bringing federal claims (as reflected by the first part of 28 U.S.C. § 1441(b)), we prefer state courts preside over cases bringing state claims. Much like how a defendant has an interest in having federal law claims against them heard in federal court, a plaintiff has an interest in having their state law claims heard in state court.

The United States Constitution provides for a limited federal government, including a limited federal judiciary. Thus, the requirements for removal have been strictly construed, since loosely construing them would violate basic principles of federalism:

Because lack of jurisdiction would make any decree in the case void and the continuation of the litigation in federal court futile, the removal statute should be strictly construed and all doubts resolved in favor of remand." Abels v. State Farm Fire & Cas. Co., 770 F.2d 26, 29 (3d Cir. 1985) (citations omitted). If there is any doubt as to the propriety of removal, that case should not be removed to federal court. See Boyer v. Snap-On Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990), cert. denied, 498 U.S. 1085, 111 S. Ct. 959, 112 L. Ed. 2d 1046 (1991).

Brown v. Francis, 75 F.3d 860, 864–865 (3d Cir. 1996). 

The latest "fad" among defense lawyers — more on the source of the word "fad" in a moment — is to hire companies to monitor state court dockets for suits against big corporations, particularly class actions alleging product liability. The moment a plaintiff files a lawsuit that includes any out-of-state defendants, the big corporations collude to have the out-of-state defendant file for removal, on the grounds that the in-state defendants haven't been "properly joined and served" yet.

It doesn't matter if the case involves 99 in-state defendants and 1 out-of-state defendant. It doesn't matter, if, quite obviously, the case could not have been filed in the first instance as a diversity case, since it involves in-state defendants, too. The big corporations found themselves a dubious loophole and decided to run with it.

And run with it they have: the defense gurus at Drug & Device Law have tallied a few dozen of these cases across the country. The defense argument is always the same: under the "plain meaning" of the statute, we can remove any case we want if the in-state defendants haven't been served yet.

It's a silly argument: the plain meaning rule does not permit a court to find a "plain" meaning “demonstrably at odds with the intentions of the drafters.” United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989). There is, of course, no indication that Congress intended to let defendants avoid the strict, centuries-old federal policies against diversity jurisdiction and against removal by setting up a computer program that downloads the state court dockets every 10 minutes.

The more compelling "plain meaning" of 28 U.S.C. § 1441(b) is that Congress wanted to ensure the in-state defendants were "proper" defendants, and thus prevent plaintiffs from adding bogus in-state defendants to a lawsuit.

The defendants' game worked for a while, but the tide is turning.

Via Gregory P. Joseph's Complex Litigation Blog, we see the Northern District of Ohio rejecting the "properly joined and served" silliness:

Comerica's interpretation of §1441(b) suggests that the language "properly joined and served" creates an exception to the forum defendant rule. This argument is not novel; in fact, it has been the topic of much jurisprudential debate with varying success across the country. I, however, have no need to survey such case law because the Northern District of Ohio recently rejected Comerica's argument in a case of first impression. In Ethington v. Gen. Elec. Co., 575 F. Supp. 2d 855, 861 (N.D. Ohio), my colleague, District Judge Dan Aaron Polster, engaged in a thorough review of available case law.

And what does Ethington say?

The Court further notes that the growing trend among district courts wrestling with this latest litigation fad is to grant a timely motion to remand. While a review of the Frick, Thomson, and Ripley cases indeed shows that the judges in those cases abided by the plain meaning interpretation of the forum defendant rule, the GE Defendants' assertion that the New Jersey federal district courts 'ha[ve] rejected Plaintiffs' argument' is disingenuous at best; it fails to acknowledge that Frick (issued February 23, 2006), Thomson (May 22, 2007), and Ripley (Aug. 16, 2007) were each issued well in advance of the more recent case law from the District of New Jersey -- starting with Judge Chesler's opinion in DeAngelo-Shuayto -- that in fact rejected the approach taken in those three earlier cases. See, e.g., DeAngelo-Shuayto, 2007 U.S. Dist. LEXIS 92557, at 5, 2007 WL 4365311, at *3 (finding that '§ 1441(b) must bar removal by a forum defendant, whether it has been served or not'); Fields, 2007 U.S. Dist. LEXIS 92555, at *12-13, 2007 WL 4365312, at *5 (rejecting the plain language approach because it would create an 'untenable result' that would 'eviscerate the purpose of the forum defendant rule,' and holding that 'the 'properly joined and served' language of § 1441(b) does not encompass the situation in which the removing party is a forum defendant, and that in such situations removal to federal court is improper.'). See also, Brown, 2008 U.S. Dist. LEXIS 55490, at *8, 2008 WL 2833294, at *5 (adopting magistrate judge's report and recommendation with additional analysis, explicitly embracing the reasoning provided in the R&R, DeAngelo-Shuayto, and Fields, and stating 'this Court agrees with [the conclusion] that § 1441(b) must be read to preclude removal by an in-state defendant whether it has been served or not.'); Brown v. Organon USA Inc. (hereafter 'Brown R&R'), 2008 U.S. Dist. LEXIS 50179, at *24-25, 2008 WL 2625355, at *8 (D.N.J. June 27, 2008) (M.J. Salas) (magistrate judge's R&R concluding that '[t]he Court agrees with DeAngelo-Shuayto' and finding 'that § 1441(b) bars a forum defendant from removing to federal court even if they have not been 'properly joined and served.''); Optec Displays, Inc. v. Am. Maint., Inc., 2008 U.S. Dist. LEXIS 47562, at *3, 2008 WL 2510633, at *2 (D.N.J. June 16, 2008) (J. Debevoise) (remanding removed case with forum defendant, and explaining that 'even if [defendant] was not properly joined and served, it is still precluded, as a forum defendant, from removing the action to federal court.') (citing DeAngelo-Shuayto, 2007 U.S. Dist. LEXIS 92557, at *15, 2007 WL 4365311, at *3)).).

Notably, these more recent New Jersey federal district court cases are not alone in adopting Judge Chesler's reasoning and analysis on the proper way to interpret § 1441(b). Other federal district courts as of late have likewise followed the reasoning articulated in DeAngelo-Shuayto. See, e.g., Allen, 2008 U.S. Dist. LEXIS 42491, at *13-15, 17-18, 2008 WL 2247067, at *4-6; Vivas v. Boeing Co., 486 F. Supp. 2d 726 (N.D.Ill. 2007) (J. Lefkow). (See also, ECF No. 30-2, Pls.' Rep. Mem., Ex. A to Aff. Dec. of Mitchell M. Breit, 1-6 (remand order in Evans v. GlaxoSmithKline PLC, Civ. A. No. 07-5046 (Jan. 10, 2008) (J. Brody); remand order in Hance v. GlaxoSmithKline PLC, Civ. A. No. 07-5047 (Jan. 10, 2008) (J. Brody); remand order in Malone v. GlaxoSmithKline PLC, Civ. A. No. 07-5048, 2007 U.S. Dist. LEXIS 97461 (Dec. 4, 2007) (J. Savage) (citing Oxendine v. Merck & Co., Inc., 236 F. Supp. 2d 517, 524-25 (D. Md. 2002)); remand order in Scott v. GlaxoSmithKline PLC, No. 07-CV-5049, Order of March 11, 2008, 2008 U.S. Dist. LEXIS 84490, n.1 (E.D. Pa. Mar. 11, 2008) (J. Joyner)).) But see Flores v. Merck & Co. (In re Fosamax Prods. Liab. Litig.), 2008 U.S. Dist. LEXIS 57473, at *37-38, 2008 WL 2940560, at *2 (S.D.N.Y. July 28, 2008) (a recent federal district court opinion invoking the plain language of § 1441(b) with little analysis to deny plaintiff's motion to remand).

After considering Sixth Circuit precedent on statutory interpretation and carefully reviewing case law on both sides of a federal district court split, the Court finds that applying the plain language of § 1441(b) would produce a result demonstrably at odds with Congressional intent underpinning the forum defendant rule, and specifically with the 'properly joined and served' language. Accordingly, the Court hereby joins the DeAngelo-Shuayto line of cases, and in so doing, the Court incorporates and adopts the well-reasoned, thorough analysis and holdings of Judge Chesler in DeAngelo-Shuayto as the basis for the instant ruling.

Ethington v. GE, 575 F. Supp. 2d 855, 864 (N.D. Ohio 2008). A "fad" that is "demonstrably at odds with Congressional intent." 

Told you so.

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One of the positive parts of being involved with The Philadelphia Inquirer's bankruptcy is, though I've had to slog my way through over 1,500 separate filings (most of which are irrelevant to my clients) since The Inquirer filed bankruptcy in February, I've also been privy to extraordinarily exhaustive briefings of what are, on the surface, "simple" issues.

A $300 million question in the bankruptcy is whether the banks that loaned the current owners the money to buy the company back in 2006 can use their existing debt to "bid" on its assets at the auction proposed by management. The question should be answered in the text of the Bankruptcy Code; unsurprisingly, both the banks and management have asserted that the text of the Bankruptcy Code clearly and unambiguously supports their position.

Such a dispute means it's time to pull out the old canons of statutory interpretation.

Judge Robreno's Order yesterday — in which Judge Robreno reversed Judge Raslavich's interpretation of when a debtor may deny secured creditors the ability to "credit bid" in a pre-confirmation auction — provided a remarkably thorough description of the plain meaning rule, which I post below in full so all can cherry-pick for their own cases within our great United States Court of Appeals for the Third Circuit.

(In case you're confused why Judge Robreno of the District Court is acting as an appellate court, note that the District Court initially hears appeals from Bankruptcy Court.)

* * *

It is often said that the polestar for interpreting a statute is to ascertain the intent of Congress. See White v. Lord Abbett & Co. LLC (In re Lord Abbett Mutual Funds Fee Litig.), 553 F.3d 248, 255 (3d Cir. 2009).  “The role of the courts in interpreting a statute is to give effect to Congress's intent.” Alston v. Countrywide Fin. Corp., --- F.3d ---, 2009 WL 3448264, at *4 (3d Cir. Oct. 28, 2009) (quoting United States v. Diallo, 575 F.3d 252, 256 (3d Cir. 2009)). In seeking to ascertain the intent of a statute, a court is bound to follow principles of statutory construction. See In re J.E. Brenneman Co., Inc., 277 F. Supp. 2d 518, 521 (E.D. Pa. 2003) (Yohn, J.) (recognizing that in interpreting the intent of Congress a district court follows established precepts of statutory interpretation).

“Because it is presumed that Congress expresses its intent through the ordinary meaning of its language, every exercise of statutory interpretation begins with an examination of the plain language of the statute.” Alston, --- F.3d ---, 2009 WL 3448264, at *4 (quoting United States v. Diallo, 575 F.3d 252, 256 (3d Cir. 2009) (internal quotation marks and citation omitted)); see also Lamie v. United States Tr., 540 U.S. 526, 534 (2004) (“[W]hen the statute's language is plain, the sole function of the courts . . . is to enforce it according to its terms.”). Thus, the necessary starting point in any attempt to discern congressional intent is the language of the statute itself. United States v. Abbott, 574 F.3d 203, 206 (3d Cir. 2009) (“As in all cases of statutory interpretation, our inquiry begins with the language of the statute and focuses on Congress' intent.”) (citing United States v. Whited, 311 F.3d 259, 263-64 (3d Cir. 2002)); In re Armstrong World Indus., Inc., 432 F.3d 507, 512 (3d Cir. 2005) (citing United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989)); Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197, 202 (3d Cir. 1998).

This plain meaning rule dictates that where the meaning of the relevant statutory language is clear then no further inquiry is required. In re Armstrong, 432 F.3d at 512; Abdul-Akbar v. McKelvie, 239 F.3d 307, 313 (3d Cir. 2001) (en banc) (where the statutory language “admits of no more than one meaning the duty of interpretation does not arise and the rules which are to aid doubtful meanings need no discussion”) (internal quotation and citation omitted); Lancashire Coal Co. v. Sec'y of Labor, Mine Safety and Health Admin. (MSHA), 968 F.2d 388, 391 (3d Cir. 1992) (“[W]hen the statutory language is clear a court need ordinarily look no further.”).

Adherence to the plain meaning rule is not simply a matter of judicial craftsmanship. Faithfulness to the words Congress has used in enacting a statute promotes respect for Congress as the principal source of positive law in a democratic society. See Lamie, 540 U.S. at 536 (“We should prefer the plain meaning since that approach respects the words of Congress.”); Pub. Citizen v. U.S. Dep’t. of Justice, 491 U.S. 440, 470-71 (1989) (Kennedy, J., concurring) (recognizing that departure from the plain meaning rule, except in limited circumstances where completely necessary, would intrude upon the lawmaking powers of Congress). Furthermore, allegiance to the plain meaning rule also disciplines courts to avoid making policy choices where the intent of Congress is expressed in the language of the statute. Pub. Citizen, 491 U.S. at 471 (Kennedy, J., concurring) (noting that courts should act with self-discipline in refraining from nonchalantly applying exceptions to the plain meaning rule); Lamie, 540 U.S. at 538 (stating that the “unwillingness to soften the import of Congress' chosen words . . . results from ‘deference to the supremacy of the Legislature, as well as recognition that Congressmen typically vote on the language of a bill.’”) (quoting United States v. Locke, 471 U.S. 84, 95 (1985) (internal citation omitted)).

There is a hierarchical approach that courts must follow in construing a statute. First, the Court “determine[s] whether the language at issue has a plain and unambiguous meaning.” Dobrek v. Phelan, 419 F.3d 259, 263 (3d Cir. 2005) (citing Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450 (2002)). In order to be ambiguous, the disputed language must be “reasonably susceptible of different interpretations.” Id. at 264 (quoting Nat’l R.R. Passenger Corp. v. Atchison Topeka & Santa Fe Ry. Co., 470 U.S. 451, 473 n.27 (1985)). The plain meaning approach requires a court to “read the statute in its ordinary and natural sense.” Harvard Secured Creditors Liquidation Trust, v. I.R.S. (In re Harvard Indus., Inc.), 568 F.3d 444, 451 (3d Cir. 2009) (internal quotation marks and citations omitted). If the language is clear, “‘Congress says in a statute what it means and means in a statute what it says there.’” Singer v. Franklin Boxboard Co. (In re Am. Pad & Paper Co.), 478 F.3d 546, 554 (3d Cir. 2007) (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000) (internal quotation marks and citation omitted)). If no ambiguity exists, then the plain meaning of the text is conclusive and the inquiry generally comes to an end. Lawrence v. City of Phila., Pa., 527 F.3d 299, 316-17 (3d Cir. 2008) (“The plain meaning of the text should be conclusive, except in the rare instance when the court determines that the plain meaning is ambiguous.”); AT & T, Inc. v. F.C.C., 582 F.3d 490, 498 (3d Cir. 2009)(finding that a determination that the statutory language was unambiguous negates consideration of arguments concerning statutory purpose, non-binding case law, and legislative history).

Second, if the statutory language appears to be unambiguous, a court must look beyond that plain language where a literal interpretation would lead to an absurd result, or would otherwise produce a result “demonstrably at odds with the intentions of the drafters.” United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989) (internal quotation marks omitted); In re Kaiser Aluminum Corp., 456 F.3d 328, 330 (3d Cir. 2006) ("A basic principle of statutory construction is that we should avoid a statutory interpretation that leads to absurd results.") (citing Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 575 (1982)); Mitchell v. Horn, 318 F.3d 523, 535 (3d Cir. 2003) ("We do not look past the plain meaning unless it produces a result demonstrably at odds with the intentions of its drafters . . . or an outcome so bizarre that Congress could not have intended it."). It is only in “rare cases” that a literal application will produce such results. See In re Mehta, 310 F.3d 308, 311 (3d Cir. 2002) (internal citation omitted); Abdul-Akbar, 239 F.3d at 313 (internal citation omitted).

Third, if application of the plain meaning approach dictates that the language is ambiguous or that application of the statute would lead to results demonstrably at odds with congressional intent, then the Court may employ other traditional tools of statutory interpretation.

Where the plain meaning approach does not clearly define the disputed language, the Court should construe the relevant provision in the context of the statute as a whole. Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 156 (3d Cir. 2009) (citing Dolan v. U.S. Postal Serv., 546 U.S. 481, 486 (2006)). It is inappropriate, however, to reference other statutory provisions in order to create an ambiguity where none would otherwise exist. See Dir., Office of Workers' Comp. Programs v. Sun Ship, Inc., 150 F.3d 288, 292 (3d Cir. 1998) (finding that related statutory sections could not be used to create an ambiguity where the language was clear).

Further, courts may resort to canons of statutory construction, such as ejusdem generis, when the plain meaning approach does not yield a conclusive result. Baltimore County, MD. v. Hechinger Liquidation Trust (In re Hechinger Inv. Co. of Del., Inc.), 335 F.3d 243, 254 (3d Cir. 2003) (concluding that even if section 1146 of the Bankruptcy Code was ambiguous, the court’s interpretation was supported by two canons of construction); Folger Adam Sec., Inc. v. DeMatteis/MacGregor JV, 209 F.3d 252, 258 (3d Cir. 2000) (applying canons of construction to ambiguous term “any interest” in section 363(f) of the Bankruptcy Code). These canons of construction only serve as rules of thumb and “are often countered ... by some maxim pointing in a different direction.” United States v. Cooper, 396 F.3d 308, 313 (3d Cir. 2005)

One tool often used in parsing out ambiguity in the language of the statute is legislative history. It is recognized that legislative history is a “useful and appropriate tool for [an] inquiry into congressional intent” when the plain statutory text is ambiguous. Francis v. Mineta, 505 F.3d 266, 270-71 (3d Cir. 2007); In re Harvard Indus., 568 F.3d at 451. Cf. Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 406 (3d Cir. 2004) (“The Supreme Court has repeatedly explained that recourse to legislative history or underlying legislative intent is unnecessary when a statute's text is clear and does not lead to an absurd result.”) (internal citation omitted). Based upon the inherent difficulty in distilling precise congressional intent from the amorphous nature of legislative history, however, the Third Circuit has instructed that “[f]or the vast majority of ambiguous statutory provisions, then, relying on legislative history to discern legislative intent should be done with caution, if at all.” Morgan v. Gay, 466 F.3d 276, 278 (3d Cir. 2006).

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[Updated to clarify a distinction between securities suits and investment company act suits.]

This week, the Supreme Court heard arguments in Jones v. Harris. Briefly, the Oakmark complex of mutual funds "hired" Harris Associates as investment advisers, paying Harris 1% (per year) of the first $2 billion of the fund’s assets, 0.9% of the next $1 billion, 0.8% of the next $2 billion, and 0.75% of anything over $5 billion. I write "hired" because the situation is murky: Harris is directly affiliated with Oakmark. Importantly, the fee charged by Harris to Oakmark is more than double the fee it charges unaffiliated mutual funds.

Plaintiffs are investors in Oakmark funds who sued Harris under a variety of claims, including a claim that Harris's fees were "excessive," in violation of Section 36(b) of the Investment Company Act.

Section 36(b), which was added in 1970, is almost poetic in its ambiguity:

For the purposes of this subsection, the investment adviser of a registered investment company shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services, or of payments of a material nature, paid by such registered investment company, or by the security holders thereof, to such investment adviser or any affiliated person of such investment adviser. An action may be brought under this subsection by the Commission, or by a security holder of such registered investment company on behalf of such company, against such investment adviser . . . . With respect to any such action the following provisions shall apply:

(1) It shall not be necessary to allege or prove that any defendant engaged in personal misconduct, and the plaintiff shall have the burden of proving a breach of fiduciary duty.

(2) In any such action approval by the board of directors of such investment company of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, and ratification or approval of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, by the shareholders of such investment company, shall be given such consideration by the court as is deemed appropriate under all the circumstances. . . .

In essence, the statute says only that the plaintiff can recover against the investment adviser by "proving a breach of fiduciary duty." Subsections (1) and (2) fill in a little detail — i.e., the investor need not prove "personal misconduct" and the court shall "consider" board of directors and/or shareholder ratification — but that's it.

Congress might as well have written, "investors can sue if investment advisers do something bad, but 'bad' doesn't necessarily mean really bad."

Twenty-seven years ago, faced with the same opaque language, the Second Circuit Court of Appeals came up with its own standard for "excessive fee" claims:

[T]he test is essentially whether the fee schedule represents a charge within the range of what would have been negotiated at arm’s-length in the light of all of the surrounding circumstances.

[and]

[t]o be guilty of a violation of §36(b) . . . the adviser-manager must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining.

Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F.2d 923, 928 (2d Cir. 1982).

Last year, the Seventh Circuit Court of Appeals came up with a different standard for "excessive fee" claims:

Having had another chance to study this question, we now disapprove the Gartenberg approach. A fiduciary duty differs from rate regulation. A fiduciary must make full disclosure and play no tricks but is not subject to a cap on compensation. The trustees (and in the end investors, who vote with their feet and dollars), rather than a judge or jury, determine how much advisory services are worth. ...

Federal securities laws, of which the Investment Company Act is one component, work largely by requiring disclosure and then allowing price to be set by competition in which investors make their own choices. Plaintiffs do not contend that Harris Associates pulled the wool over the eyes of the disinterested trustees or otherwise hindered their ability to negotiate a favorable price for advisory services. The fees are not hidden from investors—and the Oakmark funds’ net return has attracted new investment rather than driving investors away.

In short, the Seventh Circuit held that, regardless of what the Investment Company Act says, investment advisers don't have a fiduciary duty to investment companies; instead, they're held to the same fraud and misrepresentation standards as total strangers.

The Seventh Circuit opinion was remarkable not only because it eviscerated the Investment Company Act — which clearly does not require personal misconduct like "pulling the wool over [investors'] eyes" — but also because it produced a sharp disagreement on the underlying economics between Judges Easterbrook and Posner, two of the most notable adherents to the conservative "law and economics" doctrine.

It goes almost without saying that there are reasonable arguments in favor of both the investors and the investment advisers. The statute is ambiguous; there's no clear answer for what the standard "should" be in these cases, but there's also little doubt that something has gone awry with investment adviser fees in the context of affiliated mutual funds.

I write "almost," however, because Professor John Coates of Harvard Law School wants nothing to do with reasonable arguments:

How can such cases make it to the highest court in the land? Plaintiffs’ lawyers are able to file these cases because of three features of the US legal system. First, investors are dispersed, and cannot easily work together to protect their own interests. Collective action costs are often identified as a reason that investors cannot protect themselves from predatory institutions – and sometimes that is true. But those same costs also make it impossible for investors to control the lawyers who nominally represent them. Investors cannot stop lawyers from using weak or even frivolous claims to extract rich legal fees. Nor need lawyers even listen to investors with the most at stake in a case. Unlike the advisers, the lawyers are not required to negotiate with independent trustees, or to submit their lawsuit for approval to the investors. Once lawyers have appointed themselves as investor guardians, they face little competition – again, unlike the advisers, who compete with other advisers to attract new investments.

In Professor Coates' world, a lawyer can, on her own, file a "weak or even frivolous" case and "extract rich legal fees" without any involvement of the actual investors.

What a great racket! Lawyers must be filing these cases all the time and collecting big fat checks for nothing.

Or maybe fewer than 200 securities class actions are filed every year, and maybe only half of them settle for any amount, with the other half of investors and their lawyers recovering nothing for their losses.

Since Coates has never represented any investors in a lawsuit, much less represented a class of investors on a contingent fee, I suppose he needs a few reminders on how the process works.

"Jones" in Jones v. Harris is an investor, not a lawyer. Only investors can bring lawsuits and they can only win if they prove every element of their case. Like I wrote above, most of these cases are sent to the rubbish heap without any payment.

If the investors are in the lucky half that survive years of litigating over dismissal (for reference, Jones v. Harris was filed five years ago and is still at the dismissal stage), the court will carefully analyze which investor should represent the class as the lead plaintiff, giving preference to the investors with the "most at stake in a case." Nonetheless, every investor with a stake in the case, even if not the lead plaintiff, can participate in, and object to any part of, the process, including any settlement and any award of attorneys' fees.

Unsurprisingly, three-quarters of successful investor lawsuits are lead by large institutional investors (p. 27) such as public and union pensions, the ones with "the most at stake in the case."

Coates thus has it backwards: it's not "impossible for investors to control the lawyers who nominally represent them," it's impossible for lawyers to bring and win a lawsuit without the participation and support of the investors, particularly the ones with "the most at stake."

Indeed, in most potential investor class action cases, it's impossible for the lawyers to collect any fee at all: you never know when a court will read an act that says "it shall not be necessary to allege or prove that any defendant engaged in personal misconduct" and nonetheless require the investor prove personal misconduct. Based on this week's oral argument, it looks like the Supreme Court will do just that, leaving the investors and their lawyers with nothing after five years of litigation.

So much for a "rich legal fee." And that's the greatest irony: in the nearly forty years since Section 36(b) was passed, not one single court (see pp. 3–4) has ever held an investment adviser's fee was "excessive."

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[UPDATE: Welcome, io9 readers! If you would like to learn more about this area, you should check out the Stanford Copyright & Fair Use Center.]

The sharp readers of io9, themselves a collective Library of Alexandria of science fiction, noted surprising common elements between James Cameron's Avatar and a 1957 short story by Poul Anderson, "Call Me Joe:"

Like Avatar, Call Me Joe centers on a paraplegic — Ed Anglesey — who telepathically connects with an artificially created life form in order to explore a harsh planet (in this case, Jupiter). Anglesey, like Avatar's Jake Sully, revels in the freedom and strength of his artificial created body, battles predators on the surface of Jupiter, and gradually goes native as he spends more time connected to his artificial body.

James Cameron's been here before. After foolishly telling the truth that elements of The Terminator had been inspired by two Harlan Ellison The Outer Limits episodes, Cameron was promptly sued:

Ellison filed suit against the studio claiming that THE TERMINATOR was plagiarized from his two teleplays for THE OUTER LIMITS. One was  "Soldier" (based on a short story he written years before), in which a soldier is zapped from a future war zone into the present and causes all sorts of problems. In addition to basic plot similarities, the scenes of the future in THE TERMINATOR are very similar in look and feel to those in "Soldier".

The other teleplay was "Demon With a Glass Hand", in which a lone man with a glass-and-computer-chips hand and a woman he meets up with are on the run from some unknown enemy. He has amnesia and doesn't know a thing about who he is, or why he's in his current situation. Eventually, he finds out that he's from the future and was sent to the present on a mission to save the human race.

Cameron settled for an undisclosed amount. All versions of The Terminator distributed today include an acknowledgment to Ellison.

Of course, the paralyzed hero with a telepathic connection to extraterrestrials isn't the entirety of Avatar, and, if Wikipedia is to be believed, "Call Me Joe" has none of the elements of colonialism, rebellion, spy-turned-double-agent and whatever else is going on in this epic helicopters vs. pterodactyls trailer.

Moreover, there's nothing new about an author taking elements from pre-existing stories and re-working them. Ever see the play about the prince who feigns madness in response to his mother's hasty marriage to a usurper and, after a complicated series of manipulations, kills a spy and himself?

No, not Hamlet. I'm talking about Vita Amlethi, written four-hundred years earlier by Saxo Grammaticus. (See the connection between "Amleth" and "Hamlet?")

If Shakespeare can do it, can James Cameron?

Probably so.

Let's a take a peek at the filings in a lawsuit filed last year by the estate of the author of It Had To Be Murder (the basis for Hitchcock's Rear Window) against Steven Spielberg, Dreamworks, and others over the movie Disturbia:

Steven Spielberg and major Hollywood studios stole the plot from Alfred Hitchcock's classic 1954 film "Rear Window" in making last year's "Disturbia," a lawsuit filed in Manhattan federal court on Monday said.

Dreamworks, its parent company Viacom Inc, and Universal Pictures, a unit of General Electric Co's NBC Universal, are accused of copyright infringement and breach of contract for making "Disturbia" without first obtaining permission from the copyright holders, the suit said.

Spielberg, a Dreamworks founder, is named as a defendant. The film grossed about $80 million at the U.S. box office.

According to the lawsuit, filed by the Sheldon Abend Revocable Trust, the basis for Hitchcock's 1954 film was "Murder from a Fixed Viewpoint," a short story by Cornell Woolrich.

Hitchcock and actor James Stewart obtained the motion picture rights to the story in 1953. The lawsuit argues that Dreamworks should have done the same.

"What the defendants have been unwilling to do openly, legitimately and legally, (they) have done surreptitiously, by their back-door use of the 'Rear Window' story without paying compensation," the lawsuit said.

As Spielberg's motion for summary judgment argues,

"It is well settled that copyright law protects only plaintiffs particular expression of his ideas, not the ideas themselves." Arden, 908 F. Supp. at 1258; 17 U.S.C. § 102(b).7 As this principle is applied to literary works, general plot ideas of a work are not protected under the Copyright Act. Nichols v. Universal Pictures Corp., 45 F.2d 119, 122 (2d Cir. 1930)(a plaintiff can have no "monopoly" over a general plot idea); Arden, 908 F. Supp. at 1259-60 (generalized plot ideas are not protected, "even if first conceived by plaintiff'). ...

Simply put, no one can own a general plot idea for a story. Davis, 547 F. Supp. at 726 (no protection for plot "about the Vietnam War and its effects on people's lives, and ... love triangles in which the betrayed member ofthe triangle commits suicide"); Giangrasso v. CBS, Inc., 534 F. Supp. 472,476 (E.D.N.Y. 1982) (plot ofa live radio broadcast from a remote location being interrupted by a man with a gun - not protectable); Midwood v. Paramount Picture Corp., 1981 WL 1373 at *1, *3 & *5 (S.D.N.Y. 1981) (plot idea of sheriff whose own posse and townspeople desert him and capitulate to outlaws, and sheriffs search for the outlaws -unprotectable); Berkic v. Crichton, 761 F.2d 1289,1293 (9th Cir. 1985) (plot of "criminal organizations that murder healthy young people, then remove and sell their vital organs to wealthy people in need of organ transplants" and "the adventures of a young professional who courageously investigates, and finally exposes, the criminal organization" - not protected because "[n]o one can own the basic idea for a story").

It seems Avatar might go down that road. If Anderson's heirs can prove that the idea of telepathic control of an alien was entirely Anderson's creation — which I doubt — then they might have a claim. The paralyzed hero is likely a wash; consider Rear Window.

It'd be better for everyone, and for art in general, if Cameron could simply acknowledge the inspiration, credit Anderson's work, and thereby promote continued sales of Anderson's work.

But that won't happen without a lawsuit, not with what happened to Cameron last time he acknowledged inspiration.

Just one of the consequences of having courts of law, not courts of justice.

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The Wall Street Journal's Law Blog points us to a WSJ story on the absurd language used in copyright contracts these days:

Decked out in sequined black and gold dresses, Anne Harrison and the other women in her Bulgarian folk-singing group were lined up to try out for NBC's "America's Got Talent" TV show when they noticed peculiar wording in the release papers they were asked to sign.

Any of their actions that day last February, the contract said, could be "edited, in all media, throughout the universe, in perpetuity."

She and the other singers, many of whom are librarians in the Washington, D.C., area, briefly contemplated whether they should give away the rights to hurtling their images and voices across the galaxies forever. Then, like thousands of other contestants, they signed their names.

...

The terms of use listed on Starwars.com, where people can post to message boards among other things, tell users that they give up the rights to any content submissions "throughout the universe and/or to incorporate it in other works in any form, media or technology now known or hereafter developed."

Lucasfilm Ltd., Star Wars creator George Lucas's entertainment company that runs the site, said the language is standard in Hollywood.

"But, to be honest with you, we have had very few cases of people trying to exploit rights on other planets," says Lynne Hale, a Lucasfilm spokeswoman.

In a May 15, 2008, "expedition agreement" between JWM Productions LLC, a film-production company, and Odyssey Marine Exploration Inc., a shipwreck-exploration outfit, JWM seeks the rights to footage from an Odyssey expedition. The contract covers rights "in any media, whether now known or hereafter devised, or in any form whether now known or hereafter devised, an unlimited number of times throughout the universe and forever, including, but not limited to, interactive television, CD-ROMs, computer services and the Internet."

It reminds me of a draft settlement I received not too long ago that, notwithstanding the statute of limitations, required my client release all claims "from the beginning of the world until the present." Just for fun, I negotiated that down to "from the dawn of mankind."

Ken Adams, the blogosphere expert on contract language (and who is interviewed in the article), blogged about the same problem nearly three years ago, and updated his post today to note:

The phrase occurs most often in contracts in which a consultant or employee assigns to a company all rights to any intellectual property the consultant or employee develops in the course of providing services under the contract. An example: "Employee hereby irrevocably assigns, licenses and grants to Company, throughout the universe, in perpetuity, all rights, if any, of Employee to ...." In that context, saying "all rights" is entirely comprehensive; adding "throughout the universe" constitutes needless elaboration.

Indeed, making your contract apply to "all rights ... throughout the universe" could be worse than applying to "all rights," because it redefines an unambiguous word and makes it more likely that other ambiguous parts of the contract will be interpreted against whoever inserted the "throughout the universe" language.

"All" means "all." "All rights... throughout the universe" means "all" with a caveat. When faced with unambiguous contract terms (e.g., "all") that are specifically defined by the parties (e.g., "throughout the universe"), a court will ask itself, why did someone try to further specify the unambiguous term?

The court will then presume there must have been some reason for the additional language and try to figure that reason out. The danger of needless elaboration like "throughout the universe" is that the court will view additional language as narrowing the unambiguous terms, which is usually not what the party demanding the additional language wanted.

Moreover, the court will presume that, if one party keeps adding language to "clarify" the meaning of general words (such as "all"), then any ambiguity in the contract should be interpreted against that party, because that party was the one with the most control over the contract's language.

In the contexts above, those distinctions are probably irrelevant. But, as Adams notes, "it’s symptomatic of the broader dysfunction in contract language." It's also a bad habit: once you become comfortable with this type of ridiculous language redefining the word "all," how do you know if the ambiguity will stop there?

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I have no problem criticizing Bank of America for deceptive conduct or blaming Wachtell for the failure of a legal stategy, but there's nothing obviously wrong with this:

Eric Roth, a litigation partner at Wachtell, Lipton, Rosen & Katz, apparently was telling the Bank of America Corp. leadership one story about how difficult it would be to escape from the merger with Merrill Lynch & Co. Inc., while singing quite a different tune to the federal government.

E-mails from Roth and in-house lawyers at the bank were among documents released last week from the House Committee on Oversight and Government Reform, which is investigating the merger. Roth and Bank of America representatives did not return calls for comment on this story.

The e-mails show that early on the morning of Dec. 19 Roth advised the bank's chief executive, Ken Lewis, and its interim general counsel, Brian Moynihan, on how difficult and financially risky it would be to try to invoke a so-called MAC -- or material adverse change -- clause, which would allow the bank to get out of the merger with Merrill.

But another e-mail from associate general counsel Teresa Brenner to Moynihan, sent several hours later and on the same day as Roth's e-mail, says, "Eric made a very strong case as to why there was a MAC" during a conference call with some officials from the Federal Reserve.

The e-mails appear to confirm previous Corporate Counsel stories that the bank was telling federal regulators that it wanted to declare the MAC, even though its own lawyers and leaders knew that legally it probably could not succeed. If the bank were to make public its MAC threat, government regulators have said Merrill would have collapsed, causing severe damage to the shaky U.S. financial system at the time.

Although it's not a given that the Rules of Professional Conduct would apply to an argument before the Federal Reserve, let's assume that, by way of Rule 3.9, all the basic duties of merit, candor and fairness apply.

Under those rules, there's nothing wrong with advocating on behalf of your client an argument you believe "probably could not succeed." There are two sides to every story, and at least two interpretations of every legal issue. The United States uses an adversarial legal system precisely so that these stories and interpretations can be fully developed, critiqued, and challenged.

Indeed, it's clear the Federal Reserve's lawyers knew how weak Bank of America's case was:

Brenner's e-mail states that all questions other than one came from a "prickly" Thomas Baxter Jr., general counsel of the New York Federal Reserve Bank. The other question came from Scott Alvarez, general counsel to the Federal Reserve Board in Washington. Baxter "pointed out that there had never been a successful MAC case before," the e-mail says, but Roth countered "that this one essentially could be the first" because of the magnitude of Merrill's losses

Just as the NY Fed's lawyer had no duty to say if he thought the Bank of America / Merrill Lynch merger could become the first successful material adverse change case, Bank of America's lawyer had no duty to say if he thought Bank of America was unlikely to win. Lawyers have no duty to reveal what they believe are the strengths and weaknesses of their case, nor how likely they believe it is that their client will prevail.

There is, however, an ethical issue lurking deeper under the surface. There is a dispute (and shareholder class action) as to when, exactly, Bank of America learned of Merrill Lynch's losses. The executives at Merrill Lynch have suggested that BoA knew of the losses before it consummated the merger. If that's true, and Bank of America's lawyers knew it, then they're in a tighter spot, since the essence of a "material adverse change" is the change in circumstances after the merger consummation. One wonders how a lawyer could in good faith argue for a "material adverse change" arising from circumstances known before the merger.

But that's an issue for another day.

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Really, you should:

The New York Court of Appeals held Pepper Hamilton had a duty to disclose in advance to the insurers the firm's potential involvement in litigation concerning fraudulent loan securitization activities by its client, Student Finance Corp., according to a New York Law Journal article reprinted in New York Lawyer (reg. req.). The court applied Pennsylvania law in the case, which the parties agreed was controlling.

...

But the undisclosed, foreseeable risk of a SFC-related claim against Pepper Hamilton and partner W. Roderick Gagné, even though they had not been involved in SFC's wrongdoing, violated a "prior knowledge" coverage-exclusion clause in the indemnity policies, the Court of Appeals held. Hence, the carriers are not required to indemnify the firm and Gagné in SFC-related claims.

"Given the law firm defendants' role in the securitization of the loans and Gagné's close involvement with SFC, a reasonable attorney with the law firm defendant's knowledge should have anticipated the possibility of a lawsuit, particularly when millions of dollars may have been lost from activities of which they were aware," writes Judge Theodore Jones Jr. in the court's unanimous 6-0 decision.

In 2002, when the law firm applied for the excess coverage, Gagné told Pepper Hamilton's general counsel, in response to a question about the insurance application, that he knew of two suits related to SFC transactions, the ruling recounts. He was, he told the GC, "not certain" about whether the law firm might be joined in the litigation in the future.

I don't fault Pepper Hamilton for trying, but, really, if there is a multi-million-dollar lawsuit out there related to a fraud perpetrated by a client whose business you were deep into, you should probably tell your insurer about it.

The context, too, was important: SFC went bankrupt and the bankruptcy trustee started looking to third-parties for recovery.

Want to guess where bankruptcy trustees start first?

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At Legal Ethics Blog, Professor Andrew Perlman posts a hypothetical:

I was recently a panelist at the Association of Corporate Counsel's annual conference, and someone in the audience posed an interesting hypothetical.

Imagine that in-house counsel is conducting an internal investigation and speaks with an employee whose conduct may have been unlawful. 

Let me interrupt to point out that the above hypothetical is one of the classical examples used to teach professional responsibility to law students. Employees are frequently confused about the role of the company's lawyers in internal investigations, and frequently do not understand that the lawyer there represents solely the company and not the employees themselves. The context of these interviews — typically involving nothing more than the lawyer coming into the employee's workplace — heightens the likelihood of confusion.

As such, corporate lawyers are under a duty (under Model Rule 1.13(f)) to explain the distinction whenever they deal with directors, officers, employees, members, shareholders or other corporate constituents.

But Perlman's hypothetical is a bit different:

The employee does not have her own counsel, so the in-house lawyer makes clear to the employee that the lawyer represents the company and not the employee herself. So far, so good.

But now let's imagine that the employee is reluctant to speak with the lawyer. The lawyer then says to the employee, "You are subject to the company's employment policies, which require you to speak with me about this matter."

Several audience members were convinced that such a statement was both commonplace and ethically permissible. It was my position that such a statement, which appears to be giving legal advice to an unrepresented (and potentially adverse) party regarding her obligations under the employment policy, could be unethical under Rule 4.3. What do you think?

Here's the whole text of Rule 4.3:

In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. The lawyer shall not give legal advice to an unrepresented person, other than the advice to secure counsel, if the lawyer knows or reasonably should know that the interests of such a person are or have a reasonable possibility of being in conflict with the interests of the client.

It's an interesting question. As I responded in the comments [with minor edits here], I think it comes down to context. If the context has made it clear to the employee that the employee's interests are, or could be adverse, then there is not much problem in the lawyer advancing the views of the company, since the concern about "misunderstanding" expressed by the rule is inapplicable.

If, however, the impression created is one of a neutral investigator, then it seems to be legal advice given to an adverse unrepresented party.

The precise wording also creates a problem for the attorney, because they did not merely assert that the company could do if the employee did not cooperate (e.g., terminate and/or sue them), but instead outright told the employee what their legal obligations were under the employment agreement. That's the essence of legal advice.

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Howard Bashman (of How Appealing) has a new article in The Legal Intelligencer:

Recently, however, in cases where I am representing the party that won in the trial court, I have observed experienced appellate opposing counsel who will designate the contents of the appendix or reproduced record on appeal in a far more "adversarial" manner than I would have done had I been in their position. What I mean is that the designation they are serving will include only the parts of the record that benefit their client's position, while excluding (at least until I counterdesignate them in response) those parts of the record that favor my client's position and the trial court's ruling.

Because other experienced appellate advocates are now frequently engaging in a more "adversarial" method of appendix designation than I am, I cannot help but wonder whether this "adversarial" method ever succeeds. In other words, if counsel for appellee is inexperienced or inattentive, presumably the "adversarial" method of appendix designation could ultimately result in an appellate appendix that was bereft of the evidence and other material on which the party that won in the trial court would wish to rely in arguing for affirmance of the trial court's ruling.

Howard has a good argument against the practice and why it's unlikely to succeed. Assuming the court doesn't recognize what's happening and punish the offending party for it, let's consider the question from the perspective of game theory.

The more information available to a court about a case, the more informed and thus more sound the court's analysis will be. Conversely, the less a court knows about a case, the less informed and thus less sound its opinion will be.

I agree with Howard: limiting the appellate record makes it harder for the appellate court to closely and carefully review the case, which increases the risk to both parties of the appellate court unintentionally rendering an ill-informed opinion unjustified by the actual facts.

If a party believes they have a strong case and that they will prevail on appeal, that additional risk is a bad thing. Hence their desire for as complete a record as possible.

But if a party believes they have a weak case that's likely to lose at appeal, however, then they have an incentive to make the record incomplete, and thereby increase the likelihood of the appellate court issuing an erroneous or ill-informed opinion.

Though the losers at the trial level probably have this incentive more often than the winners, the winners can have it as well — if the party that won at trial thinks their victory is unlikely to survive appeal, then they, too, have an incentive to make the record incoherent and incomplete, thereby frustrating review. Indeed, the winning party might have more of an incentive to mess up the record, if they believe, as many lawyers do, that appellate courts generally defer to trial courts, even where the standard of review is de novo.

Perhaps not the most upstanding of tactics, but not necessarily a foolish one.

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Good for him:

WASHINGTON, D.C. — In one of the most public tests of his political skills since taking office in July, Sen. Al Franken pushed through an amendment Tuesday that would withhold defense contracts from companies like Halliburton if they restrict their employees from taking workplace sexual assault, battery and discrimination cases to court.

...

"Article 1 Section 8 of our Constitution gives Congress the right to spend money for the welfare of our citizens. Because of this, Chief Justice Rehnquist wrote, 'Congress may attach conditions on the receipt of federal funds and has repeatedly employed that power to further broad policy objectives,'" Franken said. "That is why Congress could pass laws cutting off highway funds to states that didn't raise their drinking age to 21. That's why this whole bill [the Defense Appropriations bill] is full of limitations on contractors — what bonuses they can give and what kind of health care they can offer. The spending power is a broad power and my amendment is well within it."

Franken then described the case that prompted his amendment, that of former Halliburton employee Jamie Leigh Jones, who alleged in 2007 that she was raped by multiple co-workers while serving in Iraq in 2005.

Although Jones sought to take Halliburton and its former subsidiary KBR to court, her employment agreement required her to pursue her claim through arbitration instead. Arbitration is a process in which a designated third-party (often chosen by the company) reviews the case and makes a judgment outside of the court system. Under binding arbitration agreements, there is usually no way, or very limited ways, to appeal the decision.

Halliburton and KBR have disputed Jones' claims.

"The constitution gives everybody the right to due process of law," Franken said. "And today, defense contractors are using fine print in their contracts do deny women like Jamie Leigh Jones their day in court… The victims of rape and discrimination deserve their day in court [and] Congress plainly has the constitutional power to make that happen."

(Via Feministe). Sen. Franken has a keen grasp of the powers granted to Congress under the spending clause, and the comparative ease of using it, rather than direct regulation or legislation, to encourage or discourage particular behavior.

As Stuart Smalley says, "It's easier to put on slippers than to carpet the entire world."

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That's the conclusion of new scholarship by law professors Dave Hoffman and Cristy Boyd, in a draft just published here on SSRN, with blogging about it here. After analyzing 690 cases that sought to pierce the corporate veil between 2000 and 2005, they conclude:

The part that extra-legal influences play in veil piercing cases should caution corporate lawyers and scholars. Although jurists have focused on the influence of law and lawyers' craft on the likelihood of defending the veil, we find that two previously ignored factors – ideology, and firm size, play as important a role, if not more so. This finding reminds us that legal rules create only loose constraints on judges, even those in the trial courts. ...

We contest the conventional wisdom not just in its specifics but in its general theme that veil piercing doctrine is especially random and freakish. We think that the patterns we have observed fit well with a set of cases influenced by selection. Plaintiffs do win far more often during litigation than popular accounts of the doctrine's rare nature would have had us expect, but their ultimate chance of obtaining relief on the merits is obscured by settlement, which disposes two of three veil piercing cases filed in federal court. ...

Litigation results can tell us nothing more, and nothing less, than the kinds of factors
courts have found important in previous decided cases. Here, two extra-factors appear to be both important and surprising: ideology and firm size. Formalities, plaintiffs' tactics, and defendants' legal planning, have modest relationships to observed outcomes. To owners of the smallest of businesses, the message coming from this data is unfortunately both clear and unsatisfying: neither reliance on legal formalities nor pat expectations about the pro-business orientation of conservative judges will protect your firm from the need to dispute its veil in
court. To scholars, the message is also unsettling: to predict how judges will react to veil piercing facts, and to understand their motivations, observation must yield to experiment.

In short, they found that the smaller the company, or the more conservative the judge, the more likely it is that the veil will be pierced and the owners of the company held personally liable.

One might think that smaller company size was positively correlated with veil piercing success because "undercapitalization," which is generally the most effecive veil piercing theory, is closely correlated with company size. (Common sense suggests that, although it's easy to set up a fly-by-night small business, it's quite difficult to establish an large corporation, even an "undercapitalized" one.) The above findings, however, control for factors like the type of veil piercing claim (i.e., "undercapitalization" as compared to "alter ego" or the like), which means that company size alone is a significant factor in veil piercing. That suggests something else at work, possibly a systematic bias against smaller companies (or a bias in favor of larger companies).

Frankly, I was surprised to see that "in nearly 78% of litigations, plaintiffs likely realized some value from their veil piercing claims" because the veil piercing claims had either (a) succeeded or (b) had not been dismissed at the time of settlement.

I don't believe all of those plaintiffs realized some value from it -- the mere fact that a claim has not yet been dismissed doesn't necessarily mean the defendant sees a reasonable chance of it succeeding -- but the sheer size of that figure (almost four in five!) is hard to argue with. Veil piercing claims apparently have a lot more traction than most lawyers believe.

Then again, the presumption among most plaintiff's lawyers that veil piercing is inordinately difficult and rare likely leads to a strong selection bias prior to filing suit, such that only the strongest veil piercing claims are ever brought at all.

I recommend the authors journey down this road:

This relationship also implies that the particular grounds for relief asserted in complaints generally reflect the underlying facts of the case. To some, this result will surprise, as notice pleading rules, together with the expectation that plaintiffs will learn and shape their cases through discovery, might lead scholars to expect that the framing of the complaint functions as mere rhetorical gloss, insignificant in its particulars. Our contrary finding suggests that complaints are themselves objects worthy of further study beyond the confines of this particular project.

In the world of Ashcroft v. Iqbal, complaints are anything but "rhetorical gloss." These days, they're often the strongest case the plaintiff can put forward.

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Prof. Robert Reinstein, my mentor at Temple University Beasley School of Law, has just posted on SSRN a draft of The Limits of Executive Power:

Justice Jackson’s concurring opinion in The Steel Seizure Case has taken on iconic status among legal scholars and had been adopted by the Supreme Court as the governing framework for evaluating presidential power. But Jackson’s principles are conclusory, do not rest on any historical foundation, and raise as many questions as they answer. He fails to examine, much less justify, the existence or scope of implied presidential powers, nor does he meaningfully explain the extent to which those powers are subject to congressional regulation and override. I apply novel originalist methodologies to answer those unexamined questions, with important consequences to several current theories and cases concerning presidential power.

The construction of the presidency and the allocation of legislative and executive powers can be understood only by an examination of the historical experiences that influenced the Framers. Prominent among these were the preceding two centuries of constitutional developments in England which critically influenced the allocation of executive and legislative power in the Constitution. The central lesson of these historical experiences was that proscriptive legislative restraints on executive power were necessary but not sufficient to prevent autocracy. any of the English proscriptions on the exercise of executive power were included in our Constitution, but there was also a massive transfer of previously held executive power to the legislature. Most of the prerogatives that had been exercised by the King were vested completely in Congress, prohibited to the President, or omitted altogether from the Constitution. Of the small number delegated to the Executive, only one was the same as its royal counterpart; the others were more limited or structurally shared with the Legislative Branch.

I examine this history in detail and apply its underlying principles to develop a general theory of presidential power. In lieu of creative but ultimately inconclusive arguments over indefinite powers that are said to be “executive” in nature, implied powers should be tied to, and derived from, the powers expressly vested in the President in Article II. I refute the propositions that the Vesting Clause is a residual source of plenary executive power and that there is a presidential “completion” power. I apply and elaborate on these principles in the context of the President’s two most important implied powers - executing the laws and developing and implementing foreign policy. The President has broad discretion in choosing how to exercise these powers, but they are not plenary in nature. They are subject to three basic limitations: (1) the President may not, without congressional authorization, use these powers to change domestic law or create or alter existing legal obligations; (2) these powers are subject to regulation by Congress; and (3) in the event of a conflict between the exercise of these powers and congressional legislation, the latter prevails.

Finally, I argue that these limits on presidential power have continuing validity despite the enormous changes in the country since these principles were established. We are now in much the same situation as England in the 18th century - the real power of the Executive is much greater than its nominal legal power. Although the Framers viewed the President as a necessary check on an otherwise dominant Congress, the present reality is now the reverse. The Executive has become the most powerful branch of government. There is no reason to adopt legal theories that would further enhance executive power.

Highly recommended for anyone with an interest in constitutional history.

Anyone looking for relevant primary material should review The Founder's Constitution. Anyone looking for further historical support for Reinstein's argument that,

the construction of the presidency owed much less to political theory or a reflexive reaction to George III than to two centuries of historical experiences that shaped the Framers’ views on executive and legislative powers: “the great disputes of Stuart England, which resonated still in eighteenth-century America; alarms over the rise of ministerial ‘corruption’ under the Hanoverian kings; and lessons learned from the efforts of early state constitutions to cabin executive power within strict republican limits”

should consider Kevin Phillips' The Cousins' Wars, an economic, sociological, religious and political examination of the links between the English Civil War, the American Revolution, and the U.S. Civil War.

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I admire Judge Posner, one of the flag bearers for the law and economics movement. He is thoughtful, prolific, and has not succumbed to the extraordinary pressure judges feel to guard their actual thoughts and feelings. He is in every sense of the word an open book, and we should be grateful for that.

It also makes him the logical target for critics of any of the ideas he champions. Such is the case for my remarks below.

I rather enjoyed Posner's latest article, How I Became A Keynesian, which does as good a job as any at summarizing Keynes' core philosophy, until I came across this paragraph:

But the government may be able to arrest the decline--another of Keynes's central ideas, and one strongly resisted by the conservative economists of his time, as of today. It can reduce interest rates (by buying government bonds or other debt for cash, which increases the amount of money that banks are permitted to lend) in an effort to reduce the costs of active investment and thus encourage employment. Keynes urged this approach. But he also pointed out that it might not work well--as we have learned in the current downturn. The banks may lack confidence in "those who seek to borrow from them," so that "while the weakening of credit is sufficient to bring about a collapse, its strengthening, though a necessary condition of recovery, is not a sufficient condition." In fact, banks in America today are hoarding, rather than lending, most of the cash that they have received from the government's bailouts. The hoard may make the banks a little freer with lending, but the effect on economic activity, at least in the short run, may be tepid.

In sum: the government can "arrest" an economic decline by taking action to "reduce interest rates," but such has "not work[ed] well ... in the current downturn."

Perhaps he's correct. Then again, perhaps he was correct a month ago when he wrote that "the various factors that are responsible for the reduction in the rate of decline of output" last quarter are "probably impossible" to "disentangle:"

This assertion is groundless. No one has the faintest idea what effect the stimulus has had. My guess is that it has had some positive effect, because of its confidence-enhancing character that I mentiioned earlier and because some of the $100 billiion--though no one seems to know how much--has been spent rather than saved. But it is impossible to determine the net impact of the stimulus on GDP or employment because so much else has been happening to stimulate an economic recovery. Some people have had to dissave--turn savings into expenditures--because their income has fallen (maybe because they have become unemployed) below the level necessary to cover their basic expenses. Some people have had to replace durables that wore out. Foreign demand for U.S. products has risen some. (Dissaving, replacing durables, and export growth if the domestic currency loses value are standard nongovernmental spurs to recovery from a depression.) And the government has been doing a lot to stimulate recovery besides the stimulus--has in fact expended or guaranteed trillions of dollars in an effort to increase the amount of lending, which is essential to economic activity.

Disentangling the various factors that are responsible for the reduction in the rate of decline of output in the second quarter is probably impossible, but in any event has not, to my knowledge, been attempted--and certainly not in Romer's talk.

Which Posner do I believe? The one who asserts that "disentangling the various factors" affecting the economy "is probably impossible" (with whom economists vehemently disagree), or the one who asserts as a matter of fact that, of the "various factors" affecting the economy, government efforts to "reduce interest rates" "might not work well?"

Of course, Keynes himself famously responded to a critique that he had changed his mind about the causes of the Great Depression with: "When the facts change, I change my mind. What do you do, sir?"

The facts here, however, have not changed. The columns were published a month apart.

That, too, would be perfectly fine -- Richard Posner, the man, is entitled to his own thoughts and opinions and should change them as befits further thought, data, argument and experience -- but for the belief of many adherents to "law and economics"  that judges' interpretations and application of economic theory should color their judicial decisions.

There's a difference, of course, between the macroeconomics that trouble Posner and the microeconomics at play in most cases. And there's a difference, of course, between recognizing the contributions that economics can bring to legal policy decisions (which is what the original law and economics scholars, like Ronald Coase and Guido Calabresi, focused on) and enabling courts to decide cases by way of economic theories they are not even trained to understand, much less apply.

These distinctions, however, rapidly break down in actual practice. Witness the Twombly Supreme Court opinion, in which seven Justices, none of which have any formal training in economics, held the following as a matter of law:

The complaint makes its closest pass at a predicate for conspiracy with the claim that collusion was necessary because success by even one CLEC in an ILEC’s territory “would have revealed the degree to which competitive entry by CLECs would have been successful in the other territories.” Id., ¶50, App. 26–27. But, its logic aside, this general premise still fails to answer the point that there was just no need for joint encouragement to resist the 1996 Act; as the District Court said, “each ILEC has reason to want to avoid dealing with CLECs” and “each ILEC would attempt to keep CLECs out, regardless of the actions of the other ILECs.” ...

Plaintiffs’ second conspiracy theory rests on the competitive reticence among the ILECs themselves in the wake of the 1996 Act, which was supposedly passed in the “ ‘hop[e] that the large incumbent local monopoly companies … might attack their neighbors’ service areas, as they are the best situated to do so.’ ... Contrary to hope, the ILECs declined “ ‘to enter each other’s service territories in any significant way,’ ” Complaint ¶38, App. 20, and the local telephone and high speed Internet market remains highly compartmentalized geographically, with minimal competition. Based on this state of affairs, and perceiving the ILECs to be blessed with “especially attractive business opportunities” in surrounding markets dominated by other ILECs, the plaintiffs assert that the ILECs’ parallel conduct was “strongly suggestive of conspiracy.” Id., ¶40, App. 21.

But it was not suggestive of conspiracy, not if history teaches anything. In a traditionally unregulated industry with low barriers to entry, sparse competition among large firms dominating separate geographical segments of the market could very well signify illegal agreement, but here we have an obvious alternative explanation. In the decade preceding the 1996 Act and well before that, monopoly was the norm in telecommunications, not the exception. ... The ILECs were born in that world, doubtless liked the world the way it was, and surely knew the adage about him who lives by the sword. Hence, a natural explanation for the noncompetition alleged is that the former Government-sanctioned monopolists were sitting tight, expecting their neighbors to do the same thing.

 In fact, the complaint itself gives reasons to believe that the ILECs would see their best interests in keeping to their old turf. Although the complaint says generally that the ILECs passed up “especially attractive business opportunit[ies]” by declining to compete as CLECs against other ILECs, Complaint ¶40, App. 21, it does not allege that competition as CLECs was potentially any more lucrative than other opportunities being pursued by the ILECs during the same period and the complaint is replete with indications that any CLEC faced nearly insurmountable barriers to profitability owing to the ILECs’ flagrant resistance to the network sharing requirements of the 1996 Act, id., ¶47; App. 23–26. Not only that, but even without a monopolistic tradition and the peculiar difficulty of mandating shared networks, “[f]irms do not expand without limit and none of them enters every market that an outside observer might regard as profitable, or even a small portion of such markets.” Areeda & Hovenkamp ¶307d, at 155 (Supp. 2006) (commenting on the case at bar). The upshot is that Congress may have expected some ILECs to become CLECs in the legacy territories of other ILECs, but the disappointment does not make conspiracy plausible. We agree with the District Court’s assessment that antitrust conspiracy was not suggested by the facts adduced under either theory of the complaint, which thus fails to state a valid §1 claim.

Is the above economic analysis correct? We will never know -- even economists will never know -- since this economic theory was codified as law without anyone reviewing the empirical data, because the Supreme Court dismissed the case prior to any discovery.

Twombly is not some outlier case hurriedly drafted by an overworked trial judge. It is the thoughtfully considered, yet wholly uninformed, product of the highest court in the land.

That's the problem with law and economics: it creates the illusion of judicial competence to interpret and apply economic theories to individual cases. Such is particularly problematic these days because economics is in a state of intellectual collapse and is plagued by conflicts of interest, making it particularly ripe for misuse and abuse in other fields, like the law.

Now that Posner has seen the light and become a Keynesian, will he recognize the criticisms of law and economics and become a legal realist?

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The must-read SCOTUSBlog alerts us to the following petition for certorari being granted by the United States Supreme Court:

Docket: 08-1521
Title: McDonald, et al.  v. City of Chicago
Issue: Whether the Second Amendment is incorporated into the Due Process Clause or the Privileges or Immunities Clause of the Fourteenth Amendment so as to be applicable to the States, thereby invalidating ordinances prohibiting possession of handguns in the home.

• Opinion below (7^th Circuit)
• Petition for certiorari (08-1521)
• Brief in opposition
• Petitioner’s reply (08-1521)
• Brief amicus curiae of Arms Keepers
• Brief amici curiae of Texas, et al
• Brief amicus curiae of  National Shooting Sports Foundation, Inc.
• Brief amicus curiae of American Civil Rights Union
• Brief amici curiae of Institute for Justice, and Cato Institute
• Brief amicus curiae of California
• Brief amici curiae of Gun Owners of America, Inc.,et al.
• Brief amici curiae of Constitutional Law Professors

The Circuit Court opinion by Judge Easterbrook was an pitch-perfect example of judicial restraint:

Repeatedly, in decisions that no one thinks fossilized, the Justices have directed trial and appellate judges to implement the Supreme Court’s holdings even if the reasoning in later opinions has undermined their rationale. “If a precedent of this Court has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the Court of Appeals should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions.” Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 484 (1989). Cruikshank, Presser, and Miller have “direct application in [this] case”. Plaintiffs say that a decision of the Supreme Court has “direct application” only if the opinion expressly considers the line of argument that has been offered to support a different approach. Yet few opinions address the ground that later opinions deem sufficient to reach a different result. If a court of appeals could disregard a decision of the Supreme Court by identifying, and accepting, one or another contention not expressly addressed by the Justices, the Court’s decisions could be circumvented
with ease. They would bind only judges too dim-witted to come up with a novel argument.

...

But the municipalities can, and do, stress another of the themes in the debate over incorporation of the Bill of Rights: That the Constitution establishes a federal republic where local differences are to be cherished as elements of liberty rather than extirpated in order to produce a single, nationally applicable rule. See New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting) (“It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”); Crist v. Bretz, 437 U.S. 28, 40–53 (1978) (Powell, J., dissenting) (arguing that only “fundamental” liberties should be incorporated, and that even for incorporated amendments the state and federal rules may differ); Robert Nozick, Anarchy, State, and Utopia (1974). Federalism is an older and more deeply rooted tradition than is a right to carry any particular kind of weapon. How arguments of this kind will affect proposals to “incorporate” the second amendment are for the Justices rather than a court of appeals.

Plaintiffs undoubtedly believe that Heller, which invalidated the District of Columbia's handgun ban, gives them a good chance at having the state bans struck down as well.

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Adam Liptak at the New York Times writes:

In the early 1980s, the Supreme Court decided more than 150 cases a year. These days, it decides about half that many.

A couple of weeks ago, the Supreme Court advocacy clinic at Yale Law School held a conference to explore the mystery of the court’s shrinking docket. Law professors presented data, theories and speculation. Expensive lawyers told rueful stories about can’t-miss cases that somehow did not make the cut.

Some participants blamed the newer justices, others their clerks. Some blamed Congress, saying it is not cranking out enough confusing legislation. And some blamed the Justice Department, which is filing fewer appeals.

But there emerged nothing like a definitive answer to why the court now selects perhaps 80 cases from more than 8,000 requests for review it receives every year.

I suppose this is as good a time as any to dust off a post of mine from June, Granting or Denying The Writ of Certiorari: The Most Important Decision by Supreme Court Justices:

Thus, for the vast majority of cases, the parties must first complete all of their appeals through state or federal appellate courts, after which they file a "writ of certiorari" with the Supreme Court requesting the Court hear their case. About 8,000 of these writs are filed every year. The Supreme Court grants (through a vote of at least four justices in favor) about 1 or 2% of them.

Why is this so important? Of course, a Supreme Court decision is always a big deal, affecting the livelihood and liberty of millions of people.

But there's another reason, too, one that goes to the heart of debates about "judicial temperament:" the law of unintended consequences.

Just as the best-laid plans of mice and men go oft' astray, so too do Supreme Court decisions:

Appellate judges who don't first serve as trial judges are prone to stupid decisions.  Not because the judges themselves are stupid, of course, but because they literally don't know what they're doing. Example: Scalia insisting that his 2006 Davis decision imposed a constitutional test that was "objective and quite 'workable'." 

After three years, that test has come to mean something different in every state - literally, without exaggeration, different in each of the 50 states.  It produces contradictory results on a daily basis. It's become a constitutional Rorschach test, revealing judges' biases with hi-res fidelity.

So was Scalia lying?  Of course not.  How could he have known enough to be able to lie about what he was doing?  He's never been a trial judge, never practiced criminal law, and hasn't practiced any kind of law since 1967.  He was just guessing.

(via Sentencing Law & Policy)

Since these days actual ideology is off the table in Supreme Court confirmation hearings (everyone claims they don't want to "prejudge" the issue (PDF), even to the extent of neither agreeing nor disagreeing with existing case law), we should at least examining when, how and why a potential Justice would grant the writ.

It's not necessarily wrong for the Court to take few cases -- indeed, abstention generally makes the law more stable and predictable because the intermediate appellate courts are far less likely to issue sweeping rulings that change existing law.

Indeed, for the "unintended consequences" reason above, on many issues the Supreme Court should wait for organic development of the law by way of actual cases litigated throughout the District Courts and Circuit Courts of Appeal. That way, the Supreme Court can see those consequences on a smaller level before irrevocably applying them to the whole country, rather than dealing with the aftermath of an ill-considered decision.

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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 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.

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In recognition of the extraordinary circumstances, the Supreme Court has agreed to release the audio from the Citizens United v. Federal Election Commission argument soon after it is completed. It will be worth a listen, for the hearing is not only a highly unusual four-way argument involving the brand-new Solicitor General, two former Solicitors General and a legendary First Amendment lawyer:

The Court’s Day Call shows this sequence for the argument: Theodore B. Olson of Washington, arguing for Citizens United, 30 minutes [some of that time will be saved for rebuttal after all others have argued]; Floyd Abrams of New York, arguing for Senate Republican Leader Mitch McConnell of Kentucky, 10 minutes; Solicitor General Kagan, for the FEC, 30 minutes, and Seth P. Waxman of Washington (a former Solicitor General), for Sen. John McCain (R-Ariz.) and other present and former congressional sponsors of campaign finance legislation.

But also because it is a rare special session re-argument requested by the Court to address a decades-old principle of constitutional law that most people today take for granted:

The large stakes of this case were not really apparent when the Court first agreed to hear it last Nov. 14 — ten days after Americans had cast their ballots in the most recent federal elections.  At that time, Citizens United, a politically active group with strong conservative views, pressed the case primarily as a test of whether federal campaign finance restrictions applied to what it called “a broadcast feature-length documentary movie.”  There was some constitutional argument involved, but the case was primarily statutory in scope.  At the center of the case was Citizens United’s sharply critical portrayal of the presidential candidacy last year of Hillary Rodham Clinton.  The feature-length film was titled “Hillary: The Movie.”  The contents of that film have been all but obscured by the profound shift in the shape of the case that has since occurred.

After the Court heard oral argument on the case last March 24, and began debating in private how to decide it, some members of the Court — the public does not know who, or exactly why — apparently began viewing the case as a more fundamental inquiry into constitutional questions about corporations’ rights of political speech.   On the final day of the Term, the Court ordered the case reargued, and set the date for Sept. 9.  Lawyers were told to come back to debate whether the Court should overrule two of its most important precedents that had upheld curbs on campaign finance by corporations.

For more, read this SCOTUSBlog commentary, as well as the Wiki it links to, which has all the major briefs. 

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For years, gender equality advocates have argued that Title VII's prohibition on sex discrimination in employment also prohibited discrimination on the basis of sexual orientation, because the latter is inherently sex discrimination, since it's based on preconceived notions of how men and women should act.

The theory has generally been rejected by federal courts, which have refused to incorporate sexual orientation discrimination into Title VII. Worse, a number of courts have used the rejection of the sexual orientation claims as a de facto prohibition on all claims brought by gay plaintiffs, even where the facts clearly showed discrimination on the basis of sex and sexual orientation.

Last week the Third Circuit reversed that trend:

On Friday, the U.S. Court of Appeals for the Third Circuit issued a ruling in Prowel v. Wise Business Forms, 07-3997 (3d Cir. Aug. 28, 2009), which states clearly that a plaintiff can bring a claim of gender stereotyping sex discrimination under Title VII even if there is coexisting evidence of sexual orientation discrimination.  This ruling is an important victory for women’s rights advocates and will have an especially helpful impact on women in nontraditional employment, who frequently suffer not only gender stereotyping discrimination, but also discrimination on the basis of their real or perceived sexual orientation.

...

In discussing Mr. Prowel’s gender stereotyping discrimination claim, Judge Hardiman writing for the unanimous appeals court panel reasoned:

[The employer] argues persuasively that every case of sexual orientation discrimination cannot translate into a triable case of gender stereotyping discrimination, which would contradict Congress’s decision not to make sexual orientation discrimination cognizable under Title VII.  Nevertheless, [the employer] cannot persuasively argue that because Prowel is homosexual, he is precluded from bringing a gender stereotyping claim.  There is no basis in the statutory or case law to support the notion that an effeminate heterosexual man can bring a gender stereotyping claim while an effeminate homosexual man may not.  As long as the employee–regardless of his or her sexual orientation–marshals sufficient evidence such that a reasonable jury could conclude that harassment or discrimination occurred “because of sex,” the case is not appropriate for summary judgment.

Judge Hardiman quoted language from the famous gender stereotyping case of Price Waterhouse v. Hopkins, 490 U.S. 228, 251 (1989) (plurality opinion): “We are beyond the day when an employer could evaluate employees by assuming or insisting that they matched the stereotype associated with their group, for ‘[i]n forbidding employers to discriminate against individuals because of their sex, Congress intended to strike at the entire spectrum of disparate treatment of men and women resulting from sex stereotypes.’”

The Women's Law Project here in Philadelphia submitted an amicus brief in the case, available at their blog.

Thus, as a result of the ruling, employers in the Third Circuit can discriminate on the basis of sexual orientation, but not on the basis of gender stereotypes. If anyone out there knows how defendants could ever prove that in court, there's a couple hundred employment discrimination defense lawyers in Philadelphia just dying to hear from you.

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Hizook.com, "the robotics news portal," relates an unfortunate incident:

Hizook.com has received an amazing flurry of activity in the last 10 days.  We made it to the front page of Slashdot (twice!),  Reddit (twice!), Engadget, Makezine, Hacker News (etc, etc) -- amassing well over 100,000 pageviews!  During the height of the activity, we received an email indicating that Hizook's Google Adsense account was being disabled.  There was no further explanation, no warning, no attempt made to resolve the situation -- in fact, our only recourse was to fill out a web form and hope for a prompt response.  Apparently that is indicative of Google's customer service.  The remainder of our account is chronicled below.  But, as extremely loyal Google users (Search, Gmail, Google Voice, Google Calendar, formerly Adsense, someday Adwords) and Google share holders, we are simply... aghast.

Here is the entirety of the explanation provided by Google, at 11pm on Sunday night, when they unilaterally disabled the account:

Hello,

While going through our records recently, we found that your AdSense
account has posed a significant risk to our AdWords advertisers. Since
keeping your account in our publisher network may financially damage our
advertisers in the future, we've decided to disable your account.

Please understand that we consider this a necessary step to protect the
interests of both our advertisers and our other AdSense publishers. We
realize the inconvenience this may cause you, and we thank you in advance
for your understanding and cooperation.

If you have any questions about your account or the actions we've taken,
please do not reply to this email. You can find more information by
visiting
https://www.google.com/adsense/support/bin/answer.py?answer=57153.

Sincerely,

The Google AdSense Team

I've made the front page of Hacker News twice -- it is indeed quite a traffic spike, and, if I advertised, I would be very upset if my advertiser torpedoed me without notice at the height of the traffic.

So, can they sue?

Let's look at the Google Adsense Terms and Conditions:

9.      No Warranty. GOOGLE MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WITH RESPECT TO ADVERTISING, LINKS, SEARCH, REFERRALS, AND OTHER SERVICES, AND EXPRESSLY DISCLAIMS THE WARRANTIES OR CONDITIONS OF NONINFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR ANY PARTICULAR PURPOSE. TO THE EXTENT ADS, LINKS, AND SEARCH RESULTS ARE BASED ON OR DISPLAYED IN CONNECTION WITH NON-GOOGLE CONTENT, GOOGLE SHALL NOT HAVE ANY LIABILITY IN CONNECTION WITH THE DISPLAY OF SUCH ADS, LINKS, AND SEARCH RESULTS.

10. Limitations of Liability; Force Majeure. EXCEPT FOR ANY INDEMNIFICATION AND CONFIDENTIALITY OBLIGATIONS HEREUNDER OR YOUR BREACH OF ANY INTELLECTUAL PROPERTY RIGHTS AND/OR PROPRIETARY INTERESTS RELATING TO THE PROGRAM, (i) IN NO EVENT SHALL EITHER PARTY BE LIABLE UNDER THIS AGREEMENT FOR ANY CONSEQUENTIAL, SPECIAL, INDIRECT, EXEMPLARY, OR PUNITIVE DAMAGES WHETHER IN CONTRACT, TORT OR ANY OTHER LEGAL THEORY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY AND (ii) GOOGLE'S AGGREGATE LIABILITY TO PUBLISHER UNDER THIS AGREEMENT FOR ANY CLAIM IS LIMITED TO THE NET AMOUNT PAID BY GOOGLE TO PUBLISHER DURING THE THREE MONTH PERIOD IMMEDIATELY PRECEDING THE DATE OF THE CLAIM. Each party acknowledges that the other party has entered into this Agreement relying on the limitations of liability stated herein and that those limitations are an essential basis of the bargain between the parties. Without limiting the foregoing and except for payment obligations, neither party shall have any liability for any failure or delay resulting from any condition beyond the reasonable control of such party, including but not limited to governmental action or acts of terrorism, earthquake or other acts of God, labor conditions, and power failures.

Google obviously believes the answer is "no," and wrote their contract to prohibit any suits at all.

Yet, like with most tech companies, Google's terms of service provide "This Agreement shall be governed by the laws of California." California is among the most consumer-friendly states in the nation.

So the question isn't so simple:

Under UCC § 2-719(1)(b), '[r]esort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.' However, '[w]here circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this code.' UCC § 2-719(2). ... See id.; RRX Indus., Inc. v. Lab-Con, Inc., 772 F.2d 543, 547 (1985) ('Under the Code, a plaintiff may pursue all of the remedies available for breach of contract if its exclusive or limited remedy fails of its essential purpose.').

'A limited remedy fails of its essential purpose when the circumstances existing at the time of the agreement have changed so that enforcement of the limited remedy would essentially leave plaintiff with no remedy at all.' Computerized Radiological Servs., Inc. v. Syntex Corp., 595 F. Supp. 1495, 1510 (E.D.N.Y. 1984), aff'd in part and rev'd in part, 786 F.2d 72 (2d Cir. 1986) (emphasis added). This theory often is raised where a buyer seeks a refund or rescission of the original agreement, but the seller insists that repair is the only available remedy. See, e.g., Gavaldon v. DaimlerChrysler Corp., 32 Cal. 4th 1246, 1259-65, 13 Cal. Rptr. 3d 793, 90 P.3d 752 (2004)."

Stearns v. Select Comfort Retail Corp., 2009 U.S. Dist. LEXIS 48367, at *16–17 (N.D. Cal. Jun. 5, 2009).

Sure seems like Hizook is left with "no remedy at all" under the contract. It thus seems they could indeed sue for direct and consequential damages, including the lost ad revenue.

The above analysis applies to goods, rather than services, but two points weigh in Hizook's favor: first, the original RRX Indus., Inc. opinion itself found a software system to be a "good," and, second, a number of courts recognize the same analysis for service contracts, too.

Unfortunately, it's probably not worth Hizook's time or energy to sue over it -- which is why some creative Silicon Valley lawyers should be thinking about initiating a class action. Google's search engine shows 16,500 hits for "While going through our records recently, we found that your AdSense account has posed a significant risk to our AdWords advertisers."

As Bruce Schneier has written in the context of security software, liability changes everything. If AdSense users want Google to shape up, it seems they need to sue their way into it.

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[UPDATE: The Volokh Conspiracy, Concurring Opinions and TechDirt picked up on the case and this post as well. Volokh has substantial discussion in the comments, including links to law review articles on the issues of vacated and unpublished opinions, and a comment by the author of The Legal Intelligencer article, Shannon Duffy, noting that you can find the opinions themselves on the Eastern District of Pennsylvania's own website. I have also edited a line (the one quoted by Co-Op) for clarity.]

The Legal Intelligencer reports:

Ordinarily, the decision to settle a case while an appeal is pending means giving up the opportunity to set a legal precedent as well as forgoing the chance to win a reversal of any unfavorable published decisions handed down by the lower court.

But a team of defense lawyers fighting to overturn a $24 million verdict have figured out a way to have their settlement cake and eat their jurisprudence, too.

The confidential settlement in Klein v. Amtrak -- a case in which two trespassing teenagers climbed atop a parked train car and suffered serious burns when they got too close to a 12,000-volt catenary wire -- included an unusual provision that called for the trial judge to vacate all of his published opinions and have them removed from Lexis and Westlaw.

And it worked.

A few months after holding an hourlong oral argument, the 3rd U.S. Circuit Court of Appeals agreed in late July to remand the case to the trial judge, U.S. District Judge Lawrence F. Stengel, who, in turn, agreed to vacate eight of his published opinions and to "direct" Lexis and Westlaw to remove them from their databases.

...

Exactly how the lawyers went about persuading Stengel to take such an unusual step is impossible to say because all of the court papers are under seal and none of the lawyers will talk about it.

The verdict drew a lot of attention in the Philadelphia legal community, not least because of the size and the names of the defendants, most of whom often avoid premises liability on a variety of theories. It's no surprise the defendants want to re-write history to prevent future plaintiffs from finding or referring to the case.

As a citizen, I am a strong believer in open government and governmental accountability, including for the judiciary. As a lawyer, I do not believe a court can ever truly "unpublish" a decision, and I believe that law is made every time a court decides any issue.

As such, I am linking to the free and publicly-available RECAP copies of the "vacated" opinions:

(a) the District Court's March 31, 2008 Memorandum Order denying Defendants' post-trial motions [reported at 2008 WL 879968 and 2008 U.S. Dist. LEXIS 25990] (District Court Docket No. 208).

(b) the District Court's October 11, 2006 Memorandum Order denying Defendants' in limine motion regarding evidence of prior electrical contacts [reported at 2006 WL 2927280 and 2006 U.S. Dist. LEXIS 73940] (District Court Docket No. 130).

(c) the District Court's October 12, 2006. Memorandum Order denying Defendants' in limine motion regarding evidence of prior electrical contacts [reported at 2006 WL 3000955 and 2006 U.S. Dist. LEXIS 75942] (District Court Docket No. 145).

(d) the District Court's March 31, 2006 Memorandum Order denying Defendants' summary judgment motion [reported at 2006. WL 859442 and 2006 U.S. Dist. LEXIS 15331] (District Court Docket No. 58).

(e) the District Court's Memorandum Order, entered August 17, 2006, denying Amtrak's motion to certify pursuant to 28 USC 1292(b) [reported at 2006 WL 2385516 and 2006 U.s. Dist. LEXIS 57613] (District Court Docket No. 72).

(f) the District Court's October 2, 2006 Memorandum Order granting Plaintiffs' motion for reconsideration of the District Court's order of July 13,2006 with respect to Norfolk Southern's liability as a non-possessor of land [reported at 2006 U.S. Dist. LEXIS 80992; not reported in Westlaw] . (District Court Docket No. 111).

(g) the District Court's October 2,2006 Order denying Defendants' in limine motion regarding Amtrak's internal memorandum dated November 17, 1983 and Amtrak's June 20, 1984 letter [This Order is not reported in LexisNexis or Westlaw] (District Court Docket No. 119).

(h) the District Court's October 10, 2006 Memorandum Order denying Defendants' in limine motion regarding evidence of prior electrical contacts for the purpose of proving ·punitive damages [This Order is not reported in LexisNexis or Westlaw] (District Court Docket No. 129).

Law, once made, cannot be unmade.

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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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AmLawDaily catches Merck passing the reins from Cravath, Swaine & Moore to Williams & Connolly for its petition to the Supreme Court regarding the consolidated Vioxx securities litigation. In a moment, we'll look at Merck's (likely very, very expensive) brief, and marvel at the Catch-22 it proposes.

But first, some background, courtesy of the Third Circuit's opinion:

Appellants, purchasers of Merck & Co., Inc. stock, filed the first of several class action securities fraud complaints on November 6, 2003, alleging that the company and certain of its officers and directors (collectively, “Merck”) misrepresented the safety profile and commercial viability of Vioxx, a pain reliever that was withdrawn from the market in September 2004 due to safety concerns. The District Court granted Merck’s motion to dismiss the complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure, holding that Appellants were put on inquiry notice of the alleged fraud more than two years before they filed suit, and thus their claims were barred by the statute of limitations. Appellants argue that the District Court erred in finding as a matter of law that there was sufficient public information prior to November 6, 2001 to trigger Appellants’ duty to investigate the alleged fraud.

The Third Circuit agreed with Appellants and reversed the dismissal. That's what Merck has appealed to the Supreme Court.

Although Merck had internal doubts over Vioxx's safety long before it was even approved by the FDA, it never made those doubts public (they were only discovered through litigation). After the "VIGOR" study released in 2000 suggested Vioxx had an increased risk of cardiovascular incidents over another pain reliever, naproxen, Merck argued the difference was due to a protective effect of naproxen, rather than any danger due to Vioxx. In September 2001, the FDA sent Merck a warning letter, which noted:

Although the exact reason for the increased rate of [myocardial infarctions] observed in the Vioxx treatment group is unknown, your promotional campaign selectively presents the following hypothetical explanation for the observed increase in MIs. You assert that Vioxx does not increase the risk of MIs and that the VIGOR finding is consistent with naproxen’s ability to block platelet aggregation like aspirin. That is a possible explanation, but you fail to disclose that your explanation is hypothetical, has not been demonstrated by substantial evidence, and that there is another reasonable explanation, that Vioxx may have pro-thrombotic properties.

The issue remained controversial and disputed until October 2003, when a "study by the Harvard-affiliated Brigham and Women’s Hospital in Boston that found an increased risk of heart attack in patients taking Vioxx compared with patients taking Celebrex and placebo." A week after that study was made public, the investors sued Merck.

Merck's argument is that the FDA warning letter alone -- which it vigorously disputed in public, while concealing its own internal doubts -- was evidence enough that they committed securities fraud, thereby putting investors on "inquiry notice" and beginning the statute of limitations.

Thanks to the Private Securities Litigation Reform Act of 1995, and the Supreme Court's 2007 decision in Tellabs Inc. v. Makor Issues & Rights, Ltd., investors alleging fraud need to show facts, in their initial complaint, which create an "inference of scienter" (i.e., the defendant’s intention “to deceive, manipulate, or defraud) that is

more than merely “reasonable” or “permissible”—it must be cogent and compelling, thus strong in light of other explanations. A complaint will survive, we hold, only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.

It's a high bar to meet, a "heightened pleading requirement" to be sure. In essence, investors filing a shareholder fraud suit have to prove, when they file suit, that they'll likely win.

Keep that in mind while reading Merck's brief to the Supreme Court:

With regard to those elements that are required for a violation of Section 10(b), moreover, it is not necessary that the plaintiff possess sufficient information to satisfy any heightened pleading requirements applicable to those elements before the limitations period begins running. In the Private Securities Litigation Reform Act of 1995 (PSLRA)—enacted after this Court first set out the limitations period for Section 10(b) actions in Lampf—Congress adopted heightened pleading requirements for private securities-fraud actions, including the requirement that the complaint “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 1934 Act § 21D(b)(2), 15 U.S.C. 78u-4(b)(2).

In Rotella, this Court considered and rejected the argument that the existence of heightened pleading requirements should drive application of the discovery
rule. Specifically, the Court rejected the plaintiff’s contention that it should adopt a broader version of the discovery rule for civil RICO claims on the ground that, in
many cases, those claims were subject to the heightened pleading requirement for fraud claims in Federal Rule of Civil Procedure 9(b). 528 U.S. at 560-561. While acknowledging the plaintiff’s concern that a narrower rule could “allow[] blameless ignorance to defeat a claim,” the Court concluded that “we simply do not think such a concern should control the decision about the basic limitations rule.” Id. at 560 (internal quotation marks and citation omitted). Although the PSLRA operates differently in some respects from Rule 9(b), the basic point remains the same: under the discovery rule, the limitations period may be triggered even when a plaintiff will not possess sufficient information to satisfy any applicable heightened pleading requirements.

It is therefore true, at least as a theoretical matter, that, under Section 1658(b), a plaintiff may not be in a position to file a securities-fraud complaint that would survive a motion to dismiss before the limitations period runs. Even when the discovery rule is applicable, however, the purpose of the limitations period itself is to give the plaintiff a specified period of time in which to “prepare a case against [the] perpetrators”—not to sit on his complaint once it is ready. Lampf, 501 U.S. at 378 (Kennedy, J., dissenting); see, e.g., Fujisawa Pharm. Co. v. Kapoor, 115 F.3d 1332, 1334 (7th Cir. 1997). As the government has previously explained in another case involving the discovery rule, “statutes of limitations are designed to induce prospective plaintiffs to investigate and act; they are not designed to offer a period of leisure between the completion of an investigation and the filing of suit.” U.S. Br. at 13, Kubrick, supra (No. 78-1014). The possibility that a heightened pleading requirement “will exact some cost,” insofar as some plaintiffs may be unable to prepare valid complaints within the limitations period, is thus an insufficient basis for adopting a broader interpretation of the discovery rule. Rotella, 528 U.S. at 560.

Like I said: Catch-22. According to Merck, you can't sue until you have enough evidence to show a "strong inference" of scienter, but you have to sue within two years of the first sign -- determined in hindsight -- of when you should have been "induce[d] ... to investigate and act," even if there was no evidence of scienter.

It's odd that Cravath and Williams & Connolly didn't put more effort into this argument. Rotella reached its conclusion by analogizing the racketeering claims at issue there -- brought by a psychiatric patient eleven years after discharge against a facility which, he alleged, fraudulently kept him there to boost profits -- to medical malpractice, where the patient is typically put on "notice" of their claims at the time of their injury.

Such bears little resemblance to the Merck case, in which the investors were arguably vaguely "injured" by the 2001 FDA letter regarding Merck's marketing, but had nothing even suggesting deliberate concealment of Vioxx's risks until 2003.

Moving on to the next two paragraphs in Merck's brief: 

Significantly, in extending the limitations period for Section 10(b) claims from one year to two years in the Sarbanes-Oxley Act, Congress acted out of concern that the preexisting one-year period would foreclose plaintiffs who were unable to prepare complaints sufficient to satisfy the PSLRA’s heightened pleading requirements in time. In its report, the Senate Judiciary Committee observed that “[t]he one year statute of limitations from the date the fraud is discovered is * * * particularly harsh on innocent defrauded investors,” because “the complexities of how the fraud was executed often take well over a year to unravel, even after the fraud is discovered.” S. Rep. No. 146, supra, at 9. Specifically, the committee noted that, “[w]ith the higher pleading standards that * * * govern securities fraud victims, it is unfair to expect victims to be able to negotiate such obstacles in the span of 12 months.” Ibid. That concern would have been wholly misplaced if the one-year period did not begin to run until the plaintiff possessed enough information to satisfy the PSLRA’s heightened pleading requirements in the first place.

Conversely, if the limitations period were triggered only once a plaintiff was able to bring suit, the practical effect of Congress’s adoption of heightened pleading requirements in the PSLRA would have been to postpone the start of the limitations period, sometimes significantly, in many cases. Given that the PSLRA’s primary purpose was to “check * * * abusive litigation by private parties,” Tellabs Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007), it is implausible that, in enacting the PSLRA, Congress would have wanted effectively to extend the time for filing private securities fraud actions—and thus to enable more plaintiffs to use securities-fraud actions as a hedge against downside risk. See pp. 48-49, infra. In sum, the limitations period in Section 1658(b) is triggered by something short of the ability to file a viable complaint, and there is therefore no valid statutory basis for the court of appeals’ rule that a plaintiff must possess information specifically relating to scienter in order to be on inquiry notice.

That misses the point entirely. If Congress wanted to "check abusive litigation," then it is similarly "implausible" that Congress wants to force investors to file suit before they "possess sufficient information to satisfy any heightened pleading requirements."

Which is what Merck suggests.

The investors' brief is due in October. The Supreme Court has not yet scheduled oral argument.

But it will raise an interesting question: should investors be required to sue companies at the first hint of trouble, or can they wait until they have facts suggesting wrongdoing? Do we really want to encourage suits which even the plaintiffs don't know are meritorious?

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Not too long ago, I argued that Ashcroft v. Iqbal was not nearly as important as commentators thought, and that the sky had not fallen on plaintiffs. Instead, Iqbal merely put into words the standard that numerous courts had already applied to large-scale litigation without saying as much. I also argued that Iqbal in particular involved a very unique circumstance -- a Bivens suit against top-level official -- and so was easily distinguishable from the vast majority of civil litigation.

For a while, it seemed no one agreed with me. Every week there was another "[pharmaceutical manufacturing defect / establishment clause / whatever] case dismissed under Iqbal" story.

It's not easy being green.

But I'm no longer alone.

Drug & Device Law has more news, referencing a law review article and a post by a law professor who, like me, but in a more scholarly fashion, reject the argument that six paragraphs of Iqbal radically re-rewrote the rules of civil procedure.

"They're just professors," the defense bar nay-sayers will nay-say, "Iqbal has nonetheless overruled centuries of precedent, making it nearly impossible to file a lawsuit against anyone anymore."

I, of course, disagree. So how about I up the ante with recent opinions from two of the most respected conservatives judges in the federal appellate courts?

Like Judge Frank Easterbrook:

Lusby contends that Rolls-Royce defrauded the United States about the quality of the turbine blades in the T56 engine. The complaint alleges that five contracts between Rolls-Royce and the United States require all of the engine's parts to meet particular specifications; that the parts did not do so (and the complaint describes tests said to prove this deficiency); that Rolls-Royce knew that the parts were non-compliant (not only because Lusby told his supervisors this but also because audits by Rolls-Royce's design and quality-assurance departments confirmed Lusby's conclusions); and that Rolls-Royce nonetheless certified that the parts met the contracts' specifications. The complaint names specific parts shipped on specific dates, and it relates details of payment. Simple breach of contract is not fraud, but making a promise while planning not to keep it is fraud, see Wharf (Holdings) Ltd. v. United Int'l Holdings, Inc., 532 U.S. 588, 121 S. Ct. 1776, 149 L. Ed. 2d 845 (2001), and this complaint alleges the promise, the intent not to keep that promise, and the details of non-conformity. What else might be required to narrate, with particularity, the circumstances that violate 31 U.S.C. §3729(a)(1)?

Rolls-Royce's answer is: the specific request for payment. Lusby has not seen any of the invoices and representations that Rolls-Royce submitted to its customers. He knows about shipments and payments, but he does not have access to the paperwork. The district court held that, unless Lusby has at least one of Rolls-Royce's billing packages, he lacks the required particularity. Since a relator is unlikely to have those documents unless he works in the defendant's accounting department, the district court's ruling takes a big bite out of qui tam litigation.

We don't think it essential for a relator to produce the invoices (and accompanying representations) at the outset of the suit. True, it is essential to show a false statement. But much knowledge is inferential--people are convicted beyond a reasonable doubt of conspiracy without a written contract to commit a future crime--and the inference that Lusby proposes is a plausible one. 

United States ex rel. Lusby v. Rolls-Royce Corp., No. 08-3593, 2009 U.S. App. LEXIS 14119, at *10–11 (7th Cir. Jun. 30, 2009)(reversing dismissal of qui tam / false claims act complaint).

And Judge Richard Posner:

In our initial thinking about the case, however, we were reluctant to endorse the district court's citation of the Supreme Court's decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007), fast becoming the citation du jour in Rule 12(b)(6) cases, as authority for the dismissal of this suit. The Court held that in complex litigation (the case itself was an antitrust suit) the defendant is not to be put to the cost of pretrial discovery--a cost that in complex litigation can be so steep as to coerce a settlement on terms favorable to the plaintiff even when his claim is very weak--unless the complaint says enough about the case to permit an inference that it may well have real merit. The present case, however, is not complex. Were this suit to survive dismissal and proceed to the summary judgment stage, it would be unlikely to place on the defendants a heavy burden of compliance with demands for pretrial discovery. The parties did not negotiate face to face over the termination agreement, and though some of the negotiations were over the telephone rather than in letters or emails, Smith recorded those and the transcripts are attached to his complaint. So almost all the potentially relevant evidence is already in the record.

But Bell Atlantic was extended, a week after we heard oral argument in the present case, in Ashcroft v. Iqbal, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009)--over the dissent of Justice Souter, the author of the majority opinion in Bell Atlantic--to all cases, even a case (Iqbal itself) in which the court of appeals had 'promise[d] petitioners minimally intrusive discovery.' Id. at 1954. Yet Iqbal is special in its own way, because the defendants had pleaded a defense of official immunity and the Court said that the promise of minimally intrusive discovery 'provides especially cold comfort in this pleading context, where we are impelled to give real content to the concept of qualified immunity for high-level officials who must be neither deterred nor detracted from the vigorous performance of their duties.' Id. (emphasis added).

So maybe neither Bell Atlantic nor Iqbal governs here. It doesn't matter. It is apparent from the complaint and the plaintiff's arguments, without reference to anything else, that his case has no merit. That is enough to justify, under any reasonable interpretation of Rule 12(b)(6), the dismissal of the suit.

Smith v. Duffey, No. 08-2804, 2009 U.S. App. LEXIS 17211, at *11–13 (7th Cir. Aug. 3, 2009).

Neither Easterbrook nor Posner are bleeding hearts, and neither has shown much sympathy for plaintiffs in the past. Yet, even they believe the Twombly and Iqbal chatter is overblown.

Chalk two victories up for plaintiffs. It seems the battle over pleading standards is far from over.

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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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How Appealing points to this Shannon Duffy article in The Legal Intelligencer:

Shockwaves reverberated through the civil defense bar in September 2007 when a federal judge imposed sanctions on several lawyers and their clients for engaging in discovery tactics that the judge said were designed to delay and drive up the costs, but that many lawyers say are nothing more than business as usual. * * *

The case has become a cause among defense lawyers who argue that if the sanctions imposed by U.S. District Judge James Knoll Gardner are not lifted, they will find it difficult to represent their clients properly.

The Philadelphia Bar Association took the rare step of filing an amicus brief in the appeal, saying Gardner's ruling, if upheld, threatens to "increase substantially the cost of civil litigation and to chill the zealous advocacy that is every attorney's duty and the cornerstone of our judicial system." * * *

In his September 2007 decision, Gardner imposed sanctions on attorneys John S. Summers of Hangley Aronchick Segal & Pudlin; Daniel B. Huyett and Jeffrey D. Bukowski of Stevens & Lee; and Sandra A. Girifalco of Stradley Ronon Stevens & Young.

Gardner's blistering 77-page opinion concluded that the lawyers and their clients -- a pair of insurance companies -- had acted in bad faith.

By way of background, as The Legal notes,

The underlying suit was brought by a class of doctors and alleged RICO claims against Capital Blue Cross, Highmark Inc. and their jointly formed HMO, Keystone Health Plan Central. The doctors claimed they were being cheated out of their rightful fees because the insurers "shave" capitation payments to doctors by under-reporting the number of patients enrolled in the doctors' practice groups. ... The suit also accuses the insurers of defrauding doctors by "manipulating" the medical service codes used to calculate reimbursements.

Simple, right? Sure, it's a lot of documents, but they're the defendants' own payment processing documents, so they should be readily accessible.

You can read the District Court opinion here. Let's highlight some of Judge Gardner's findings:

The corporate defendants have repeatedly denied that they have access to the requested information, and have misrepresented the nature of their roles in the claims submission process. Moreover, defense counsel have feigned misunderstanding of words, terms and phrases clearly understood by them and their clients. * * * 

As stated in Finding of Fact 26, on March 1, 2004 Attorney Summers sent a letter to the court attaching a series of Declarations which affirmatively represented to the court that plaintiffs’ allegations of bundling and downcoding lacked any factual basis, and that those claims were “without merit”. Thereafter, defendant Keystone, through its counsel, Attorney Summers, refused to produce the underlying documents and data compilations which supported the Declarations on a number of frequently changing bases. Initially, Attorney Summers withheld the underlying documents and data compilations because they allegedly constituted lay opinion. Next, Attorney Summers withheld the information on the basis that it was expert opinion and immune from discovery. Finally, Attorney Summers asserted
that the underlying information was privileged material pursuant to either the attorney-client privilege or the attorney work product doctrine.

As noted by my colleague Senior United States District Judge J. William Ditter, Jr., “It is not good faith for a lawyer to frustrate discovery requests...with successive objections like a magician pulling another and another and then still another rabbit out of a hat.” Massachusetts School of Law at Andover, Inc. v. American Bar Association, 914 F.Supp. 1172, 1177 (E.D.Pa. 1996). * * * 

The most egregious instance of late production involves Keystone’s late production of claims data. Keystone claimed for years that it was unable to provide claims data. During the same time that Keystone and its counsel were feigning an inability to produce claims data (which it owned according to the ASA agreement with Synertech), Keystone was using claims data for its own self-serving purposes (i.e., the Declarations sent to the court on March 1, 2005). * * *

This case is about claims processing. To deny plaintiffs the data which Keystone owns is equivalent to denying plaintiffs their day in court. Without this data it will be more difficult for plaintiffs to prove their claims. I conclude that this is exactly what defendant Keystone hoped to accomplish by thwarting discovery in this case.

From reading the opinion, it seems the defendants' strategy was two-pronged:

1. Thwart plaintiffs' discovery by repeatedly inventing new excuses for not producing the claims processing data, and,
2. Distract, delay, and overwhelm the court and the plaintiffs by repeatedly interjecting collateral issues through "declarations."

The beauty of this plan is that it rapidly snowballs: once you introduce a new issue through #2, you can then apply #1 to refuse any further discovery into it, complicating and delaying the case further, which is apparently what happened here:

After appointment of Special Discovery Master Blume, the parties spent a period of time productively dealing with discovery issues. Plaintiffs have accepted all the decisions of Special Discovery Master Blume. Defendants initially accepted many of her decisions, but reverted to a systematic routine of not only appealing to me most, if not all, of her substantive decisions, but also filing objections to the Master’s monthly reports which detail the proceedings before her and her impressions of the status of this case. The docket reveals the amount of activity this case has generated by virtue of nearly 850 docket entries since this cases’s inception on November 7, 2001.

The cost and difficulty of discovery, particularly in complex business cases like Grider, is one of the most important issues in American law today. Unfortunately, the institutions that should be offering solutions have failed us, typically preferring to propose heads defendants win, tails plaintiffs lose "reforms" in which defendants have neither an obligation to produce evidence on their own nor an obligation to answer anything but the most specific and limited of requests. See, for example, the American College of Trial Lawyers' Civil Discovery Report, which proposed giving defense lawyers a blank check to file frivolous discovery objections while also eliminating most of the tools available to plaintiffs for compeling production.

The Philadelphia Bar Association stepped into this vacuum by hiring two defense firms to prepare an amicus brief (see the brief here) which seizes upon the above to argue that Judge Gardner's sanctions create a "chilling effect" by forcing attorneys into

... a Hobson's choice: either represent their clients in discovery matters to the limits of zealous advocacy at the risk of incurring potentially draconian sanctions; or fail to assert (or stand by) well-founded objections to arguably overreaching discovery requests, regardless of how onerous the burdens such requests may impose on their clients, for fear of incurring highly punitive sanctions.

The PBA's amicus brief misses the point: the defendants' discovery objections were meritless and designed to frustrate the action. All of the requested discovery was either highly relevant (and accessible) or was interjected into the litigation by defendants themselves.

Just like with claims for abuse of process and wrongful use of civil proceedings, attorneys and parties are not shielded from liability when they use a proper procedure for an improper purpose. Whether the means were justified is a question of what the ends were.

Here, defense counsel used a variety of theoretically appropriate discovery means -- like objections, privilege assertions, declarations, appeals from discovery masters, and motions for reconsideration -- for the illegitimate end of thwarting discovery, overwhelming the court, and delaying the action.

Fact is, discovery is going to continue to be needlessly expensive and time-consuming up until defendants have an affirmative duty to produce relevant information, since the lack of such duty forces plaintiffs to engage in fishing expeditions if they want any information at all.

If plaintiffs can't even get sanctions for intentionally dilatory and obfuscatory conduct, then talk of "reform" is pointless, since the only "reform" on the table would give the keys to the courthouse doors to whichever defense lawyer was most willing to slam them shut.

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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 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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[You may wish to see my follow-up post, How The Valley Swim Club Racial Discrimination Lawsuit Will Go Down]

NBC Philadelphia says:

More than 60 campers from Northeast Philadelphia were turned away from a private swim club and left to wonder if their race was the reason.

"I heard this lady, she was like, 'Uh, what are all these black kids doing here?' She's like, 'I'm scared they might do something to my child,'" said camper Dymire Baylor.

The Creative Steps Day Camp paid more than $1900 to The Valley Swim Club. The Valley Swim Club is a private club that advertises open membership. But the campers' first visit to the pool suggested otherwise.
 
"When the minority children got in the pool all of the Caucasian children immediately exited the pool," Horace Gibson, parent of a day camp child, wrote in an email. "The pool attendants came and told the black children that they did not allow minorities in the club and needed the children to leave immediately."
 
The next day the club told the camp director that the camp's membership was being suspended and their money would be refunded.

Bad enough. Then comes the kicker:

The explanation they got was either dishearteningly honest or poorly worded.
 
"There was concern that a lot of kids would change the complexion … and the atmosphere of the club," John Duesler, President of The Valley Swim Club said in a statement.

Wow.

Refusing access to a public pool because of someone's "complexion" is illegal, a violation of the Pennsylvania Human Relations Act, specifically 43 P.S. § 955(i)(1):

§ 955.  Unlawful Discriminatory Practices

It shall be an unlawful discriminatory practice, unless based upon a bona fide occupational qualification, or in the case of a fraternal corporation or association, unless based upon membership in such association or corporation, or except where based upon applicable security regulations established by the United States or the Commonwealth of Pennsylvania:

* * *

(i) For any person being the owner, lessee, proprietor, manager, superintendent, agent or employee of any public accommodation, resort or amusement to:
 
(1) Refuse, withhold from, or deny to any person because of his race, color, sex, religious creed, ancestry, national origin or handicap or disability, or to any person due to use of a guide or support animal because of the blindness, deafness or physical handicap of the user or because the user is a handler or trainer of support or guide animals, either directly or indirectly, any of the accommodations, advantages, facilities or privileges of such public accommodation, resort or amusement.

The key term there is "public accommodation." Does that include a nominally private swim club which leased access to nonmembers then refused to honor it?

The Human Relations Act defines "public accommodation" as:

(l) The term "PUBLIC ACCOMMODATION, RESORT OR AMUSEMENT" means any accommodation, resort or amusement which is open to, accepts or solicits the patronage of the general public, including but not limited to inns, taverns, roadhouses, hotels, motels, whether conducted for the entertainment of transient guests or for the accommodation of those seeking health, recreation or rest, or restaurants or eating houses, or any place where food is sold for consumption on the premises, buffets, saloons, barrooms or any store, park or enclosure where spirituous or malt liquors are sold, ice cream parlors, confectioneries, soda fountains and all stores where ice cream, ice and fruit preparations or their derivatives, or where beverages of any kind are retailed for consumption on the premises, drug stores, dispensaries, clinics, hospitals, bathhouses, swimming pools, barber shops, beauty parlors, retail stores and establishments, theatres, motion picture houses, airdromes, roof gardens, music halls, race courses, skating rinks, amusement and recreation parks, fairs, bowling alleys, gymnasiums, shooting galleries, billiard and pool parlors, public libraries, kindergartens, primary and secondary schools, high schools, academies, colleges and universities, extension courses and all educational institutions under the supervision of this Commonwealth, nonsectarian cemeteries, garages and all public conveyances operated on land or water or in the air as well as the stations, terminals and airports thereof, financial institutions and all Commonwealth facilities and services, including such facilities and services of all political subdivisions thereof, but shall not include any accommodations which are in their nature distinctly private.

A "swimming pool" is thus by definition a public accommodation unless it is "in [its] nature distinctly private."

Though nearly forty years old by this point, one of the key cases before the Pennsylvania Supreme Court held a dining hall connected to a fraternal organization was a public accommodation because:

We believe that the Superior Court dissenters were correct in concluding that 'by its practice of opening its dining room to non-members, subject only to the limitation that they be of the Caucasian race and invited by a member, [the lodge] has brought itself within the ambit of a 'public accommodation' as defined by the act.' Having done so, it has also brought itself within the prohibition of § 5, as above set out, at least to the extent of its dining and bar facilities. ... The lodge concedes that any member of the general public who is of the Caucasian race and who is invited by a member of the lodge is welcome in its dining room. As aptly stated by the Superior Court dissenters: 'The interests of privacy and exclusiveness of association which the Act acknowledged by creating its exclusion for fraternal organizations have been compromised by the policies of the organization itself. Any member of the public, regardless of affection or disaffection for the [lodge] and regardless of eligibility for membership (as in the case of women and children) may intrude upon the privacy and exclusiveness of the Moose dining room, so long as there is some member of the Moose who will stand accountable for his conduct while on the premises . . . that is, any Caucasian member of the public.'

...

There is, of course, no question that when the lodge leases its facilities to nonmembers, a place of public accommodation exists and the lodge does in fact follow a nondiscriminatory policy in such circumstances. The opening of the facilities to guests of members is a difference in degree rather than in character, and each constitutes a step beyond the limited area of immunity granted by the Human Relations Act.

Commonwealth Human Relations Comm'n v. Loyal Order of Moose, 448 Pa. 451, 458–59, 294 A.2d 594, 597–98 (1972).

Take a look at The Valley Club's membership applications. There doesn't appear to be any membership "eligibility" issues at all; at most, "membership" is simply paying one's dues. There's good odds a court would say the pool is always a public accommodation, regardless of the "membership."

But they've got a bigger problem than that: as the Pennsylvania Supreme Court held, "There is, of course, no question that when the lodge leases its facilities to nonmembers, a place of public accommodation exist."

That's exactly what happened here: The Valley Club leased access to the pool to The Creative Steps Day Camp. There's "no question" they were not permitted to discriminate on the basis of race.

See you in court, guys.

[UPDATE: Two issues have come up since the initial story.

First, the Camp apparently paid $1950 for memberships, so "leasing" isn't the issue. However, as noted above, and unlike the fraternal organizations protected by the Act, the Swim Club doesn't appear to have any "membership" requirements at all -- pay your dues and you're in. As such, they likely "compromised" any "interests of privacy and exclusiveness of association" they may have had as a "distinctly private" entity, and so are a "public accommodation" nonetheless.

Second, the Inquirer notes:

Several parents and the camp are looking into possible legal action against the club, said Staci Morgan, a Creative Steps board member and Philadelphia social worker.

Their options depend on whether the state Human Relations Commission has jurisdiction over the club's operations, said Michael Hardiman, a lawyer with the commission. Organizations that are "distinctly private" do not fall under that jurisdiction.

Hardiman would not say whether the Valley Swim Club met the commission's criteria for investigation.

The Pennsylvania Human Relations Commission has jurisdiction to investigate the club's operations and to determine for itself if the swim club is "distinctly private." The primary case, ironically, also involves a swim club:

If the Swim Club is a 'place of public accommodation,' it is subject to the Act and within the jurisdiction of the Commission, and it may not deny membership to persons on the basis of their race, color or ancestry. Beyond this, the language of the statute provides little guidance. A swimming pool may be a 'place of public accommodation' if it 'accepts . . . the patronage of the general public' and is not in its nature 'distinctly private.' These references to the general concepts of 'public' and 'private' take on meaning only as applied to specific factual situations. The appropriate body to make such applications is the Commission, which is charged by the Legislature with administering the Act and is empowered not only to promulgate rules and regulations but also to formulate policies to effectuate the provisions and purposes of the Act.

Commonwealth, Pennsylvania Human Relations Comm'n v. Lansdowne Swim Club, 515 Pa. 1, 7–8, 526 A.2d 758, 761 (1987).

As I noted above, the Valley Swim Club has likely forfeited whatever interests it had in exclusivity by not actually being exclusive and by taking the Camp's money in the first place.

A simple question that could settle the issue entirely is: does the Club permit members to bring nonmembers with them? If so, then Loyal Order of Moose would hold that, as a matter of law, the Club is a "public accommodation."] 

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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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The Conglomerate catches a political bait-and-switch afoot in the TARP regulations:

After the hullabaloo about the $440,000 AIG retreat in October 2008, and news in January of John Thain's $1.2 million office renovations, and the Citigroup plane fiasco, the luxury expenditures section of ARRA was inevitable.  The Act requires that the boards of TARP recipients adopt "a companywide policy regarding excessive or luxury expenditures ..." . . .

Buried in Treasury's June 15 interim final rule on TARP Standards for Compensation and Corporate Governance is a requirement that the boards of TARP recipients by September 19th "adopt an excessive or luxury expenditures policy, provide this policy to Treasury and its primary regulatory agency, and post the text of this policy on its Internet website, if the TARP recipient maintains a company website.  After adoption of the policy, the TARP recipient must maintain the policy during the remaining TARP period." 

As the executive summary explains, Sarbanes-Oxley provided a similar method of disclosure of codes of ethics under Section 406.  this doesn't work.  Letting companies make up their own rules and then disclose when they break them is a bad idea.  Clearly the incentive for the company is to make the policy as weak as possible.  

Note that these regulations, unlike Section 406, don't require disclosure of any waivers granted from the policy, just the policy itself and any amendments to it. 

It's just part of the modern Orwellian trend among corporations in which policies are given names describing them as the exact opposite of what they really are.

"Document retention" policies usually say little about retaining documents and a whole lot about destroying them. "Employee leave" and "sexual harassment" policies typically create Byzantine procedures for taking leave and filing complaints designed to provide a basis for terminating the employee or ignoring the harassment.

No surprise to see the government getting in on the act.

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Professor Richard Epstein of the University of Chicago published an opinion piece in yesterday's Wall Street Journal on medical malpractice.

"Embarrassingly ignorant" would be a charitable description. Eric Turkewitz calls it "flat out false."

How bad was it? Turkewitz caught two outright falsehoods:

American courts commonly think it proper for juries to infer medical negligence from the mere occurrence of a serious injury.

and

American plaintiffs are sometimes spared the heavy burden of identifying particular acts of negligence, or of showing the precise causal connection between a negligent act and an actual injury.

Neither of these are true, as described in Turkewitz's article.

But it doesn't even end there. Here's another line:

American judges frequently let juries decide whether honest mistakes are negligent.

It is hard to put into words how embarrassing, shocking and insulting it is to see a law professor who has written textbooks on torts question how we (or who we let) "decide whether honest mistakes are negligent."

An "honest mistake" is negligent. It's what it means to have been negligent: you made a mistake. You neglected your duty. You failed to exercise the care that a reasonable, prudent person would exercise under the same circumstances. If a physician had intended the harm, it wouldn't be medical malpractice, it would be battery, an intentional tort.

And that is how it should be: a physician should be responsible for damages they caused the patient by neglecting their duty. If the patient neglected to drive safely, ran a red light, and injured the physician, the patient would be responsible for the damages they caused the physician. It's why we have insurance: to pay for the damages we mistakenly cause others.

Putting aside Professor Epstein's "honestly mistaken" description of medical malpractice law, let's consider his solution to the "disturbing" medical malpractice system (which he vaguely and ridiculously concludes causes a full 10% of US health costs by way of defensive medicine):

What is needed is the replacement of juries with specialized commissions like those in France, which help reduce litigation expenses and promote uniformity in case outcomes across regions.

Naturally, Epstein doesn't go into any detail about his proposal, so there's nothing even to critique.

On the subject, however I recently noted that Philip K. Howard's health courts proposal (in the New York Times) was "unlikely to make results any more 'reliable' than now, unless you presume that judges are systematically biased in favor of one side or the other" and that "Howard's process for choosing a 'neutral' expert and the materials they opine on will probably make medical malpractice litigation more contentious, expensive, and uncertain."

Epstein's ephemeral proposal would likely suffer the same problems if he actually spelled out the details. But he has no need to worry about that, he can just 'negligently' draft a new column filled with errors about some other field of law.

Finally, he concludes:

The best reform would be to allow physicians, hospitals and patients to contract out of the liability mess by letting the parties reject state-imposed malpractice rules. They could, for example, choose to arbitrate, to waive jury trials, or to limit damage recovery. Stiff competition and the need to maintain reputation should keep medical providers in line in such a system.

That is to say, Epstein wants to transplant to medicine the same fine extrajudicial system we use for credit cards, used car buying, and check-cashing.

Thanks, but no thanks.

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The American Constitution Society's blog reports:

The Supreme Court ruled today that Arizona public school officials violated the constitutional rights of a teenage girl when they searched her for prescription-strength ibuprofen.

"The issue here is whether a 13-year-old student's Fourth Amendment right was violated when she was subjected to a search of her bra and underpants by school officials acting on reasonable suspicion that she had brought forbidden prescription and over-the-counter drugs to school," Justice David Souter wrote for the 8-1 majority in Safford Unified School District v. Redding. "Because there were no reasons to suspect the drugs presented a danger or were concealed in her underwear, we hold that the search did violate the Constitution ...." The justices, however, overturned a federal appeals court decision that found the school official who performed the search could be held personally liable.

Here's the background, from The Blog of the Legal Times:

The case involved Savana Redding, then 13, who attended a public school with a zero tolerance policy toward possession of all drugs. Acting on reports that the girl had prescription-strength ibuprofen pills, an assistant principal ordered the search to be conducted by the school nurse. She was told to strip to her underwear and pull out her bra and underpants to show that she was not hiding individual pills. None were found. Her mother sued the school district claiming a Fourth Amendment violation, and last year an en banc ruling by the U.S. Court of Appeals for the 9th Circuit found that the search was unconstitutional and the assistant principal was not immune from liability.

I wrote recently about "qualified immunity" in the California Proposition 8 lawsuit, the doctrine which establishes that government agents are not liable for constitutional violations unless the right they allegedly violated was "clearly established" at the time it was allegedly violated. The Supreme Court held today that student's right not to be strip-searched without cause was not previously clearly established, but is now clearly established.

Jonathan Turley highlights Justice Souter writing for the Court (in what is likely his last opinion), showing that he truly understood the core privacy issues:

Savana’s subjective expectation of privacy against such a search is inherent in her account of it as embarrassing, frightening, and humiliating. The reasonableness of her expectation (required by the Fourth Amendment standard) is indicated by the consistent experiences of other young people similarly searched, whose adolescent vulnerability intensifies the patent intrusiveness of the exposure. ... The common reaction of these adolescents simply registers the obviously different meaning of a search exposing the body from the experience of nakedness or near undress in other school circumstances.

Changing for gym is getting ready for play; exposing for a search is responding to an accusation reserved for suspected wrongdoers and fairly understood as so degrading that a number of communities have decided that strip searches in schools are never reasonable and have banned them no matter what the facts may be ...

SCOTUSBlog's quick update (I'm sure they'll write more later) takes issue with the vague nature of the new rule:

The ruling in Safford United School District v. Redding (08-479) made clear that, while the Court seriously frowns on strip searches of students, those have not been forbidden totally; it depends, in other words.

The other constitutional rule — searches of public school students’ backpacks, notebooks, other belongings, outer clothing, and pockets are generally allowed if they are based on “reasonable suspicion” — remains as it has for a quarter-century, but with a small amount of refinement, the exact scope of which is not quite clear.

We're guaranteed to see more such Fourth Amendment school lawsuits in the future, particularly in light of the removal of qualified immunity for future defendants. Hopefully, we'll also see better behavior by school administrators.

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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 National Law Journal fills us in on the whopping $4.1 billion wrongful termination arbitration award against an employer that fired an executive without cause, which was recently upheld by a trial court:

NLJ: How did this award get so big?

MY: It got this way because the defendant, the employer, first of all, apparently had terminated a high-level employee without cause. He [the ousted executive] then sued, and the defendant, who at that time had a lawyer, moved to compel arbitration.

At that point, the defendant made some mistakes. It appears the defendant neglected to, or decided not to, participate in discovery and withheld financial information not only asked for in discovery requests but ordered by the arbitrator.

...

And what happened next is really the telling part: The [retired] judge set the hearing for the arbitration, and the defendant wrote a letter to the arbitrator saying, "I'm not going to show up." When there wasn't any information forthcoming from the defendant, what the arbitrator did was look at what information was available about the financial situation of the company and applied adverse inferences against the defendant, essentially filling in the gaps in the story presuming it would come out in favor of the plaintiff. That was really where the numbers started to scale.

...

NLJ: What was special about this executive compensation agreement?

MY: This agreement said that the employee was going to be paid a commission structure of 5 percent of gross sales. What was significant about this one is that the agreement provided that if he is terminated without cause he is entitled to receive his commissions on an ongoing and permanent basis. ...

One big factor was trying to figure out what those gross sales were going to be. Because the defendant didn't provide any financial information, the arbitrator and plaintiffs didn't have a lot to go with in trying to predict where the company was going to go. They looked at a letter the defendant sent to shareholders talking about revenue in one month being $535,000 and then talking about the expected growth rates of 20 percent or 10 percent per month. It's not a realistic rate [that] the company really would grow 10 percent per month in perpetuity, but because the defendant didn't come forward with any evidence, because they didn't provide anything in discovery, these adverse inferences were then applied and the arbitrator essentially assumed that those figures were going to be correct. If you have a commission structure based on those kinds of growth numbers, you get up to the $1 billion pretty quickly. The punitive damage award was brought in at essentially triple the commission award.

And there you go. It seems like the defendant was destined to lose anyway, otherwise he or his lawyers would have been able to mount a defense initially.

The part that's odd is how he didn't seem to grasp the severe ramifications of the employment agreement, the same one he had used to entice the employee to work there in the first place. I can see the defendant not expecting a $4.1 billion award, but he had to expect a serious walloping from 5% of gross sales forever.

I'm betting the defendant could have reduced that award by far more than 90% if he had fought it. So we'll say that 99.99% of success is showing up.

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An interesting opinion out of the Eastern District of Pennsylvania in Youtie v. Macy's Retail Holding, 2009 U.S. Dist. LEXIS 47383 (June 5, 2009) by Senior Judge Thomas N. O'Neill, Jr.:

On August 1, 2000, Macy's acquired all of the publicly-held shares of David's Bridal, Inc. David's Bridal is a corporation and a clothier specializing in bridal gowns and other formal wear and accessories. Plaintiff had purchased David's Bridal in 1972, expanded the operations, partnered with Steven Erlbaum beginning in 1989 or 1990 and with Erlbaum made a public offering of David's Bridal's stock in 1999. After Macy's acquired David's Bridal, plaintiff entered into a contract of employment with a division of Macy's, Macy's Retail, on or about October 1, 2001. In accordance with the terms of the agreement, Youtie served as the Executive Vice-President, Product Development and Sourcing of the David's Bridal division of Macy's Retail. On November 17, 2006, an affiliate of Leonard Green & Partners signed an agreement with Macy's to acquire David's Bridal and consummated the sale and transfer of stock of David's Bridal to the Leonard Green affiliate on January 31, 2007. As part of the transaction, Macy's subsidiary Macy's Retail assigned its employment agreement with plaintiff to David's Bridal.

In short, Plaintiff claimed that the sale of his division to another company was a termination entitling him to severance. He lost; applying Missouri law (per the contract), the Court held:

The employment contract at issue in this case is one for personal services, which, as a general rule, cannot be assigned without the consent of the employee. Alexander & Alexander, Inc. v. Koelz, 722 S.W.2d 311, 312-13 (Mo. Ct. App. 1986), citing Alldredge v. Twenty-Five Thirty-Two Broad. Corp., 509 S.W.2d 744, 749 (Mo. Ct. App. 1974). However, a mere change in the form in which a business is owned or conducted should not work to prohibit assignment. Id. at 313. Whether there is a change in partnership personnel or structure, the incorporation of a previously unincorporated business, the dissolution of a corporation or a change in corporate structure, "if there is no material change in the contract obligations and duties of the employee, there is no reason for the transfer of the rights from one entity or form to another to work an assignment putatively prohibited by the rule against assignment of personal service contracts." Id.

That's what happened here, in addition to the employment agreement itself recognizing the possibility of assignment. Hence, summary judgment for the Defendant on Plaintiff's claims.

Plaintiff probably should have left it alone:

Defendants filed an answer, affirmative defenses and counterclaims on December 17, 2007, alleging that plaintiff breached his employment agreement, misappropriated trade secrets and/or confidential and proprietary information, breached his fiduciary duty and duty of loyalty, engaged in tortious interference with business and employment relations, was unjustly enriched and engaged in unfair competition.

Uh oh. Among other allegations:

Plaintiff does not dispute that the "first cost" data at issue is the cost the manufacturer charged David's Bridal to manufacture the designs David's Bridal provided the manufacturer for its Spring 2007 catalogue. Additionally, plaintiff admitted in his affidavit that he "asked for the cost data because [] Erlbaum . . . was interested in what David's Bridal paid various manufacturers for the dresses they manufactured." Plaintiff further admits that he gave a copy of the cost sheet to Erlbaum but believes that plaintiff provided it to Erlbaum after plaintiff recovered from the surgical procedure he underwent after his January trip to Hong Kong.

Plaintiff also admits that he and his former partner Erlbaum had general discussions about Erlbaum returning to the bridal business. 

It's never a good idea to share proprietary information about your current employer with your former business partner.

Plaintiff raise a good issue; most of Defendants' claims were actually a single "trade secrets" claim:

laintiff argues that defendants' counterclaims for misappropriation of trade secrets and/or confidential and proprietary information, unjust enrichment and unfair competition are preempted by the PUTSA. The relevant section of the PUTSA provides as follows:

(a) General rule.--Except as provided in subsection (b), this chapter displaces conflicting tort, restitutionary and other law of this Commonwealth providing civil remedies for misappropriation of a trade secret.

(b) Exceptions.--This chapter does not affect:

(2) other civil remedies that are not based upon misappropriation of a trade secret; or

12 Pa. C.S.A. § 5308. The dominant view of courts in states that have also adopted the Uniform Trade Secrets Act of 1985 is that preemption exists to the extent that defendants' counterclaims are based on the same conduct that is said to constitute a misappropriation of trade secrets. See e.g., Motorola, Inc. v. Lemko Corp., 2009 WL 383444, at *10 (N.D. Ill. Feb. 11, 2009); Hecny Trans., Inc. v. Chu, 430 F.3d 402, 404-05 (7th Cir. 2005); Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284, 1296-98 (11th Cir. 2003); Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del. 2002).

Defendants' counterclaims for misappropriation of trade secrets and/or confidential and proprietary information, breach of fiduciary duty and duty of loyalty, unjust enrichment and unfair competition involve plaintiff's conduct of requesting and disclosing "first cost" data to Erlbaum. These claims each refer to the same "first cost" data and are wholly based on the same conduct as the conduct that comprises a misappropriation of trade secrets claim. The "first cost" data is the sole information at issue in this case and it is either a trade secret or something less. Thus, these counterclaims are preempted only if the "first cost" data at issue constitutes a misappropriation of a trade secret.

And that's what would have kicked out most of these claims, except that the parties forgot to brief if the information was actually a trade secret:

A trade secret under the PUTSA is defined as:

Information, including a formula, drawing, pattern, compilation including a costumer list, program, device, method, technique or process that:

(1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

PUTSA, 12 P.S. § 5302.

However, neither party has properly briefed whether this information qualifies as a trade secret. Plaintiff argues that the PUTSA preempts defendants' counterclaims but states, without sufficient legal analysis, that the information does not qualify as a trade secret to satisfy the PUTSA because it was readily available to anyone who asked for it. These arguments are contradictory; plaintiff cannot have it both ways. See Callaway Golf Co. v. Dunlop Slazenger Group Am., Inc., 295 F. Supp.2d 430, 437 (D. Del. 2003), stating that arguing that information does not constitute a trade secret and also that other claims are preempted by the Trade Secret Act is contradictory. Defendants did not respond with legal analysis on whether the "first cost" data constitutes a trade secret; instead they merely requested leave to file an amended counterclaim complaint if I find such information to be a trade secret. As this information may qualify as a trade secret, I will not find that the data satisfies lesser standards than those required for a trade secret merely because the issue has not been properly briefed. For this reason, I cannot find that defendants' counterclaims of misappropriation of trade secrets and/or confidential and proprietary information, breach of fiduciary duty and duty of loyalty, unjust enrichment and unfair competition are preempted at this time because defendants may still be able to recover under such theories in the event that the "first cost" data does not constitute a misappropriation of a trade secret under the PUTSA. Cenveo Corp. v. Slater, 2007 WL 527720, at *3 (E.D. Pa. Feb. 12, 2007), stating "that the cases holding that the Trade Secrets Act does not preempt common law tort claims when it has yet to be determined whether the information at issue constitutes a trade secret take the better approach." 

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Buried in this NYTimes article about the massive layoffs at White & Case, and the general reductions at big corporate law firms, is this critical fact:

That wall [i.e., the slowdown of work after Lehman Brothers' collapse] was especially hard because — remarkably like such ventures as the Mafia or the ice-cream vendor — many large firms operate on a cash-in-hand basis, with insufficient reserves to weather a slump.

With Wall Street in a meltdown, Big Law suddenly found it not just indecorous but impossible to pay young lawyers six months out of law school $160,000 a year to stare at their hands. (Indeed, after offering jobs to dozens of third-year law students last fall, White & Case told 60 percent of them they would have to wait a year to start.)

That's an insult to ice-cream vendors, who at least recognize the seasonal nature of their product.

Law students and young lawyers, burn that fact into your brain and never forget it: big corporate law firms are transient, risky businesses. Your first sign of a problem may be a friend texting you "sorry to hear about your firm."

Indeed, it's often worse than cash-in-hand, with many firms going deeply into short-term debt at the end of the year to fund the bonuses, debt which they then pay down throughout the year.

Don't let the big buildings, fancy summer associateship, corporate clients, or even decades-old names fool you. To the extent these firms remain extant these days, it is by swiftly firing people just like you.

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The Am Law Litigation Daily brings us important news:

Last fall, when the U.S. Court of Appeals for the Federal Circuit took a look, en banc, at the Patent and Trademark Office's rejection of Bernard Bilski's application for a patent on a method to hedge risk in commodities trading, Bilski was represented by The Webb Law Firm, a little-known Pittsburgh shop. Bilski lost in a landmark ruling that significantly tightened the standards for so-called business methods patents. But he didn't give up. He brought in new lawyers from the Washington, D.C., IP powerhouse Finnegan, Henderson, Farabow, Garrett & Dunner and petitioned the U.S. Supreme Court to hear his case.

On Monday, Bilski and his new lead counsel, Finnegan partner J. Michael Jakes, learned that the high court had granted their petition for certiorari. (Akin Gump's justly celebrated Scotus Blog has links to all the Bilski documents, including the Supreme Court's order, the Federal Circuit ruling, and briefs from the petitioner, respondent, and amici.) The case, Bilski v. Doll, will center on whether business methods--intangible processes and techniques--are eligible for patents if they're not tied to particular machines or apparatuses and don't transform an article into a new state or thing. Here's Incisive Media Supreme Court correspondent Tony Mauro on the Court's grant of certiorari and here's Joe Mullin of IP Law & Business on hints various justices have dropped on how they're likely to rule.

It's a big deal for the Supreme Court to grant certiorari on a patent case decided by the Federal Circuit, given the Federal Circuit's experience and expertise in patent law. If you're interested in the case, the article linked above is thorough and entertaining.

The news gives us an opportunity to talk about the most important thing a Supreme Court Justice does: agree or disagree to grant the writ of certiorari.

These days, after the Judiciary Act of 1891 (the "Evarts Act"), which created the Federal Circuit Courts of Appeal, and the Judiciary Act of 1925 (the "Certiorari Act"), which exercised Congress' constitutional power to control the flow of appeals, the only cases with a right to be heard in the Supreme Court are those specified by the US Constitution as within the "original jurisdiction" of the Court:

In all cases affecting ambassadors, other public ministers and consuls, and those in which a state shall be party, the Supreme Court shall have original jurisdiction.

That is to say, these rare cases can be filed directly with the Supreme Court. Congress further required (by calling it "exclusive" jurisdiction) disputes between States be filed with the Supreme Court.

Thus, for the vast majority of cases, the parties must first complete all of their appeals through state or federal appellate courts, after which they file a "writ of certiorari" with the Supreme Court requesting the Court hear their case. About 8,000 of these writs are filed every year. The Supreme Court grants (through a vote of at least four justices in favor) about 1 or 2% of them.

Why is this so important? Of course, a Supreme Court decision is always a big deal, affecting the livelihood and liberty of millions of people.

But there's another reason, too, one that goes to the heart of debates about "judicial temperament:" the law of unintended consequences.

Just as the best-laid plans of mice and men go oft' astray, so too do Supreme Court decisions:

Appellate judges who don't first serve as trial judges are prone to stupid decisions.  Not because the judges themselves are stupid, of course, but because they literally don't know what they're doing. Example: Scalia insisting that his 2006 Davis decision imposed a constitutional test that was "objective and quite 'workable'." 

After three years, that test has come to mean something different in every state - literally, without exaggeration, different in each of the 50 states.  It produces contradictory results on a daily basis. It's become a constitutional Rorschach test, revealing judges' biases with hi-res fidelity.

So was Scalia lying?  Of course not.  How could he have known enough to be able to lie about what he was doing?  He's never been a trial judge, never practiced criminal law, and hasn't practiced any kind of law since 1967.  He was just guessing.

(via Sentencing Law & Policy)

Since these days actual ideology is off the table in Supreme Court confirmation hearings (everyone claims they don't want to "prejudge" the issue (PDF), even to the extent of neither agreeing nor disagreeing with existing case law), we should at least examining when, how and why a potential Justice would grant the writ.

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Two interesting stories today.

Twittering Teens Terrorize the City:

A mob of tech-savvy teens tweeted their way into the same place in South Philly over the weekend and then went wild.

"It's kind of a new dynamic that's growing, with large groups of juveniles using the social networks to get out the word," said Philly police Lt. Frank Vanore. "We're not going to tolerate it."

Hundreds of teens who coordinated through MySpace and Twitter, hijacked a taxi at 12th and South Street, assaulted and yanked a woman and passenger out of their car and vandalized a convenience store at Broad and Catharine Streets.

Most of the teens were between the ages of 14 and 17.

Judge Reprimanded for Friending Lawyer and Googling Litigant:

A North Carolina judge has been reprimanded for “friending” a lawyer in a pending case, posting and reading messages about the litigation, and accessing the website of the opposing party.

Judge B. Carlton Terry Jr. and lawyer Charles Shieck both posted messages about the child custody and support case heard last September, the Lexington Dispatch reports. Terry also accessed the website of the opposing litigant and cited a poem she had posted there, according to the April 1 public reprimand (PDF) by the North Carolina Judicial Standards Commission.

The opinion says Terry and Shieck first discussed Facebook in chambers in the presence of the opposing lawyer in the case, Jesse Conley, who said she didn’t know what Facebook was and didn’t have time for it. After the discussion, Terry and Shieck friended each other. Shieck later posted a Facebook reference to the issue of whether his client had had an affair, saying “How do I prove a negative?” according to the opinion. Shieck also wrote, “I have a wise judge.”

...

The opinion says the ex parte communications and the independent gathering of information indicated a disregard of the principles of judicial conduct.

These feel like "new" issues, but they're not. The law of social media is the same as the law of everywhere else. Those aren't the first teens to vandalize an area, nor is Judge Terry the first to seek out information on litigants outside of the court.

The difference is, as Seth Godin put it, "everything goes on your permanent record."

Ten years ago, no one would have found any of the teens and the judge's prying would have gone unnoticed. Now it's plastered everywhere on the internet, or at least available through a quick subpoena.

Where will we be ten years from now?

Judge Sotomayor is getting grilled over a line in a speech several years ago. What if lurking in Google's permanent memory we saw that @soniasotomayor had been invited to 12th and South Street?

The New York Times' "Room for Debate" covered the concern about too much publicity and too much social media recently, with Clay Shirky at NYU writing:

Society has always carved out space for young people to misbehave. We used to do this by making a distinction between behavior we couldn’t see, because it was hidden, and behavior we could see, because it was public. That bargain is now broken, because social life increasingly includes a gray area that is publicly available, but not for public consumption.

Given this change, we need to find new ways to cut young people some slack. Privacy used to be enforced by inconvenience; you couldn’t just spy on anyone you wanted. Increasingly, though, privacy will have to be enforced by us grownups simply choosing not to look, since it’s none of our business.

This discipline isn’t just to protect them, it’s to protect us. If you’re considering a job applicant, and he has some louche photos on the Web, he has a problem. But if one applicant in 10 has similar pictures online, then you’ve got a problem, because you’ll be at a competitive disadvantage for talent, relative to firms that don’t spy.

Maybe we all need to cut each other a little more slack. Maybe we all need to hold ourselves to a higher standard.

Because the permanent record society is here to stay.

Google "Judge B. Carlton Terry Jr." Who knows who he was before, now he's "Judge reprimanded."

As for the teens, being between 14 and 17 means they can likely get their criminal records expunged as adults.

But not their Twitter records.

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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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Among the many creative “legal” ideas floating around on the internet is:

If you set up an LLC for yourself and conduct all your business through it, the LLC will be liable in a lawsuit but you won't.

Last week, I was asked if this "asset protection strategy" worked.

No, it doesn't.

Conducting your personal business through an LLC provides no protection against a tort verdict, the type of liability that most people are worried about. The use of corporate forms -- like LLCs, S-Corporations, or Incorporation -- has many important purposes, but avoiding personal tort liability for your own conduct is not one of them.

To see why, let's start with some background.

What's a "tort?"

"Tort" is the Norman word for "wrong." There are three main types of legal wrongs: criminal wrongs, contractual wrongs, and tort wrongs.

A "criminal" wrong is an offense against the state: we as a society made it illegal to smoke pot, you did it anyway, here's your punishment. A "contractual" wrong is a failure to do something you agreed to do: I gave you $20 to mow my lawn, you didn't do it, I want my money back.

Everything else is a "tort" wrong. The most common tort is "negligence," which includes most lawsuits, like car accidents, medical malpractice, or slip and fall. In negligence, you had a general duty to do something in a reasonable way (like drive your car safely) and you messed up, so you have to pay for the harm you caused. Another type of "tort" is an intentional tort, like defamation or tortious interference with business relations: you purposefully hurt me, so you should pay for the damage.

When most people say they're worried about "getting sued," they're usually talking about being responsible a large tort verdict arising from a catastrophic injury or wrongful death.

What's an LLC?

A limited liability company is a type of business association recognized by state and federal governments as a legal entity independent of its owners and employees. On behalf of the owners, the company can, for example, own property and enter into contracts.

For our purposes here, we do not need to go into the differences between a limited liability company, an S-corporation, full incorporation, or a limited partnership. (I exclude general partnership and sole proprietorship because neither claims to limit liability at all.) All of them serve the same basic purpose, which is to protect investors from incurring any liability greater than the amount they invested into the company. The Economist described the purpose of limited liability a couple years ago:

Before limited liability, shareholders risked going bust, even into a debtors’ prison maybe, if their company did. Few would buy shares in a firm unless they knew its managers well and could monitor their activities, especially their borrowing, closely. Now, quite passive investors could afford to risk capital—but only what they chose—with entrepreneurs. This unlocked vast sums previously put in safe investments; it also freed new companies from the burden of fixed-interest debt. The way was open to finance the mounting capital needs of the new railways and factories that were to transform the world.

How does tort liability work in the context of an LLC?

Most everyone knows, although not by name, "vicarious liability" and "the doctrine of respondeat superior." If, in the course and scope of your employment, you cause someone else harm, then your employer is liable for your conduct. 

Here's what you probably don't know:

An agent is subject to liability to a third party harmed by the agent's tortious conduct. Unless an applicable statute provides otherwise, an actor remains subject to liability although the actor acts as an agent or an employee, with actual or apparent authority, or within the scope of employment.

Restatement of the Law, Third, Agency § 7.01 (emphasis added).

(An aside about The Restatement: The Restatement is an intense effort of lawyers, professors and judges organized by the American Law Institute to reduce to writing the legal community's consensus regarding general principles of law applied across the country. "Agency" is the subject of this particular Restatement, and "Third" means it's the third version, which was published in 2006. For reference of how intense these efforts are, the Second version was published in 1958. In case you're wondering, the Second version also said “[a]n agent who does an act otherwise a tort is not relieved from liability by the fact that he acted at the command of the principal or on account of the principal …")

An "agent" is a broader definition of "employee:" it's anyone acting on behalf of the company.

Let me reiterate what that all means: the general legal rule across the country is that individuals acting on behalf of a company are personally liable for their tortious conduct, even if they did so on behalf of the company.

Don't believe this "Restatement?" Want some case law? Here's a case from the Virgin Islands less than a month ago, noting in passing the cases it found with minimal research:

Terr. of the U.S.V.I. v. Goldman, Sachs & Co., 937 A.2d 760, 794 n.153 (Del. Ch. 2007) ('Officers and directors may be held individually liable for personal participation in tortious acts even though performed solely for the benefit of the corporation[.]') (quotation omitted); Armed Forces Ins. Exch. v. Harrison, 2003 UT 14, 70 P.3d 35, 41 (Utah 2003); Miller v. Keyser, 90 S.W.3d 712, 717 (Tex. 2002); Saltiel v. GSI Consultants, Inc., 170 N.J. 297, 788 A.2d 268, 273 (N.J. 2002); Haupt v. Miller, 514 N.W.2d 905, 909 (Iowa 1994); Camacho v. 1440 Rhode Island Ave. Corp., 620 A.2d 242, 246-47 (D.C. 1993); Weir v. McGill, 203 Ga. App. 431, 417 S.E.2d 57, 59 (Ga. 1992); Hecker v. Ravenna Bank, 237 Neb. 810, 468 N.W.2d 88, 95 (Neb. 1991); Ingram v. Machel & Jr. Auto Repair, Inc., 148 A.D.2d 324, 325, 538 N.Y.S.2d 539 (N.Y. App. Div. 1989); Mississippi Printing Co. v. Maris, West & Baker, Inc., 492 So. 2d 977, 978 (Miss. 1986); Wyatt v. Union Mortg. Co., 24 Cal. 3d 773, 157 Cal. Rptr. 392, 598 P.2d 45, 52 (Cal. 1979); Jabczenski v. Southern Pac. Memorial Hosp., 119 Ariz. 15, 579 P.2d 53, 57 (Ariz. Ct. App. 1978); Taylor v. Alston, 79 N.M. 643, 447 P.2d 523, 525 (N.M. Ct. App. 1968); New Eng. Box Co. v. Gilbert, 100 N.H. 257, 123 A.2d 833, 835 (N.H. 1956)."

Addie v. Kjaer, 2009 U.S. Dist. LEXIS 36110, at *21–12 (D.V.I. Apr. 28, 2009)(noting, "The Court has come across no jurisdiction that applies a contrary rule.").

Insurance and employee indemnification are so common today that this distinction is not often appreciated, but it's still the law. If Warren Buffet defrauded Mom and Pop’s Ice Cream Stand wholly for the benefit of Berkshire Hathaway, he would personally be on the hook for the damage just the same as Berkshire.

Let's go back to your personal LLC. Assume you hit a pedestrian with a car, defame someone in a blog post, or cause a building fire. It doesn't matter if you were "employed" by your LLC when you did it -- you will still be personally liable, as will the LLC that "employed" you.

Thus, in order to "protect your assets," you need to put enough money into the LLC that it can completely pay any tort judgment against you, or else the injured person can go for your assets long after it has bankrupted the LLC. That just defeats the nominal purpose of the LLC (to avoid liability), since you'll have to pay the same amount anyway, just through the LLC.

Again, there are plenty of reasons for setting up an LLC, such as protecting investors, limiting contractual liability, limiting liability arising from employee's conduct, and a host of business and tax uses, but avoiding personal liability for your own conduct isn't one of them.

There's an easier and more effective way. Buy good personal liability insurance and buy an umbrella liability insurance policy. If you're running a business, buy a good business insurance policy (including liability) and an umbrella policy for it, too. If your business is unusual, or you're worried about a particular risk, look for risk-specific insurance, like media policies which cover defamation. Don't skimp -- get at least $1 million in coverage, or more depending on your own risks.

Then you'll be covered for most tort verdicts (keep in mind some states prohibit insuring intentional conduct, and insurance policies can carve out whatever exceptions / exemptions they want).

No trickery needed, just some money and foresight.

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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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I'm somewhat surprised this issue comes up as often as it does:

"Scholarly commentary has recognized that Pennsylvania law has been riven with 'considerable confusion as to the nature of the covenant of good faith, when that covenant is implicated, and how claims arising from a breach of the covenant are enforced.' Seth William Goren, Looking for Law in all the Wrong Places: Problems in Applying the Implied Covenant of Good Faith Performance, 37 U.S.F. L. Rev. 257, 258 (2003). As the parties' discussion of the law illustrates, it has not always been clear 'whether the covenant is implicated in every contractual relationship or only some . . . and whether a breach of the covenant of good faith gives rise to an independent cause of action or is merely a tool of contract interpretation.' Id. at 260. According to Goren this confusion 'derived from confusing the contract-tort of bad faith with breaches of the general covenant [of good faith] present in all contracts.' Id. at 303. Whatever its source, this confusion has largely been resolved: 'The majority of Pennsylvania cases through the 1990s to today . . . have refused to permit independent claims for breach of the covenant of good faith outside of an insurer-insured relationship. Thus, in general, a 'breach of such covenant is a breach of contract action, not an independent action for a breach of a duty of good faith and fair dealing.'' Id. (footnote omitted) (quoting Seiple v. Comty. Hosp. of Lancaster, No. 97-cv- 8107, 1998 U.S. Dist. LEXIS 5093, 1998 WL 175593, at (E.D. Pa. April 14, 1998) ('Pennsylvania does not recognize a claim for breach of covenant of good faith and fair dealing as an independent cause of action.')).

Recent case law confirms this as the prevailing rule in Pennsylvania. See, e.g., LSI Title Agency, Inc. v. Eval. Servs., Inc., 2008 PA Super 126, 951 A.2d 384, 391 (Pa. Super.2008), appeal denied, 960 A.2d 841 (Pa.2008) (citing cases holding that Pennsylvania does not recognize separate breach of contractual duty of good faith and fair dealing where that claim is subsumed by separately pled breach of contract claim.); JHE, Inc. v. SEPTA, No. 1790 NOV. TERM 2001, 2002 Phila. Ct. Com. Pl. LEXIS 78, 2002 WL 101894,1 at (Pa. Com. Pl. May 17, 2002) (''[T]he implied covenant of good faith does not allow for a claim separate and distinct from a breach of contract claim . . . [A] claim arising from a breach of the covenant of good faith must be prosecuted as a breach of contract claim, as the covenant does nothing more than imply certain obligations into the contract itself.') (collecting cases from other jurisdictions adopting same rule) (emphasis in original); Commonwealth v. BASF Corp., No. 3127, 2001 Phila. Ct. Com. Pl. LEXIS 95, 2001 WL 1807788, at (Pa. Com. Pl. Mar.15, 2001) ('Pennsylvania law does not allow for a separate cause of action for breach of either an express or implied duty of good faith, absent a breach of the underlying contract.').

Federal courts construing Pennsylvania law have adhered to the same rule. See e.g., Chanel, Inc. v. Jupiter Group, Inc., Civ. No. 3:04-CV-1540, 2006 U.S. Dist. LEXIS 43363, 2006 WL 1793223, at (M.D .Pa., June 27, 2006) (agreeing and citing cases holding that claim for breach of good faith and fair dealing is not independent cause of action, but part of a breach of contract claim); In re K-Dur Antitrust Litig., 338 F. Supp.2d 517, 549 (D.N.J. 2004) ('Although Pennsylvania imposes a duty of good faith and fair dealing on each party in the performance of contracts, there is no separate cause of action for breach of these duties . . . .') (citations omitted); Blue Mt. Mushroom Co. v. Monterey Mushroom, Inc.., 246 F. Supp. 2d 394, 400-01 (E. D. Pa. 2002) ('Pennsylvania law does not recognize a separate claim for breach of implied covenant of good faith and fair dealing.'); McHale v. NuEnergy Group, No. Civ. A. 01- 4111, 2002 U.S. Dist. LEXIS 3307, 2002 WL 321797, at (E.D. Pa. Feb.27, 2002) (internal citations omitted) (same)."

McHolme/Waynesburg, LLC v. Wal-Mart Real Estate Bus. Trust, No. 08-961, 2009 U.S. Dist. LEXIS 38934, at *5–8 (W.D. Pa. May 7, 2009).

I suppose from the plaintiff's perspective it is an issue of "why not? If the claim is recognized, it could have been malpractice for me not to include it," but I wonder about the ramifications if a plaintiff actually gets one of these "independent" good faith claims through trial.

What are the elements of proving it? What are your damages? Do they overlap your breach of contract damages? Can you recover twice? 

Is there any doubt the defendant will appeal such a verdict? Any doubt it will get your case reversed and re-tried?

I think the down side including such a claim -- particularly the distraction from the real issues in the case and the loss of some credibility with the court -- outweigh any potential benefits.

Just include it as more evidence of the breach of contract.

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Judge Timothy J. Savage of the United States District Court for the Eastern District of Pennsylvania had a straightforward job.

All he had to do was:

• survey the laws of all fifty states with regard to unjust enrichment and breach of the implied warranty of merchantability,
  • Huber v. Taylor, 469 F.3d 67, 82-83 (3d. Cir. 2006) (consideration of the requirements for certification must be conducted in light of the correct jurisdiction's law); see also In re Sch. Asbestos Litig., 789 F.2d 996, 1010 (3d Cir. 1986).;
• determine whether there were actual or real conflicts between those laws,
  • Hammersmith v. TIG Ins. Co., 480 F.3d 220, 230-31 (3d Cir. 2007)
• where there was such a conflict, assess which state has the greater interest in the application of its law to determining the liability for defective aircraft crankshafts that were allegedly more vulnerable to stresses in their ordinary and foreseeable use,
  • Cipolla v. Shaposka, 439 Pa. 563, 267 A.2d 854, 856 (Pa. 1970); Melville v. Am. Home Assurance Co., 584 F.2d 1306, 1311 (3d Cir. 1978)
• and consider whether applying that law to all plaintiffs and class members violates the Due Process and Full Faith and Credit Clauses through individualized scrutiny of the claims asserted by each member of the plaintiff class.
  • Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-13, 101 S. Ct. 633, 66 L. Ed. 2d 521 (1981) (plurality opinion); see generally, 1 Joseph M. McLaughlin, McLaughlin on Class Actions: Law and Practice § 5:46 (4th ed. 2007).

Simple, right? Apparently not:

Our review of the record persuades us that the choice-of-law examination here had its shortcomings. As one instance, the District Court observed in its unjust enrichment analysis that a true conflict existed between the relevant states' laws because Pennsylvania and some others preclude recovery if the parties had an express contract.  Believing unjust enrichment to be a hybrid of contract and tort law, the Court purportedly weighed the factors from sections 188 (concerning contracts) and 148 (relating to torts involving fraud and misrepresentation) of the Restatement (Second) Conflict of Laws and concluded that Pennsylvania 'has the most significant relationship to the transaction and the parties.' Defendants were sued in Pennsylvania, manufactured the crankshafts there, 'issued service bulletins and instructions . . . about the crankshafts . . . in Pennsylvania, and plan[] to replace [them] [t]here.'"

Powers v. Lycoming Engines, No. 07-4710, 2009 U.S. App. LEXIS 6785, at *10–12 (3d Cir. Mar. 31, 2009).

Unfortunately, the above was in error because:

Pennsylvania, however, does not consider unjust enrichment to be either an action in tort or contract. Unjust enrichment, rather, an equitable remedy and synonym for quantum meruit, is 'a form of restitution.' Mitchell v. Moore, 1999 PA Super 77, 729 A.2d 1200, 1202 n.2 (Pa. Super. Ct. 1999); see also Ne. Fence & Iron Works, Inc. v. Murphy Quigley Co., 2007 PA Super 287, 933 A.2d 664, 667 (Pa. Super. Ct. 2007); Sack v. Feinman, 495 Pa. 100, 432 A.2d 971, 974 (Pa. 1981) (citing Restatement of Restitution § 1 (1937) as a source for the elements of an unjust enrichment claim); Meehan v. Cheltenham Twp., 410 Pa. 446, 189 A.2d 593, 595 (Pa. 1963) (same). The Restatement views restitution as an area of the law 'which is neither contract nor tort.' Restatement (Second) of Conflict of Laws § 221 introductory note (1971)."

If there is a claim under Pennsylvania law that falls within the scope of restitution under the Restatement (Second) Conflict of Laws, [Fn 3] the following factors should have been addressed in the choice-of-law examination: (1) the place where the parties' relationship was centered; (2) the state where defendants received the alleged benefit or enrichment; (3) the location where the act bestowing the enrichment or benefit was done; (4) the parties' domicile, residence, place of business, and place of incorporation; and (5) the jurisdiction "where a physical thing . . . , which was substantially related to the enrichment, was situated at the time of the enrichment." Id. § 221(2) (1971).

Id. Footnote 3 notes:

Although we have found no instance in which Pennsylvania has adopted section 221, our case law, in explaining the state's choice-of-law approach, directs courts to "use the Second Restatement of Conflict of laws as a starting point." Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 463 (3d Cir. 2006). "[T]o properly apply the Second Restatement and remain true to the spirit of Pennsylvania's 'flexible approach,' [courts] must . . . characterize the particular issue . . . in order to settle on a given section of the Restatement for guidance." Id. Because Pennsylvania considers unjust enrichment to be a form of restitution, we believe applying section 221 would be proper.

In other words, Judge Savage, having no Pennsylvania precedent at all to rely on, incorrectly predicted which way Pennsylvania would go in making the archaic distinction between claims in law and claims in equity in the choice of law context. The Third Circuit predicted that, if Pennsylvania courts had to decide if unjust enrichment was a tort or contract claim, the Pennsylvania courts would say, "neither, it's a claim in equity," and so should be evaluated under different standards in determining which state's laws should be evaluated for potential application in a class action filed in Pennsylvania.

Oh.

Nonetheless, in light of Judge Savage's lengthy opinion analyzing most of the relevant issues under the similar, but erroneous, standard he used, it's hard to see how the outcome will change by this ruling.

A model of efficiency, class actions are not.

I don't have an easy answer for how class actions should be prosecuted and evaluated. Judge Savage and the Appellate Judges (Ambro, Weis and Van Antwerpen) clearly did the best they could; fact is, class actions are complicated, time-consuming, expensive and just plain hard to litigate and to decide. It's not uncommon to bounce back and forth between the trial court and the appellate court several times prior to even beginning discovery, much less trial. Then comes the "real" post-trial appeal from a final order.

Plaintiff's complaint was filed July 10, 2006, more than two-and-a-half years ago. Plaintiff and his lawyers have gone essentially nowhere since then, and still have years of litigation ahead, all at substantial time and expense to the plaintiff's counsel, who likely represents plaintiff on a contingent fee, a fee that will depend not only on winning, but on the judge's own evaluation of whether the claimed fee is fair and reasonable. All years down the road.

Something to keep in mind when you hear about all these "unfair" counsel fees in class actions.

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Joe Ross, a contributor to Phillyist, is going to my alma mater, the Beasley School of Law at Temple University.

So I commented on his blog. I'll leave the motivational speeches to others. Here's my practical advice to him and other entering law students:

Congratulations!

Get some commercial outlines, preferably ones keyed to your casebook. Use them in addition to, but not in replacement of, your casebook, which you should at least skim prior to every class. Realize that while the cases in your casebook are selected by a law professor, the text of the cases is edited by a blind monkey with a sharpie, and do not hesitate to read the full text of the case online if you are confused.

Do not, under any circumstances, keep to yourself a bright idea you get in class. Many of your classmates will do this, and, "knowing" the answer to a question, will not say it out loud, believing that it will help them on the final exam. Their answers are likely wrong, just as your answer is likely wrong. You will do far better by having the professor correct your wrong answer.

When taking a test, if you think something, write it down. Many law students fail to realize that a "correct" answer like "schools cannot discriminate" is far less useful, and will earn far less credit, than an "incorrect" answer that correctly raises issues such as the Constitution, its application to the states, the appropriate enforcement mechanism for it, and the constitutional language purportedly being violated.

A study group is very helpful except when it's not. Do not feel you should, or should not, join one.

You will not like your legal writing class. Everyone does at every law school in the country. That's okay. Try to write what they tell you to write.

On-campus recruiting is a marketing gimmick big firms use to convince young lawyers like you that they are rich and powerful. Odds are, you will not get a job through it, so do not for a moment rely on it.

Go talk to your professors. Tell them your immature ideas about the law; most of them genuinely like to teach, and like to help you understand this stuff. You ignore that resource at your peril.

You don't need luck, you just need patience, dedication, and humility.

[UPDATE: Lest it be unclear, I mean no offense. Quite the opposite, in fact. Law students are often far too shy, and unwilling to speak their minds for fear of embarrassment. My point above it is to let law students know that their feelings of inadequacy are entirely normal and should not dissuade them from asking "dumb" questions in class and asking their professors for further explanation, even where it appears everyone "knows" the answer.]

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A recent post at a prominent club / venue in San Francisco, DNA Lounge:

Several years ago, there was some kind of scuffle and one of our customers who was dancing on the stage fell off and hurt her ankle. She sued us. I'm not sure what exactly her reasoning was, but she did, because this is America, and you can sue anybody for anything. She claimed she had spent $4,000 on medical bills (chiropractors!) and asked for $500,000 in pain and suffering.

We learned in the discovery phase that this woman had also been in three automobile accidents in the previous two years, for which she had been going to chiropractors already. How about that.

We submitted this claim to our insurance company, like you do, and their lawyers handled it. They ended up settling the case by paying her around $11,000. And here's where it gets fun:

Our deductible was $10,000. So the lawyer, who was working for the insurance company, did right by the insurance company. It only cost them $1,000! But he didn't try to negotiate anything lower, because that would have been a waste of his time, since he wasn't working for us, and that was the part we would have to pay. Oh, but it gets better.

It turns out that the fine print on our insurance said, in longwinded, 4-point, incomprehensible legalese, that the rates we had been paying for years were merely "estimates". So after our claim, the insurance company "audited" us, and retroactively raised our rates for the last four years by $20,000 per year. So the fact that we filed a claim at all caused the insurance company to demand an additional $80,000 from us.

At that point, we hired our own lawyer who negotiated that $80,000 down to $40,000, paid out over a year instead of being due immediately. Plus several thousand more for the new lawyer, obviously.

Though the author heaps blame on the plaintiff for what happened here, the outcome would have been exactly the same if the claim had been legitimate: $10,000 out of pocket plus a retroactive bill raising the rates.

There were two causes of this expensive affair: an absurdly high deductible and an unethical, unregulated insurance company.

Every bricks and mortar business which invites customers onto its premises -- whether it's a nightclub, a coffee shop, a computer store, a hair salon, a gym, a jewelry store, a DVD shop, a law firm, whatever -- should expect paying its deductible from time to time to defend or to settle claims.

I know, you are perfectly safe, and flawless in your execution of all mundane asks like ensuring walkway cracks are repaired in a timely fashion.

Are your employees? Your customers? The building? The location? In the case above, a fight broke out; not necessarily the club's fault, but if they had inadequate security and did not react appropriately then indeed their responsibility, at least in part, which in many jurisdictions exposes them to potentially paying the whole judgment.

It's not like driving a car where you can take a handful of defensive driving steps and dramatically reduce your odds of being at fault. (Even there, you can still expect to cause an accident at some point.) Someone will get hurt, or at least claim they were hurt, at your premises. A nightclub that serves alcohol is continually exposed to liability from multiple sources, like slip and fall, premises security, and dram shop.

A $10,000 deductible sounds cheap when you pay the premium, and it is exactly that: cheap. You'll pay the deductible more than once. You might pay it every single year.

Moving on to the unethical insurance company, if the insurance company-appointed lawyer "didn't try to negotiate anything lower, because that would have been a waste of his time," call me. The policyholder's interests come first. Anything less is bad faith.

As for the "estimated" premium, perhaps this was during the Quackenbush era. That wouldn't fly in most jurisdictions these days and would form the basis of a fraud, deceptive trade practices, and consumer protection act class action lawsuit and an insurance commissioner investigation.

The post ends:

What's the lesson here, kids?

I think it's, "people are scum" and/or "never start a business."

No. A properly-insured business will find a slip and fall soft tissue case to be a minor annoyance for which they will be liable, if at all, a nominal sum.

The lesson is "don't skimp on your deductible" and/or "regulation of the insurance industry is important."

Did you choose a reasonable deductible? Have you called up your local, state and federal representatives lately to ask what they're doing to keep insurance companies honest?

And do you know who is trying to protect you right now? Trial lawyers. They're fighting every day to keep insurance companies from abusing policyholders the way DNA Lounge was abused.

You don't have to be a lawsuit horror story.

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Trial courts in Pennsylvania (particularly the United States District Court for the Eastern District of Pennsylvania) continue their organic development of the "gist of the action" doctrine in the absence of explicit guidance from the Pennsylvania Supreme Court.*

The latest comes from EDPA Judge Jan E. DuBois in Farmaceutisk Laboratorium Ferring A/S v. Shire United States, Inc., CA NO. 08-941 2009 U.S. Dist. LEXIS 30209 (April 8, 2009), who finds an interesting way to thread the needle between the gist of the action doctrine, the parol evidence rule, and the common sense acknowledgment that fraud can and does occur amongst the parties to a contract.

First, the gist of the action:

Pennsylvania's gist of the action doctrine "bars claims for allegedly tortious conduct where the gist of the alleged conduct sounds in contract rather than tort." Hospicomm, Inc. v. Fleet Bank, N.A., 338 F. Supp. 2d 578, 582 (E.D. Pa. 2004) (internal quotation marks & citations omitted). The purpose of the doctrine is to "preclude[] plaintiffs from re-casting ordinary breach of contract claims into tort claims." eToll v. Elias/Savion Adver., Inc., 811 A.2d 10, 14 (Pa. Super. Ct. 2002) (citation omitted). Although a breach of contract can give rise to an actionable tort, "to be construed as in tort, . . . the wrong ascribed to defendant must be the gist of the action, the contract being collateral." Bash v. Bell Tel. Co., 601 A.2d 825, 829 (Pa. Super. 1992) (internal quotation marks & citation omitted). "In other words, a claim should be limited to a contract claim when 'the parties' obligations are defined by the terms of the contracts, and not by the larger social policies  embodied by the law of torts.'" Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 104 (3d Cir. Pa. 2001) (citing Bash, 601 A.2d at 830).

Fraud in the inducement claims are not barred by the gist of the action doctrine where the fraud involves representations of fact independent of promises of performance made in the contract. See eToll, 811 A.2d at 17; TruePosition, Inc. v. Sunon, Inc., No. 05-CV-3023, 2006 WL 1451496, at *3 (E.D. Pa. May 25, 2006) (DuBois, J.); Air Prods. & Chems., Inc. v. Eaton Metal Prods. Co., 256 F. Supp. 2d 329, 341 (E.D. Pa. 2003). "[F]raud to induce a person to enter into a contract is generally collateral to (i.e., not interwoven with) the terms of the contract itself." Air Prods., 256 F. Supp. 2d at 341 (citing eToll, 811 A.2d at 17) (internal quotation marks omitted). On the other hand, when fraud in the inducement is based on statements made with regard to performance of the contract, such claims are barred under that doctrine. In such circumstances a plaintiff's remedy lies in contract. See Williams v. Hilton Group PLC, 93 F. App'x 384, 386-87 (3d Cir. 2004) (finding that fraud in the inducement claim that defendant had no intention of honoring [*25] the contract was barred by gist of the action doctrine). "Moreover, promises made to induce a party to enter into a contract that eventually become part of the contract itself cannot be the basis for a fraud-in-the-inducement claim under the gist of the action doctrine." Freedom Props., L.P. v. Landsdale Warehouse Co., No. 06-CV-5469, 2007 WL 2254422, at *6 (E.D. Pa. Aug. 2, 2007) (citations omitted).

The Court notes that "caution should be exercised in determining the gist of an action at the motion to dismiss stage. Judicial caution is appropriate because often times, without further evidence presented during discovery, the court cannot determine whether the gist of the claim is in contract or tort." Interwave Tech., Inc. v. Rockwell Automation, Inc., No. 05-CV-398, 2005 WL 3605272, at *13 (E.D. Pa. Dec. 30, 2005) (internal quotation marks & citations omitted).

And now the parole evidence rule:

Pennsylvania law concerning the application of the parol evidence rule to claims of fraudulent inducement is well established. The Pennsylvania Supreme Court has explained the law as follows:

Where the alleged prior or contemporaneous oral representations or agreements concern a subject which is specifically dealt with in the written contract, and the written contract covers or purports to cover the entire agreement of the parties, the law is now clearly and well settled that in the absence of fraud, accident or mistake the alleged oral representations or agreements are merged in or superseded by the subsequent written contract, and parol evidence to vary, modify or superseded the written contract is inadmissible in evidence.

HCB Contractors v. Liberty Place Hotel Assocs., 652 A.2d 1278, 1279 (Pa. 1995) (internal quotation marks and citations omitted). The exception to the parol evidence rule for fraud covers fraud in the execution, i.e., the oral representations were fraudulently omitted from the contract, not fraud in the inducement. Dayhoff, Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1300 (3d Cir. 1996); Freedom Props., L.P. v. Landsdale Warehouse Co., No. 06-CV-5469, 2007 WL 2254422, at *3 (E.D. Pa. Aug. 2, 2007); Interwave Tech., Inc. v. Rockwell Automation, Inc., No. 05-CV-398, 2005 WL 3605272, at *16 (E.D. Pa. Dec. 30, 2005). Applying the parol evidence rule to bar claims of fraudulent inducement, as in Pennsylvania, is the minority rule. Regent Nat'l Bank v. Dealers Choice Auto. Planning, Inc., No. 96-CV-7930, 1997 WL 786468, at *6 (E.D. Pa. Nov. 26, 1997). Pennsylvania courts justify this position under the rationale that if the parties "relied on any understanding, promises, representations or agreements made prior to the execution of the written contract . . . , they should have protected themselves by incorporating into the written agreement the promises or representations upon which they now rely . . . ." 1726 Cherry St. P'ship v. Bell Atl. Props., Inc., 653 A.2d 663, 666 (Pa. Super. Ct. 1995) (internal quotation marks & citation omitted). Thus, where there is an integrated agreement and the asserted misrepresentations giving rise to fraud in the inducement are addressed by the agreement, the parol evidence rule bars extrinsic evidence of such a fraud claim.

To apply the HCB Contractors rule, courts must determine whether there is an integrated agreement and whether the asserted prior representations are specifically covered by the written agreement. Interwave Tech., 2005 WL 3605272, at *17; Quorum Health Res. v. Carbon-Schuylkill Cmty. Hosp., Inc., 49 F. Supp. 2d 430, 433 (E.D. Pa. 1999). One key factor in concluding whether an agreement is integrated is the presence or absence of an integration or merger clause in the written agreement. See HCB Contractors, 652 A.2d at 1280; Interwave Tech., 2005 WL 3605272, at *18; Quorum Health, 49 F. Supp. 2d at 433; G. Daniel Glass v. Singer Optical Group, Inc., No. 95-CV-308, 1995 WL 717411, at *3-4 (E.D. Pa. Dec. 1, 1995). To determine whether the written contract specifically addresses the subject of the oral representations, courts ask whether "they relate to the same subject matter and are so interrelated that both would be executed at the same time and in the same contract . . . ." Hershey Foods Corp. v. Ralph Chapek, Inc., 828 F.2d 989, 995 (3d Cir. 1987) [*31] (internal citation omitted).

In this case, the 2005 Settlement Agreement does not contain an integration or merger clause.  ... The only section of the 2005 Settlement Agreement that possibly covers such a representation is section 2.4 As discussed in Part III.D, supra, the language of section 2.4 is ambiguous, particularly with respect to whether it requires defendant to market all new oral 5-ASA drugs as PENTASA(R). In light of this ambiguity, the Court cannot determine at this stage whether the written agreement specifically addresses the content of the alleged oral representations such that they would be barred by the parol evidence rule. "For the Pennsylvania parol evidence rule to bar a claim for fraudulent inducement, the contract must be written, unambiguous, and fully integrated." Coram Healthcare Corp. v. Aetna U.S. Healthcare, Inc., 94 F. Supp. 2d 589, 594-95 (E.D. Pa. 1999). As the Court concludes that the 2005 Settlement Agreement is ambiguous and not fully integrated, it will not dismiss plaintiffs' fraudulent inducement claim as barred by the parol evidence rule.

Defendant's Motion for Judgment on the Pleadings was thus denied. I don't agree with the whole approach here -- I think Bell and eToll hold only that a plaintiff can't simultaneously recover under negligence and breach of contract -- but, importantly, Judge DuBois didn't throw out half of plaintiff's claims for failure to "prove" an issue that should be left to the jury. However phrased or theorized, the core ability to recover where one party may have defrauded the other in the context of a contract is preserved.

* I don't mean to imply it's necessarily wrong for the Pennsylvania Supreme Court to permit this organic development. The United States Supreme Court, for example, routinely denies cert on cases up until a general consensus has development among the Circuit Courts of Appeal.

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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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This article in The Philadelphia Inqurier raised an eyebrow or two:

A federal appeals court has upheld the Philadelphia Police Department's policy that forbids officers to wear Muslim head scarves on the job.

The U.S. Court of Appeals for the Third Circuit ruling, issued Tuesday, affirmed a lower court's ruling in a 2005 lawsuit filed by Officer Kimberlie Webb of the 35th Police District. Webb, who became a Sunni Muslim two years after joining the force in 1995, contended that the ban on the scarves, known as hijabs, violated her civil rights.

In 2007, a federal judge ruled in the city's favor, and the Third Circuit said accommodating Webb would severely damage the department's appearance of "religious neutrality."

Certainly not the first religious discrimination case raised against the government. Some background:

Congress initially enacted the Religious Freedom Restoration Act (RFRA) in 1993 to counter the Supreme Court's decision in Employment Div., Dept. of Human Resources v. Smith, 494 U.S. 872, 110 S. Ct. 1595, 108 L. Ed. 2d 876 (1990), which held that neutral and generally applicable laws are not susceptible to attack under the Free Exercise Clause of the Constitution even if they incidentally burden the exercise of religion. RFRA provided that any legislation imposing a substantial burden on religion would be invalid unless it was the least restrictive means of furthering a compelling state interest. 42 U.S.C. § 2000bb et seq. Shortly thereafter, the Supreme Court in City of Boerne v. Flores, 521 U.S. 507, 117 S. Ct. 2157, 138 L. Ed. 2d 624 (1997), struck down RFRA as it applied to the States because it exceeded Congress's remedial power under Section 5 of the Fourteenth Amendment.

Lighthouse Inst. for Evangelism, Inc. v. City of Long Branch, 510 F.3d 253, 261 (3d Cir. 2007). In addition to the Constitutional / First Amendment claims, last year the Third Circuit pointed out that, even if the federal RFRA was struck down, there are still numerous protections:

Although there are differences among the various federal and state religious protection statutes, most contain, at their core, the same fundamental structure and purpose. They recognize that neutral laws of general applicability may burden religious exercise as significantly as laws intended to interfere with religious exercise. The federal statutes, Pennsylvania's [Religious Freedom Protection Act (RFPA)], and a majority of the state statutes also acknowledge the government need not justify every action having some effect on religious exercise. Under those statutes, only substantial burdens trigger heightened scrutiny. RFPA's four definitions of 'substantially burden' emphasize the importance of this threshold. See 71 Pa. Stat. Ann. § 2403 ('significantly constrains or inhibits'; 'significantly curtails'; 'denies . . . a reasonable opportunity to engage in activities . . . fundamental to the person's religion'; 'violates a specific tenet of a person's religious faith.') (emphasis added).

Combs v. Homer-Center Sch. Dist., 540 F.3d 231, 261–62 (3d Cir. 2008).

The problem in the Webb case just decided is that, apparently, plaintiff's constitutional, state religious freedom, and sex discrimination claims were all waived. As noted by the opinion,

On October 5, 2005, Webb brought suit against the City of Philadelphia,2 asserting three causes of action under Title VII—religious discrimination, retaliation/hostile work environment, and sex discrimination—and one cause of action under the Pennsylvania Religious Freedom Protection Act (RFPA), 71 Pa. Stat. Ann. § 2401. ...  The District Court granted summary judgment on all claims, finding Webb failed to exhaust her administrative remedies for the Title VII sex discrimination claim, failed to meet the statutory notice requirements for the RFPA claim, and failed to raise a genuine issue of material fact for the Title VII religious discrimination and retaliation/hostile work environment claims.

Webb appeals only the adverse judgments on the religious discrimination and sex discrimination claims. She also raises, for the first time on appeal, certain constitutional claims.

The Third Circuit affirmed on all counts, which is to say, except for the religious discrimination claim, all of plaintiff's claims were dismissed for procedural reasons, either because they were initially filed the wrong way or were not raised until appeal.

It is easy to blame the lawyers for the outcome here, but the fault really lies with the roadblocks raised by federal and state statutes for the primary purpose of making it harder to file these claims. Each type of claim that could be raised here -- Federal free speech, Title VII discrimination (of two different types), Pennsylvania discrimination, and Pennsylvania religious freedom -- must be filed in a different way.

A federal free speech claim is a lawsuit brought under 28 U.S.C. 1983, filed directly with the District Court. Each Title VII discrimination claim, however, must first be raised specifically in a complaint (generally drafted on-site without the assistance of an attorney) to the Equal Employment Opportunity Commission. The same is true of state discrimination claims before the Pennsylvania Human Relations Commission. The Pennsylvania RFPA, in turn, has its own independent statutory requirements for suing the government, requiring that the plaintiff

give written notice to the governmental entity by certified mail, informing that agency of all of the following:

(1) The person's free exercise of religion has been or is about to be substantially burdened by an exercise of the agency's governmental authority.

(2) A description of the act or refusal to act which has burdened or which will burden the person's free exercise of religion.

(3) The manner in which the exercise of the governmental authority burdens the person's free exercise of religion.

Webb v. City of Philadelphia, No. 05-5238, 2007 U.S. Dist. LEXIS 11762, at *11–12 (E.D. Pa. Feb. 20, 2007).

Got all that? Making matters worse, often times the EEOC will send you to the PHRC, and vice versa, depending on how overburdened they are.

In that context, it's not surprising to see plaintiffs inadvertantly waive claims -- that's just what the system was designed to do.

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 You may have seen this article in The American Lawyer:

Simpson Thacher & Bartlett partner Barry Ostrager isn't exactly mincing words in his assessment of the counsel that guided Chubb Insurance to the U.S. Supreme Court, where on Monday it will square off against Ostrager's insurance company client, Travelers Indemnity. "Whoever has been advising Chubb," he told the Litigation Daily on Friday, on a train en route to Washington, "gave them the worst advice any lawyer ever gave a client." ...

Way back in 1986, Manhattan federal bankruptcy court judge Burton Lifland confirmed the Chapter 11 reorganization plan of the granddaddy of all asbestos companies, Johns-Manville Corp. The plan was groundbreaking. It created a trust, to be funded by Johns-Manville and its insurers, through which all asbestos claims against the company would be processed. ...

Fast-forward to 2001, when asbestos plaintiffs lawyers began testing new theories of liability against insurance companies. They filed tortious interference suits -- which have become known as "direct action" claims -- asserting that insurers had an independent duty to warn potential victims of the dangers of asbestos. In 2002, Travelers asked Judge Lifland -- the Manville bankruptcy judge -- to enjoin the "direct action" cases. ...

At this point, Chubb became involved. Chubb hadn't been part of the Manville deal but it was worried that if Judge Lifland approved the Travelers settlement, it would be precluded from suing Travelers in cases in which they shared liability. Chubb aligned with the asbestos plaintiffs lawyers to challenge the bankruptcy court's power to enjoin suits against parties other than the debtor. (That's the decision that Ostrager has scorned.)

That bothered Stephen Cozen enough that he wrote a letter to The American Lawyer, deriding Ostranger as a "noncredible source ... launching ad hominem attacks."

The irresistible part is that this feud involves none other than the In re Johns Manville Corp. constellation of cases, including 06-2320 (2nd Cir., Jan. 17, 2007), in which Mr. Ostrager's cross-appeal was rejected because:

Travelers had 14 days to file its notice of cross-appeal. However, the firm calculated the 14 days from the date it received the notice, not from the date the notice was actually filed. The district court denied Traveler’s motion to extend the deadline by one day, explaining that this was a case of “garden variety attorney inattention” and not excusable neglect. The Second Circuit affirms.

Doh! But let's focus on the supposed worst advice ever.

The Travelers / Simpson argument is that Chubb / Cozen should have kept their mouths shut and not attempted to intervene, because the arguments they made (or the precedent created) in support of intervention could be used by plaintiffs attempting to sue Chubb in a later "direct action" case involving an asbestos trust.

There is something to be said for not putting forth your best argument in a particular case as part of a broader strategy involving other cases. That something is: you should not sandbag your own arguments in one case unless there is clear and convincing evidence that it will help you in other cases.

The law of unintended consequences applies to the practice of law just as it applies to everything else. What, exactly, did Travelers / Simpson believe would happen in the absence of the Chubb / Cozen intervention? That the billion-dollar asbestos plaintiffs lawyers industry would not realize a bankruptcy court's injunction protecting a non-debtor raised serious statutory and constitutional concerns?

We already know exactly the opposite is true, and that the asbestos plaintiffs lawyers were already challenging the power of the court to enjoin the "direct action" cases against insurance companies. These issues were already destined for the Circuit Courts and the Supreme Court. The difference was the names on the briefs.

Where then would that have left Chubb if Cozen had told them to sit on their rights and not intervene? Had the Supreme Court denied certiorari for the appeal, or if the Supreme Court agrees with the Second Circuit in prohibiting the bankruptcy court from enjoining these suits, then Chubb would have been left out in the cold, potentially precluded from raising issues relating to hundreds of millions of dollars in insurance coverage and tort liability.

Could that be in the running for the worst advice a lawyer ever gave a client?

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The New York Law Journal has an excellent, detailed article by Stephen M. Kramarsky on a recent 2nd Circuit opinion:

An overly narrow view of the scope of copyright protection risks harming the commercial market for entire classes of works; an overly broad view risks chilling creativity and creating impermissible monopolies on facts. Courts examining the line between fact and expression must keep these concerns in mind, particularly when considering cases that lie entirely outside of the traditional scope of copyright protection, as the court did recently in Associated Press v. All Headline News Corp.

...

The [Associated Press] asserts that it is particularly focused on providing reports of "breaking" news. Among other things, the AP makes its stories available to clients for use on their Web sites. Each story contains written copyright information that identifies the AP as author and/or owner of the story, and the AP registers copyrights in its news stories and photographs (a prerequisite to suit and certain kinds of statutory damages).

All Headline News Corp., according to the complaint, does not undertake any original reporting. Instead, its employees search the Internet for stories that they rewrite or repackage for republication (either in full or as excerpts). Some of AHN's stories are based on AP articles, but they are marketed to AHN's clients as originating with AHN. AHN distributes its articles to paying clients who publish them on their sites.

AP filed suit against AHN based on its alleged "free riding" on AP's original reporting, asserting claims for copyright infringement, violations of the Digital Millennium Copyright Act, misappropriation of "hot news" and various Lanham Act violations.

If you're interested in New York law, read the article for the scoop on the "hot news" state law tort, which has surprisingly thrived this long without being ruled as completely pre-empted by Congress' copyright legislation. Kramarsky concludes:

All of this aggregation and customization is becoming mainstream precisely because the Internet has greatly increased the number of information sources available, and consumers are struggling to work out how to package it.

Any limitations on that conduct are likely to harm not only consumers, but their information suppliers as well. Although the Associated Press court can hardly be faulted for its reading of New York law, its careful decision may have considerable unintended repercussions.

Keep in mind the facts of that case, which a respected practitioner in a nationally-published law journal has argued nonetheless goes too far, and focus on the bigger picture here, the federal copyright and DMCA issues (the DMCA, Kramarsky notes, "prohibits intentionally removing or altering any "copyright management information" or trafficking in works with removed or altered copyright management information." There's almost no case law on that section.).

A month ago Whet Moser at the Chicago Reader's Chicagoland bemoaned the "aggregation" done by Huffington Post, which exploited the inverted triangle followed by reporters:

On the left side [of HuffPo] there is a blog. Aside from the generic complaint about people who write for free, most people have come to accept that there are bloggers who quote things and link to them.

On the right side there are headlines. Here's where it gets tricky so pay attention and hopefully I won't have to explain this ever again. If you click on the headline, you go to another site--fine. If you click on "Quick Read," you get a piece of the article that the headline goes to, with an ad. If you click on "comment" you get that piece of the article with a comment box. ...

Those first couple paragraphs are written by a person who is paid to write that, often at great expense and with generous health benefits.

So: why do I think bloggers should get away with that? Why is the left side of ChuffPo fine and the right side questionable? People should be able to write about things. They should have the right to use them for: "purposes such as criticism, comment, news reporting, teaching." The person blogging about news things at ChuffPo is doing something unique, whether that person is insightful or an idiot. There's societal value to both. It's a tremendously important freedom and it's why the blogosphere is so rich. On the other hand, just slapping up a quote above a comments section--which, odds are, the other site has as well--feels cheap (and, technically, is cheap, that's the business model).

I don't know of anyone who says authors shouldn't be able to sue those who simply cut-and-paste without adding value, as is apparently the case with the "right side" of those Huffington Post "blogs." The issue there is one of degree.

The bigger question for bloggers (the "left side"), all of whom strive to add more value than they copy in their quest for credibility, is: does quoting some of an article as part of my larger work trigger copyright liability?

Just nine months ago the Associated Press tried to answer "yes," started enforcing per-word quotation licensing on bloggers, and got trashed everywhere. So they gave up.

The market has moved -- we're almost 15 years into the attention economy -- and there's no stopping it now. The AP's policy nominally requires paid licensing for quotes shorter than a tweet on twitter.

That won't do these days. Not when information is everywhere, when the best way you can make money is through permission marketing, getting the people who other people trust to say they trust your product or service. Not when Robert Scoble is arguing that even Twitter isn't the future of business advertising, that you need to get closer and more personal with people.

The big content producers "know" that, or at least know what they're doing isn't going to work much longer, and they're slowly getting it. Lawsuits won't "protect" their content, it will render that content invisible.

Which is why blogs will be fine, even with laws on the books that, arguably, permit a cause of action against them defended only by a vague "fair use" exception. A right with a "remedy" worse than the harm is not a right anyone will enforce.

[UPDATE: Just a few days after this post, the Associated Press announced it would "take legal action against Web sites that use newspaper articles without legal permission, the group said on Monday, in a clear shot at aggregators like Google." I do not think their chances of success are very high, for the reasons above. Moreover, this strategy -- going for the 800-lbs gorilla first, instead of low-hanging fruit -- is more evidence of a conscious decision not target bloggers, who are more likely to cause controversy.]

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At The National Law Journal (via How Appealing):

In a case stemming from an employer's theft of e-mails from the personal account of an employee who had sued him for sexual harassment, a panel of the 4th U.S. Circuit Court of Appeals recently became the first circuit to hold that plaintiffs must prove actual damages in order to be eligible for an award of statutory damages under the federal Stored Communications Act.

But the unanimous panel, led by Chief Judge Karen Williams, also ruled that a showing of actual damages is not required for awards of punitive damages or attorney fees. Van Alstyne v. Electronic Scriptorium Ltd., No. 07-1892.

The panel decision reversed a jury award of $150,000 against Bonnie Van Alstyne's employer, Edward Leonard, and $25,000 against Electronic Scriptorium Ltd., of which Leonard was president. The decision leaves intact a $75,000 punitive damages award against Leonard; a $25,000 punitive damages award against ESL; and an award of $135,723.56 in attorney fees and costs to Van Alstyne.

I don't think most non-lawyers recognize they can recover for conduct like this:

During discovery in ESL's suit, Van Alstyne became suspicious that several e-mails presented by Leonard were from her personal account. In a deposition, he admitted he had accessed Van Alstyne's AOL account after she left the company ...

Let's look a little closer at the law, as explained in the opinion (PDF):

Section 2701 of the SCA creates a criminal offense for whoever "intentionally accesses without authorization a facility through which an electronic communication service is provided" or "intentionally exceeds an authorization to access that facility," and by doing so "obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system." 18 U.S.C.A.
§ 2701(a)(1-2).

Section 2707 provides a private cause of action for "any . . . other person aggrieved" by a violation of § 2701. 18 U.S.C.A. § 2707(a). Under § 2707, a district court may award equitable or declaratory relief, a reasonable attorney’s fee and other costs, and "damages under subsection (c)." 18 U.S.C.A. § 2707(b). Subsection (c) provides:

The court may assess as damages in a civil action under this section the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation, but in no case shall a person entitled to recover receive less than the sum of $1,000. If the violation is willful or intentional, the court may assess punitive damages. In the case of a successful action to enforce liability under this section, the court may assess the costs of the action, together with reasonable attorney fees determined by the court.

Id. § 2707(c).

In the face of the plain meaning of the statute, why was the "actual damages" limitation even contested on appeal?

Likely because the defendant argued that, without actual damages, the plaintiff couldn't recover at all. Not punitive damages, not attorney's fees, not anything. The Court disposed of that summarily:

Although "[t]here is no established federal common law rule that precludes the award of punitive damages in the absence of an award of compensatory damages," People Helpers Found., Inc. v. City of Richmond, 12 F.3d 1321, 1326 (4th Cir. 1993), we have held, in accordance with "the majority rule" that, absent statutory language to the contrary, punitive damages are not recoverable absent proof of actual damage, id. at 1327.

The SCA, we believe, provides such language. Section 2707(c) states, "[i]f the violation [of the SCA] is willful or intentional, the court may assess punitive damages." 18 U.S.C.A. § 2707(c). This sentence lacks the limiting language associated with an award of actual damages and statutory damages, with no references to persons "entitled to recover." The sole limitation is that the violation of the SCA be "willful or intentional," a threshold which the jury found to be met in this case.

Accordingly, we find no error in the district court’s award of punitive damages absent a showing of actual damages. See Saunders, 526 F.3d at 152-155 (approving award of punitive damages under the Fair Credit Reporting Act without award of actual damages); Yohay v. City of Alexandria Employees Credit Union, Inc., 827 F.2d 967, 972 (4th Cir. 1987) (noting "[a]ctual damages are not a statutory prerequisite to an award of punitive damages under the [Fair Credit Reporting Act]"). We must vacate and remand this award, however, for the district court to reevaluate in light of our ruling above that Van Alstyne was not entitled to statutory damages in this case absent proof of actual damages.

So there you go.

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Fresh off the presses is Acumed LLC v. Advanced Surgical Servs., 2009 U.S. App. LEXIS 5854 (3d Cir., March 20, 2009), a charming setup in the insanely hostile and competitive world of medical devices:

Acumed is a manufacturer of surgical implants and related devices, and appellant [Morris] and [Advanced Surgical Services] are in the business of distributing surgical implants and other medical devices for various manufacturers, including Acumed, to hospitals and surgeons. ... At the trial, Ryan Crognale, a sales representative for appellant, explained his view of the events that Casey described at Nazareth Hospital. Crognale testified that Morris directed him to deliver the implants to Nazareth and to attend the surgery. He then stated that after his earlier delivery of Acumed implants, he returned to the hospital and saw Casey in the operating room and observed that the physician doing the procedure was "not using my stuff anyway." Consequently, Crognale took the tray of instruments he previously had delivered and left the operating room. Thus, it appears that the physician performing the procedure used materials Acumed supplied through Surgical, its authorized representative.

As Crognale was leaving the surgery center, he encountered Casey, and an argument between the two representatives ensued. Appellant contends that during the argument Casey loudly accused Crognale of illegally selling Acumed inventory, an incident that appellant contends led Dr. Robert Frederick, a doctor at Nazareth, to stop doing business with it. Moreover, appellant contends that because of Dr. Frederick's connection with a large group of physicians in Philadelphia, the confrontation was a factor in a decision by Jefferson Hospital in Philadelphia to exclude Morris from its operating theater for one year. As a result of the incident at Nazareth Hospital, Acumed sent another notice to its customers stating that Surgical was its only authorized representative in eastern Pennsylvania and southern New Jersey.

Can you guess what happened next?

Appellees filed the complaint in this action against appellant in the District Court charging it with violation of the Lanham Act, 15 U.S.C. § 1125, violation of Pennsylvania's Anti-Dilution statute, 54 Pa. Cons. Stat. Ann. § 1124 (West 1996), unfair competition, breach of a non-disclosure provision in the Advanced-Acumed Agreement, conversion, unjust enrichment, and tortious interference with existing or prospective contractual relationships.

...

Appellant filed a four-count counterclaim against appellees. In counts I, II, and III appellant charged that Acumed breached its contract with appellant by not providing timely notice of termination of their relationship and by failing to pay the contractually required buy-out fee that became due to appellant when Acumed terminated their relationship. In addition, appellant charged that Acumed's failure to pay the buy-out fee violated the Pennsylvania Commissioned Sales Representatives statute, 43 P.S. §§ 1471 et seq. (West 1991). In count IV ("counterclaim IV") appellant alleged that Acumed and Surgical ". . .converted property belonging to Advanced, defamed and disparaged Advanced maliciously and falsely, intentionally interfered with Advanced's contractual and business relationships and competed unfairly against Advanced."

After a little more than a week of trial...

The jury returned a verdict on March 21, 2007, finding for appellees on their count against appellant for tortious interference with existing or prospective contractual relationships with appellees' customers. The jury, however, rejected appellees' claim that appellant had tortiously interfered with Acumed's and Surgical's contractual relationship between themselves and also rejected appellees' other claims, including appellees' Lanham Act claims. The jury also found against appellant on the portions of its counterclaims that had survived the District Court's dismissals, i.e., the claims predicated on breach of contract and violation of the Pennsylvania Commissioned Sales Representatives statute. The jury awarded $ 20,000 in compensatory damages to Surgical and $ 0 in compensatory damages to Acumed on the tortious interference claim but found that both Acumed and Surgical were entitled to punitive damages. ... The jury then returned a verdict awarding $ 1 in nominal damages to Acumed and punitive damages to both Acumed and Surgical Resources in the amount of $ 100,000 each.

Uh oh.

As we indicated above, to recover on a tortious intentional interference with existing or prospective contractual relationships claim in Pennsylvania, a plaintiff must prove that the defendant was not privileged or justified in interfering with its contracts: "While some jurisdictions consider a justification for a defendant's interference to be an affirmative defense, Pennsylvania courts require the plaintiff, as part of his prima facie case, to show that the defendant's conduct was not justified." Triffin v. Janssen, 426 Pa. Super. 57, 626 A.2d 571, 574 n.3 (Pa. Super. Ct. 1993) (citing Thompson Coal 412 A.2d at 471 n.7); Silver v. Mendel, 894 F.2d 598, 602 n.6 (3d Cir. 1990). We hasten to add, however, that our conclusion does not depend on the allocation of the burden of proof on the privilege issue, as we would reach our result even if appellant had the burden of proof to establish the privilege as a defense, because the evidence established conclusively that appellant did so.

Pennsylvania has adopted section 768 of the Restatement (Second) of Torts, which recognizes that competitors, in certain circumstances, are privileged in the course of competition to interfere with others' prospective contractual relationships. See Gilbert v. Otterson, 379 Pa. Super. 481, 550 A.2d 550, 554 (Pa. Super. Ct. 1988). The law necessarily recognizes this privilege because if more than one party seeks to sell similar products to prospective purchasers, both necessarily are interfering with the other's attempt to do the same thing. Moreover, even if an entity has an existing contractual relationship with another entity, a stranger to the relationship must be privileged to seek to replace one of the entities lest competition be stifled. Thus, under section 768: "[o]ne who intentionally causes a third person not to enter into a prospective contractual relation with another who is his competitor or not to continue an existing contract terminable at will does not interfere improperly with the other's relation if: (a) the relation concerns [*37] a matter involved in the competition between the actor and the other; (b) the actor does not employ wrongful means; (c) his action does not create or continue an unlawful restraint of trade; and (d) his purpose is at least in part to advance his interest in competing with the other."

...

Comment e to section 768 elaborates on the type of conduct that constitutes wrongful means: "If the actor employs wrongful means, he is not justified under the rule stated in this Section. The predatory means discussed in § 767, Comment c, physical violence, fraud, civil suits and criminal prosecutions, are all wrongful in the situation covered by this Section." Courts relying on comment e have interpreted the wrongful means element to require that a plaintiff, to be successful in a tortious interference action, demonstrate that a defendant engaged in conduct that was actionable on a basis independent of the interference claim. See Brokerage Concepts, 140 F.3d at 531 (citing DP-Tek, Inc. v. A T & T Global Info. Solutions Co., 100 F.3d 828, 833-35 (10th Cir. 1996)). Moreover, we noted in 2000 that even though the Pennsylvania courts have not interpreted the "wrongful means" element of section 768, it is likely that the Pennsylvania Supreme Court would adopt this meaning, that is, for conduct to be wrongful it must be actionable for a reason independent from the claim of tortious interference itself. See Nat'l Data Payment Sys., Inc. v. Meridian Bank, 212 F.3d 849, 858 (3d Cir. 2000); see also CGB Occupational Therapy, Inc. v. RHA Health Servs. Inc., 357 F.3d 375, 389 (3d Cir. 2004). Nothing in later Pennsylvania Supreme Court decisions to which the parties have directed our attention or of which we are aware leads us to change our view of this issue.

I'm sure you can imagine what happened next.

We therefore will reverse the District Court's order of May 21, 2007, to the extent that it denied appellant a judgment as a matter of law on the tortious interference claim, and will remand the case to the District Court for it to enter judgment as a matter of law in favor of appellant on that claim and to set aside the prior judgment on the claim. As a result, we also will reverse the jury's award of compensatory and punitive damages against appellant and the District Court's grant of an injunction in appellees' favor.

That's why business contingent fee cases demand such a high fee and why commercial litigators have to be so selective in the cases they take. On the most basic level, appellees won in the District Court and at trial and post-trial after years of complicated, intense litigation and trial.

How complicated? The Third Circuit Court of Appeal's opinion is a whopping 18,785 words, about one-fifth the length of a typical paperback novel. The briefs from the complaint to the appeal no doubt exceeded 100,000 words.

And the plaintiffs walked away with nothing.

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Fresh off of my juror twittering post yesterday, KevinMD points us to a Newsweek story:

What might you overhear if you got 100,000 doctors together in one virtual room? You could find out if you had access to the social network Sermo. It's just one of a growing cadre of sites designed for the nation's practicing physicians. Here, doctors from across the country can consult each other about the ordinary and the weird (or "zebras" in the lingo). There are queries about treatments for everything from plantar warts to photographs of mystifying rashes and even questions about an unfortunate fellow with postorgasmic nausea.

...

But there are other questions as yet unanswered: ... What if comments are pertinent to a malpractice case? Both Sermo and WebMD say they zealously protect physician anonymity from all third parties.

What if a treating physician called another physician in the room for an informal discussion session about a treatment, and was later sued for medical malpractice?

That conversation would be discoverable, since it's relevant to proving the physician's conduct relative to the standard of care and it's not privileged (unlike, say, a post hoc Peer Review Committee).

Nothing about the message board changes that analysis. Would it make the responding physician liable? Probably not, as they're not responsible for the patient's care -- but again, there's no real need for a whole new method of analysis here. Just think of what the answer would be in the bricks & mortar world.

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Twitter, twitter, everywhere. My delicious morning coffee was interrupted this morning by Anne Reed, who tweeted the following on Twitter:

Another tweeting juror, in Philly Fumo trial; How Appealing posts copy of "motion for immediate voir dire", http://tinyurl.com/c74h6s

Apparently the blogging gods want to be kind to your gentle host, ensuring him an endless fountain of inspiration. The Philadelphia Inquirer summarizes:

Defense lawyers for former State Sen. Vincent J. Fumo moved late yesterday for an immediate halt in jury deliberations and the removal of one juror, contending that the juror posted oblique remarks on Facebook.com and Twitter.com - including one declaring, "Stay tuned for a big announcement on Monday everyone!"

The petition, filed on the eve of the scheduled sixth day of deliberations in Fumo's federal corruption trial, stated that there was "substantial evidence" that the juror, who was not identified, had violated admonitions not to disclose the status of deliberations.

The lawyers asked U.S. District Judge Ronald L. Buckwalter to question the juror and other members of the panel.

"An immediate suspension of deliberations and a delicate but probing judicial inquiry is warranted," lawyers NiaLena Caravasos and Peter Goldberger stated in the petition. "Depending on the results of that inquiry, it seems that one or more jurors ought to be removed and possibly replaced . . . or that a mistrial will be required."

The motion cites one case, United States v. Kemp, 500 F.3d 257, 301 (3d Cir. 2007). Here's the relevant passage:

"We review 'a trial court's response to allegations of juror misconduct for abuse of discretion.' United States v. Boone, 458 F.3d 321, 326 (3d Cir. 2006). Here, we conclude that the District Court acted within its discretion when it individually questioned the jurors.

We have recently had occasion to set forth the applicable legal standard governing the district courts' latitude to question jurors during deliberations about allegations of misconduct. In Boone, we recognized that '[i]t is beyond question that the secrecy of deliberations is critical to the success of the jury system.' Id. at 329. At the same time, we emphasized that '[i]t is also manifest, however, that a juror who refuses to deliberate or who commits jury nullification violates the sworn jury oath and prevents the jury from fulfilling its constitutional role.' Id. Attempting to reconcile these disparate values, we held that 'where substantial evidence of jury misconduct -- including credible allegations of jury nullification or of a refusal to deliberate -- arises during deliberations, a district court may, within its sound discretion, investigate the allegations through juror questioning or other appropriate means.' Id. We stressed that a district court, 'based on its unique perspective at the scene, is in a far superior position than this Court to appropriately consider allegations of juror misconduct, both during trial and during deliberations.' Id.

...

Accordingly, the legal standard is clear: a district court may investigate allegations of juror misconduct when presented with 'substantial evidence' of that misconduct.

In other words, while the District Court has ample discretion in deciding whether or not to question a juror, the Court can't just do so on a whim -- it needs "substantial evidence" of juror misconduct.

Here, however,the situation is a little different: while particular tweets (say, "he's guilty as sin, ain't nothin' gonna change my mind") might provide "substantial evidence" of "jury nullification" or "a refusal to deliberate," twittering alone isn't necessarily "substantial evidence" itself of any particular misconduct.

Sure, the jury is instructed to keep the content of deliberations secret, but it doesn't seem the juror revealed any content, other than the cryptic reference to a "big announcement" on Monday, which itself doesn't reveal any content other than the jury being close to a resolution.

Moreover, there's the bigger question of: so what? The Third Circuit still hasn't settled on a standard for removing a juror. Suffice to say it's not easy:

"While it is undisputed that in certain circumstances, district courts may discharge a juror for cause during deliberations, see Fed. R. Crim. P. 23(b), we have yet to enunciate the appropriate standard. 24 Any standard must accommodate two clashing interests. First, it is clear that 'a court may not dismiss a juror during deliberations if the request for discharge stems from doubts the juror harbors about the sufficiency of the government's evidence.' United States v. Brown, 262 U.S. App. D.C. 183, 823 F.2d 591, 596 (D.C. Cir. 1987). Any other rule would eviscerate the right to a unanimous verdict of guilt. See id. On the other hand, courts agree that a district court has the authority to dismiss a juror -- even during deliberations -- if 'that juror refuses to apply the law or to follow the court's instructions.' United States v. Abbell, 271 F.3d 1286, 1302 (11th Cir. 2001) (per curiam). That is because 'a juror who refuses to deliberate or who commits jury nullification violates the sworn jury oath and prevents the jury from fulfilling its constitutional role.' Boone, 458 F.3d at 329. While the jurisprudence discussing the discharge of jurors during deliberations has largely focused on a refusal to deliberate or jury nullification, its reasoning applies with equal force to claims of juror bias." United States v. Kemp, 500 F.3d 257, 303 (3d Cir. 2007).

Id. at 303.

Twittering a couple lines about the status of the trial doesn't come close to "refusing to apply the law." At the most, the juror arguably didn't "follow the court's instruction" with regard to secrecy, but it's hard to say such was deliberate when the juror plainly made an effort not to disclose any specific information.

It all comes back to a discussion I had with Anne Reed just last week (on Twitter, about another juror twittering case, of course):

annereed: Civil defendant wants new trial after finding juror's trial tweets; they look appropriate to me. http://ping.fm/OvHlM

phillyshortcite: @annereed re http://ping.fm/OvHlM Agreed; jurors entitled to tell others they're on a jury and to describe verdict afterwards.

 

annereed: @phillyshortcite Yes.Juror networking issues are easier than people think; q is whether it would be ok if juror said it face to face.

 

phillyshortcite: @annereed I'm surprised by depth of confusion over social media & law. "Are tweets admissible?" Yep, just like everything else.

There's nothing different here. Jurors for centuries have told their friends over the weekend "I think we've finally reached a verdict!"

We just have more "friends" these days, and, as Seth Godin would put it, everything goes on your permanent record.

So, juror, if the jury's suspended while the lawyers argue and you're reading this... stop reading this! Do what the court tells you to and stick to the evidence at trial!

But if you're done with deliberations and have entered a verdict, don't sweat it. You're not the first juror to breathe a sigh of relief after months of trial.

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Legal Blog Watch catches Charles Nesson, a professor at Harvard Law School and a founder of Harvard's Berkman Center for Internet & Society, getting reprimanded in the SONY BMG Music v. Tenenbaum case. Recording Industry vs. The People has the Order (PDF), which says:

Absent plain evidence to the contrary, and the Defendant has presented none, Plaintiffs must be taken at their word -- in which case Mr. Oppenheim [an attorney for the Defendants in other matters] is not a party to this case whose deposition may simply be noticed under Fed. R. Civ. P. 30(b)(1). Instead, he may only be deposed pursuant to a third-party subpoena that conforms to the requirements of Fed. R. Civ. P. 45 (requiring a more formal process for deposing witnesses who are not parties in the case). For the very reasons stated by the Plaintiffs, the Defendant's subpoena fails to meet these requirements: it was not delivered through personal service; witness and mileage fees were not tendered at the time of service; and it was not served within the district of the issuing court or within 100 miles of the place specified for the deposition. See Fed. R. Civ. P. 45(b)(1)-(2). In addition, because Defendant has not made his initial disclosures pursuant to Fed. R. Civ. P. 26(a)(1), D. Mass. Local Rule 26.2 bars him from initiating any discovery, including depositions, absent an order from the Court.

Yep. That'll get a warning like "The Court will not hesitate to impose appropriate sanctions, including potentially substantial costs, should the Defendant waste either the Plaintiffs' time and money or scarce judicial resources by filing frivolous motions in the future."

As much as I'd like to smugly deride the foolishly ivy tower law professor for daring to believe he could be a civil litigator, fact is, in the real world, lawyers sometimes make honest mistakes and, depressingly, often care little for what the rules actually say.

Here's an example from the Federal Rule of Civil Procedures. I am apparently among the very few, very proud lawyers who have ever laid eyes on it:

(d) Timing and Sequence of Discovery.

(1) Timing.

A party may not seek discovery from any source before the parties have conferred as required by Rule 26(f), except in a proceeding exempted from initial disclosure under Rule 26(a)(1)(B), or when authorized by these rules, by stipulation, or by court order.

(2) Sequence.

Unless, on motion, the court orders otherwise for the parties' and witnesses' convenience and in the interests of justice:

(A) methods of discovery may be used in any sequence; and

(B) discovery by one party does not require any other party to delay its discovery.

Fed.R.Civ.P. 26(d)(emphasis added). I have lost track of the number of defendants who have opposed my discovery and sought protective orders on such frivolous grounds as:

(a) I have to depose the defendant last;

(b) I have to obtain persuasive evidence for my case before I can depose the defendant;

and, my favorite,

(c) it's "unduly burdensome" unless we do depositions in the order the defendant wants to do them.

So, Professor Nesson, welcome to the club. Please take note of the mistake and move on.

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TortDeform points us to an excellent article in Mother Jones about systemic fraud in the franchise industry, an article which includes this passage:

Hoping to recoup their losses, Welshans and Williams sued in Maryland federal court. But Coffee Beanery struck back in Michigan; a federal judge there ordered the couple—as required in the fine print of their franchise agreement—to instead take their dispute to a private arbitrator selected by the company. (Such binding arbitration clauses are boilerplate in contracts for everything from cell phones to credit cards.) Welshans had to borrow another $100,000 from his brother-in-law just to proceed with the process, which required steep fees up front.

...

She ordered the couple to pay $187,452 in legal fees and arbitration expenses—not including their own legal tab or the cost of travel to and from Michigan. Among the charges: $16,800 for Barron's services, $35,571 for a court reporter and transcription, even $504 for the Beanery lawyers' lunches.

Arbitration has a place in the American legal system. It is no panacea, but for many businesses it enables a comparatively quicker and less painful (though often more expensive, given the arbitrator's fees) method for resolving disputes with other businesses.

But let's be real: anyone who demands they alone have the right to choose the arbitrator is trying to defraud you.

There is a huge roster of fair and impartial arbitrators who would be happy to hear your case, and multiple services (like AAA and JAMS) willing to provide you options. No business has good reason for demanding they be able to unilaterally choose the arbitrator in advance.

If the parties want to name a particular arbitrator in advance, that's fine, as the parties have an opportunity to explore who that person is, but leaving the option open for an unfettered choice down the line after the wrongful conduct has occurred is unreasonable and should be prohibited by the Federal Arbitration Act (keep in mind -- arbitration is not a "contractual" right, it's a statutorily-prescribed method of dispute resolution, making Congress complicit in these abuses).

I wouldn't buy the time of day from someone who proposed that and neither should you.

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It's an article of faith among many businesses and lawyers: Delaware. It doesn't matter what the question is. Where should you incorporate? What should the governing law of your contract be? 

Delaware! Delaware's good for business.

Right?

Not necessarily. Much ink has been spilled over why, exactly, businesses constantly incorporate in Delaware and/or insert Delaware into choice of law provisions in their contracts. Among the most common reasons is: Delaware has more developed and thus stable precedent than any other jurisdiction.

I'm not sure this reason stands even on its own merits. E.g., the law of malpractice and negligence is very well-developed and yet we still find plenty of legal issues to litigate, and still rarely settle until immediately before trial. 

This "stability" has long been under fire, most recently as noted by The Harvard Law School Corporate Governance Blog, addressing two recent Chancery Court opinions on shareholder suits against Citigroup and AIG:

These cases seem to support the claim by William Carney and George Shepherd in The Mystery of Delaware Law’s Continuing Success (William Carney & George Shepherd, 2009 U. ILL. L. REV. 1) that Delaware law is infected by costly indeterminacy. After these cases, where, exactly, does a duty of loyalty claim for breach ofCaremark duties stand?

The courts in these cases distinguished a claim that directors ignored the inadequate controls of patent business risks (Citigroup) from one that the directors ignored inadequate controls of insider wrongdoing (AIG). While these distinctions seem clear, and the cases seem rightly decided on their facts, the distinctions fray at the edges. Deliberately and knowingly ignoring either kind of risk can give rise to a claim. The defendants in Citigroup, even if careless, did not sink to that standard, while the AIG defendants did. So how does insider wrongdoing affect the determination? Must the flags be redder to trigger liability where there is no insider wrongdoing, but the risk could bring the company down? If so, how much redder? Is there a sliding scale for the degree of insider wrongdoing the defendants allegedly ignored. In AIG, the complaint supported an assertion that the insiders led, in Vice Chancellor Strine’s words, a “criminal organization.” Would the result be different if the alleged wrongdoing had been somewhat less pervasive? But does not the pervasiveness tie to the defendants’ knowledge, which leads back to square one?

 

In fairness, though, this does not necessarily support a criticism of Delaware law. As Chancellor Chandler wrote (with Anthony A. Rickey) in responding to Carney & Shepherd’s criticism in Manufacturing Mystery: A Response to Professors Carney and Shepherd’s “The Mystery of Delaware Law’s Continuing Success (2009 U. Ill. L. Rev. 95), Delaware is at least no more indeterminate than other jurisdictions.

Indeed, I argued in my own response to Carney & Shepherd, The Uncorporation and Corporate Indeterminacy, (2009 U. ILL. L. REV. 131), that indeterminacy is inherent in corporate law rather than specifically in Delaware jurisprudence. The solution is to turn to “uncorporate” law, which leads directly to my next two points.

 

Well said, and the whole post (as well as its references to Wachtell, Lipton, Rosen & Katz client memorandum posted here and Francis Pileggi's own comments here) are required-reading for those interested in shareholder derivative suits.

The overarching theme bears repeating -- the law is fundamentally "indeterminate." Businesses aren't going to be able to change that by just doing what every other business does because they think they should.

The problem is compounded by the way many businesses "choose" Delaware law, often in conjunction with an arbitration or choice of venue provision that ensures that Delaware law will be "applied" by a court or arbitrator with no experience in Delaware law. How "stable" and "determinate" can that possibly be?

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As you've probably heard at sites like Overlawyered and Drug & Device Law, the sky is falling upon us because the Supreme Court didn't override Congress and the FDA and decide to pre-empt state failure-to-warn tort suits against prescription drug manufacturers.

If you don't know the basic facts, see SCOTUSBlog. Some initial commentary at the WSJ.

Wyeth manufactures pharmaceuticals, subject to FDA regulation. The FDA sets a minimum standard for the use of these drugs and their labeling; it does not dictate the text of warning labels, though it does have to approve them, which it does after intense lobbying by the manufacturers, lobbying generally unopposed by anyone at all, where the sole "evidence" are manufacturer-sponsored studies, studies which have repeatedly come under fire for conflicts of interest.

Nonetheless, under the "changes being effected" regulation, a drug company can unilaterally change its warning labels to improve patient safety.

Does this regulatory authority preclude all state tort suits alleging drug companies promoted or failed to warn against unsafe uses of these drugs?

Vested interests have spent a lot of money trying to convince judges (and the public) that this question is so hard to answer on purely legal grounds that it requires the judges start making policy instead of law.

Because the law is very clear, as the Supreme Court ruled, 6-3:

As it enlarged the FDA’s powers to “protect the public health” and “assure the safety, effectiveness, and reliability of drugs,” id., at 780, Congress took care to preserve state law. The 1962 amendments added a saving clause, indicating that a provision of state law would only be invalidated upon a “direct and positive conflict” with the FDCA [Food, Drug and Cosmetics Act]. §202, id., at 793. Consistent with that provision, state common-law suits “continued unabated despite . . . FDA regulation.” Riegel v. Medtronic, Inc., 552 U. S. ___, ___ (2008) (slip op., at 8) (GINSBURG, J., dissenting); see ibid., n. 11 (collecting state cases). And when Congress enacted an express pre-emption provision for medical devices in 1976, see §521, 90 Stat. 574 (codified at 21 U. S. C. §360k(a)), it declined to enact such a provision for prescription drugs.

Slip op. at 10.

Congress has had numerous opportunities, while amending the FDCA, to change that. It didn't.

The FDA has had numerous opportunities, while promulgating regulations with the force of law (as opposed to mere policy positions, which are not binding on courts), to change that. It didn't.

There was no "direct and positive conflict" between plaintiff's claims and the FDA approval.

There's nothing more to say here.

The Supreme Court is to be commended for refraining from telling Congress and the FDA they didn't know how to set policy, and for sticking to basic principles of judicial, statutory and regulatory interpretation.

Thanks for refraining from judicial activism.

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After the firestorm of criticism last week, including on this blog, Facebook CEO Mark Zuckerberg announced (on Facebook's blog and in a media conference call):

Beginning today, we are giving you a greater opportunity to voice your opinion over how Facebook is governed. We're starting this off by publishing two new documents for your review and comment. The first is the Facebook Principles, which defines your rights and will serve as the guiding framework behind any policy we'll consider—or the reason we won't consider others. The second document is the Statement of Rights and Responsibilities, which will replace the existing Terms of Use. With both documents, we tried hard to simplify the language so you have a clear understanding of how Facebook will be run. We've created separate groups for each document so you can read them and provide comments and feedback. You can find the Facebook Principles here and the Statement of Rights and Responsibilities here. Before these new proposals go into effect, you'll also have the ability to vote for or against proposed changes.

Credit where it is due: the new "Statement of Rights and Responsibilities" describes the legal relationship between users and Facebook the way that Facebook's officers have been describing it.

In short: users retain total control over their content, and can terminate Facebook's license at will. Users still can't really sue Facebook for anything, but might be able to sue developers or operators of third-party applications if they breach the new terms.

In long, start with governing law:

14.1 You will resolve any claim, cause of action or dispute (“claim”) you have with us arising out of or relating to this Statement or Facebook in a state or federal court located in Santa Clara County. The laws of the State of California will govern this Statement, as well as any claim that might arise between you and us, without regard to conflict of law provisions. You agree to submit to the personal jurisdiction of the courts located in Santa Clara County, California for the purpose of litigating all such claims.

Good news! As noted before, California has very pro-consumer laws. You'll also notice that Facebook got rid of the class action waiver (which was likely illegal anyway) and the arbitration requirement, too. No longer must you drop $6,000 or more just to start an arbitration against them.

Then, the licensing, the part that caused so much trouble last time:

You own all of the content and information you post on Facebook, including information about you and the actions you take (“content”). In order for us to share your content and provide you with our services, you agree to the following:

2.1 You give us permission to use, store, and share content you post on Facebook or otherwise make available to us (“post”), subject to your privacy and application settings.
2.2 You may delete your content or your account at any time with the understanding that removed information may persist in backup copies for a reasonable period of time (but will not be generally available to other users), and that content shared with others may remain until they delete it.
2.3 For content that is covered by intellectual property rights (like photos and videos), you specifically give us the following permission, subject to your privacy and application settings: you grant us a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use, copy, publicly perform or display, distribute, modify, translate, and create derivative works of (“use”) any content you post on or in connection with Facebook. This license ends when you delete your content or your account.
2.4 We always appreciate your feedback or other suggestions about Facebook, but you understand that we may use them without any obligation to compensate you for them (just as you have no obligation to offer them).

(Emphasis mine). Finally! No more fussing around with ambiguity: Facebook twice reiterates that their license is "subject to your privacy and application settings," and that deleting either your content or your account terminates the license to that content.

That is exactly how users expect the system to operate. Facebook also omitted the annoying and erroneous "irrevocable" from the license.

I'll have more to say later. But let me raise one really interesting issue:

9. Special Provisions Applicable to Developers/Operators of Applications and Websites

If you are a developer or operator of a Platform application or a website using Connect (“application”), the following additional terms apply to you:

9.2 When users add your application or connect it to their Facebook account, they give permission for you to receive certain data relating to them. Your access to and use of that data will be limited as follows:
9.2.1 You will only use the data you receive for your application, and will only use it in connection with Facebook.
9.2.2 You will make it clear to users how you are going to use, display, or share their data.
9.2.3 You will not use, display, or share a user’s data in a manner inconsistent with the user’s privacy settings without the user’s consent.
9.2.4 You will delete all data you received from us relating to any user who removes or disconnects from your application unless the user gives you permission to keep it.
9.2.5 You will delete all data you received from Facebook if we disable your application or ask you to do so.
9.2.6 We can require you to update any data you have received from us.
9.2.7 We can limit your access to data.
9.2.8 You will not transfer the data you receive from us without our prior consent.
9.3 You will not give us data that you independently collect from a user or a user’s content without that user’s consent.

...

That would appear to make users "third-party beneficiaries" to Facebook's relationship with developers / operators of Facebook or Connect services. Which means users would likely have standing to sue if that developer / operator violated the terms, including violations of privacy settings (under 9.2.3).

Here's a California appellate court from just two weeks ago:

"Under Civil Code section 1559, a third party can enforce the terms of a contract 'made expressly for the benefit of [the] third person.' 'Expressly' in this context is interpreted to mean 'merely the negative of 'incidentally.'' (Gilbert Financial Corp. v. Steelform Contracting Co. (1978) 82 Cal.App.3d 65, 70 [145 Cal. Rptr. 448].) The contract need not be exclusively for the benefit of the third party in order to permit enforcement, and the third party does not need to be the sole or the primary beneficiary. Further, the third party need not be identified as a beneficiary, or even named, in the contract. (Prouty v. Gores Tecology Group, supra, 121 Cal.App.4th at pp. 1232–1233.) 'If the terms of the contract necessarily require the promisor to confer a benefit on a third person, then the contract, and hence the parties thereto, contemplate a benefit to the third person. The parties are presumed to intend the consequences of a performance of the contract.' (Joson v. Holmes Tuttle Lincoln-Merc. (1958) 160 Cal.App.2d 290, 297 [325 P.2d 193].)"

National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc., No. A120072, 2009 Cal. App. LEXIS 170, at *25–26 (Cal. Ct. App. Feb. 11, 2009).

Here's the statute itself:

A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.

Cal Civ Code § 1559 (2008).

That's great for users, but I'm sure developers and operators will have something to say about it Are they ready to be legally bound to users by Facebook's terms?

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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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Now that Facebook has rescinded its "new" Terms, let's talk about 13 problems with the Terms, 2 questions to consider about the site, and 10 changes Facebook should make.

If you see “new Terms” below, that refers to the Terms Facebook enacted on February 4, 2009, then rescinded. “Old Terms” refers to the Terms in place before then, which are now the current terms.

13 THINGS YOU SHOULD KNOW ABOUT FACEBOOK'S CURRENT TERMS OF USE

1. Facebook wants to make money using your information. That doesn't make them evil; users worldwide are fine with Google, another free service,  reading their searches and emails to target advertising. But Facebook isn't a charity, and their current business model is aimed at sending you targeted advertising or at finding a way to monetize what they know about you. Keep that goal -- and not the goal of "sharing" -- in mind when you consider Facebook's Terms.  Keep in mind, too, what would happen with your information if Facebook was sold to another company. 

2. Facebook has the right to use your  information and content  "for any purpose, commercial, advertising or otherwise." Your use "automatically grants" them "an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license" to anything you  put on the service, and, for the new Terms, anything you enabled someone else to post, like if you put a "Share on Facebook" button on your blog. The old Terms permit you to terminate this license by removing your content from the site. The new Terms did not recognize that right of termination; Facebook could use your content forever, for any purpose, without your permission. That's what the hoopla was all about.

3. Facebook collects information on you from sources other than your posted content. As their Privacy policy says, "We may use information about you that we collect from other sources, including but not limited to newspapers and Internet sources such as blogs, instant messaging services, Facebook Platform developers and other users of Facebook, to supplement your profile."

4. Facebook has, in the past, broadcast user's private information in ways users didn't want or expect. Two notable examples were the "Beacon" service, which defaulted to broadcasting what users did on third-party sites (e.g., what products they bought) and the misleading "deactivation" policy, in which closing an account merely "deactivated" it without prohibiting access to any of the  content . Facebook has also been criticized for confusing privacy settings -- for example, by inputing your location you have automatically joined that locality's "network," and thus by default are accessible through searches by people in that area.

5. Facebook wants to use your name, likeness and image for their commercial purposes. The new Terms had a license not just your content, but your very identity,  which they could use  for commercial  purposes like using your name to endorse or market products.The reason Facebook wanted this additional license seems clear: the "Beacon" service above, which Facebook had to retreat from, likely violated existing laws in many states, particularly New York, prohibiting the use of another's likeness in an advertisement without proper consent and compensation. The new Terms tried to run  around those laws. Recall, too, that Facebook would have had that right forever.

6. Facebook can sell information about you to third parties. Their privacy policy says they may "use" your information "without identifying you as an individual," and that they "do not provide contact information to third party marketers without your permission." Everything else is fair game.

7. Facebook can delete your whole account without warning. Under both Terms, Facebook can pull the plug "for any or no reason, at any time in our sole discretion, with or without notice."

8. The content Terms are so onerous they ban even the "25 Things" meme. "User conduct" says "you agree not to use the Service or the Site to ... upload, post, transmit, share or otherwise make available any ... chain letters." Oops. The old Terms also ban "any content that we deem to be harmful, threatening, unlawful, defamatory, infringing, abusive, inflammatory, harassing, vulgar, obscene, fraudulent, invasive of privacy or publicity rights, hateful, or racially, ethnically or otherwise objectionable." The new Terms went a long way towards cleaning up those ridiculous prohibitions.

9. Facebook does not permit any commercial use whatsoever. The old Terms are very clear: "You understand that except for advertising programs offered by us on the Site (e.g., Facebook Flyers, Facebook Marketplace), the Service and the Site are available for your personal, non-commercial use only." The new Terms changed all that, requiring that your profile be for personal uses but allowing you to create Pages for commercial purposes.

10. Facebook isn't responsible if a third-party application abuses your personal information. From Facebook's privacy page: "However, while we have undertaken contractual and technical steps to restrict possible misuse of such information by such Platform Developers, we of course cannot and do not guarantee that all Platform Developers will abide by such agreements."

11. Facebook isn't liable if they lose your content, give you a virus or allow your account to be hacked. Under both Terms, the "Disclaimers" and "Limitation on Liability" have multiple provisions preventing you from suing them for just about anything. Here's one example: "Under no circumstances will the Company be responsible for any loss or damage, including any loss or damage to any User Content or personal injury or death, resulting from anyone's use of the Site or the Service, any User Content or Third Party Applications, Software or Content posted on or through the Site or the Service or transmitted to Users, or any interactions between users of the Site, whether online or offline."

12. If you can find a way to sue Facebook, you have to go through arbitration. The old Terms made you use the American Arbitration Association in the location determined by the AAA Rules (likely your domicile), whereas the new Terms make you use Judicial Arbitration and Mediation Services in Santa Clara County, California, though you're permitted to appear by phone. It's unclear why Facebook switched from AAA to JAMS; either way, be glad they're not using the National Arbitration Forum, which has been accused of stacking the deck in favor of defendants like credit card companies.

13. If you can find a way to sue and win in arbitration, your compensation is severely limited. The old terms' "limitation on liability" limit you to "the amount paid, if any, by you to company for the service during the term of membership," capped at $1000. The new terms entitle you to a minimum of $100, with a cap of "the amount paid by you, if any, to Facebook during the twelve months immediately preceding the day the act or omission occured that gave rise to your claim."

2 THINGS TO CONSIDER ABOUT FACEBOOK'S SITE:

14. What should the default privacy settings be? Should Facebook presume you want to share everything, some things, or nothing? And with whom should it presume you want to share? Your friends? Their friends? Their friends’ friends? What about people in your location or your former classmates? The default settings are very powerful, since they’re often not changed and because users are often confused by what the changes even mean, so they should be chosen carefully.

15. When one user deletes a post on Facebook, what should happen to other users' comments to that post? This scenario represents a larger issue for Facebook, one they were likely attempting to address with the new Terms. Facebook's primary purpose is to facility communication, usually in the form of one user posting a status update, link or photo and other users commenting in response to that update, link or photo. So who "owns" those comments?  Who "owns" a comment which quotes the original post? Don't look to the law:  the point of Terms is to  establish a relationship and  settle  questions.  How do users want or expect such a deletion to function?

10 THINGS USERS SHOULD ADVOCATE BE INCLUDED IN FACEBOOK'S NEW TERMS OF USE:

16. Users should retain the right to remove their own content from the system. Users expect and should have the right to remove any content from Facebook, and thereby terminate Facebook's license, at any time. That’s what the old Terms permitted, and it’s essential for any artist who, down the road, is asked to grant an “exclusive” license to their content.

17. Facebook should not have any rights to user’s name, likeness or image except where specifically permitted. It’s reasonable for Facebook to get a blanket, revocable license from you for your content; the whole service works by distributing your content to others, and a blanket license enables them to easily introduce new features that distribute your content in new ways. Name and likeness are a completely different matter. Given Facebook’s poor history in the past regarding likenesses (e.g., the “Beacon” service), Facebook should be upfront about when it is going to use your likeness for a commercial purpose and should ask you for permission for that specific use.

18. Facebook’s Terms should be written (or summarized) in plain English. The controversial “licenses” term was a 120-word sentence that “granted” a “license” (a “license” defined by six adjectives) over the course of two subclauses (“(a)” and “(b),” which together included twenty different verbs), two sub-subclauses (“(a)(i)” and “(a)(ii)”), and a modifying end-clause (“each of (a) and (b)”) that ended with a legalese preposition (“thereof”). Possibly worse, the license included an ambiguous clause – “subject only to your privacy settings” – which caused numerous users to conclude, wrongly, that Facebook’s entire license was limited to the user’s privacy settings. The clause, at most, limited the license only for content posted, not content shared or the user’s likeness, and, at worst, actually reinforced that users retained no license control at all, but instead “only” the ability to limit privacy settings.

19. Facebook’s Terms should be built on trust, not distrust. “You agree” appears eleven times in the old Terms and fifteen times in the new Terms; “Facebook agrees” does not appear in either. Both Terms bear far more in common with the release people signed to be ridiculed by Borat than a mutual agreement. If Facebook says, like Gmail, that “We will not use any of your content for any purpose except to provide you with the Service,” they theoretically increase the likelihood of being sued, but they also make the relationship much clearer and more trusting.

20. Facebook should bear some legal and financial responsibility. As noted above, you are essentially a guest on Facebook's servers, and they can kick you off whenever they want, for "any or no reason." Unless the Terms include provisions that are legally enforceable, in an affordable manner, users have no “rights.” When Facebook says, “you can’t sue us, just trust us,” they really mean “we don’t trust ourselves enough not to make mistakes and get sued.” Even if you come up with a way to sue them, your damages are limited to what you paid Facebook ($0), a big problem given how a basic JAMS arbitration costs almost $8,000 just to get the ball rolling. Facebook has cause to be concerned about exposing itself to liability among 175 million users, but there is a comfortable middle ground where Facebook’s liability isn’t open-ended but users are still protected.

21. Facebook should only be permitted to delete or restrict your account for “cause.” As noted above, Facebook both can delete your account without warning and prohibits you from myriad activities online. 175 million users includes a lot of trolls, spammers, harassers, and con artists, and that’s okay – Facebook can reserve for itself broad reason for “cause,” like the new Terms included, such as if a user “intimidates or harasses any user” or “does anything that is illegal, infringing, fraudulent, malicious or could expose Facebook or the Facebook Service users to harm or liability.”

22. Facebook should agree to take reasonable steps to secure user’s personal information and should be required to report any disclosures. Know what happens if Facebook goofs and sends your personal, identifying information to third parties? Nothing. What happens if Facebook knows a third-party application is harvesting personal addresses and selling them to spammers and scam artists? Nothing. The liability here doesn’t have to be unlimited, but it should be something, possibly a set fee, like $250 per violation per user.

23. Facebook should guarantee the security of your content. Facebook expects and wants its users to put a substantial portion of their lives online, including extended conversations with friends. Users have every reason to expect, and to make Facebook responsible for, guaranteeing their data will not be lost or corrupted. Again, Facebook doesn’t have to be completely responsible for every lost customer a business suffers, but they should have a meaningful level of legal and financial responsibility.

24. Facebook should permit a jury trial of class actions against Facebook, with attorneys fees and costs if Facebook loses. The old terms illegally prohibit class actions. The new terms permit class actions, so long as you first arbitrate whether you can bring a class and you waive your right to a jury trial. Such a limitation might be illegal, too, and it flies in the face of Zuckerberg's claim that "we need to make sure the terms reflect the principles and values of the people using the service." There needs to be real, meaningful, enforceable responsibility when Facebook breaches one of the terms above.

25. Facebook should keep many of the new Terms. The new Terms changed the governing law to California (likely out of convenience), one of the most pro-consumer states in the nation. That’s great. It was also great how Facebook came up with specific ways for people to conduct business through Facebook. Finally, Facebook really did shorten the Terms and make them a little bit more coherent (such as in areas like “User Content”) and they shouldn’t shy away from that.

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[Update - see also 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here.]

Facebook responded swiftly to the social media uproar over its new Terms of Use by reverting to the old Terms.

Great news, with one problem: the old Terms aren't that great. Mark Zuckerberg described Facebook's old Terms as "overly formal and protective," and promised to revise them promptly.

He's being euphemistic.

Some of the "old" (now "current") Terms were downright illegal and unenforceable, like making users responsible for checking for updates to the Terms and making users waive class action status, as covered in my first post.

Other "old" Terms followed the carpet bombing and kitchen sink methods of contract drafting, with the same point made multiple times in multiple excessive ways that rendered the Terms a farce.

Here's one example: in response to the controversy, Facebook started a Group to discuss the Terms, "Facebook Bill of Rights and Responsibilities." The Discussion Board for that Group was promptly swarmed by racist trolls.

That's a problem for the trolls themselves, as the "User Conduct" section says users "agree not to use the Service or the Site to:"

upload, post, transmit, share, store or otherwise make available any content that we deem to be harmful, threatening, unlawful, defamatory, infringing, abusive, inflammatory, harassing, vulgar, obscene, fraudulent, invasive of privacy or publicity rights, hateful, or racially, ethnically or otherwise objectionable;

Awfully broad, no? The "new" (now "rescinded") Terms narrowed that whole paragraph to "intimidate or harass any user."

But under the "old" Terms such trolling is  also a problem for Facebook, since their "User Content Posted on the Site" section says:

You are solely responsible for the photos, profiles, messages, notes, text, information, music, video, advertisements, listings, and other content that you upload, publish or display (hereinafter, "post") on or through the Service or the Site, or transmit to or share with other users (collectively the "User Content"). You may not post, transmit, or share User Content on the Site or Service that you did not create or that you do not have permission to post.

Who "published," "displayed," "transmitted to" or "shared with other users" the messages in that Group? Why, the creators and administrators of that Group, Simon Axten, Mark Zuckerberg, and Barry Schnitt. All Facebook employees, one of them the CEO.

Who are now arguably made responsible for those messages.

Hmmm. Probably not what Facebook intended or what users expect.

I'll have more about what was different in the "new" (now "rescinded" ) Terms and what Facebook should put in their Terms.

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[I've posted a followup in light of Facebook's response, i.e. rescinding the new terms -- Facebook Rescinds Its New, Unfriendly Terms of Use in Favor of Its Old, Unfriendly Terms of Use. Further, 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here. Also, some thoughts on the even newer, much better Terms Facebook has proposed.]

Now that we've covered whether Facebook can slip new terms into the service and whether they can enforce their terms at all, it's time to look at what the new "Licenses" terms mean.

Facebook's new "Licenses" section says:

You hereby grant Facebook an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license (with the right to sublicense) to

(a) use, copy, publish, stream, store, retain, publicly perform or display, transmit, scan, reformat, modify, edit, frame, translate, excerpt, adapt, create derivative works and distribute (through multiple tiers), any User Content you

(i) Post on or in connection with the Facebook Service or the promotion thereof subject only to your privacy settings

or

(ii) enable a user to Post, including by offering a Share Link on your website

and

(b) to use your name, likeness and image for any purpose, including commercial or advertising,

each of (a) and (b) on or in connection with the Facebook Service or the promotion thereof. 

We'll come back to the bolding. For now, I reformatted it to make the distinct sections clearer* and italicized the portions that aren't unusual, as you can see from Amanda French's comparison of the terms at MySpace, Yahoo's Flickr, Google's Picasa, YouTube, LinkedIn and Twitter. For any of these sites to function, they need at lease some license to use your content.**

The main difference is that MySpace, Flickr, Picasa, YouTube and Twitter all explicitly recognize that their license to such "User Content" ends upon your termination of the service or your removal of content. Facebook and LinkedIn don't -- once you provide content, they have a license to use it forever.

There are three other important licensing differences. Under the new Terms you:

1. grant Facebook a license to all content you enabled someone else to post,
2. grant Facebook a right to use your name and likeness, and
3. grant Facebook the right to use content and your likeness not just for purposes of Facebook's service, but also in Facebook's promotional efforts.

That's a lot to swallow, particularly since you can't ever revoke any of it.

Good thing Mark Zuckerberg, Founder, CEO and Board Member of Facebook (keep those last two in mind), jumped in to respond to the criticism:

One of the questions about our new terms of use is whether Facebook can use this information forever. When a person shares something like a message with a friend, two copies of that information are created—one in the person's sent messages box and the other in their friend's inbox. Even if the person deactivates their account, their friend still has a copy of that message. We think this is the right way for Facebook to work, and it is consistent with how other services like email work. One of the reasons we updated our terms was to make this more clear.

In reality, we wouldn't share your information in a way you wouldn't want. The trust you place in us as a safe place to share information is the most important part of what makes Facebook work. Our goal is to build great products and to communicate clearly to help people share more information in this trusted environment.

We still have work to do to communicate more clearly about these issues, and our terms are one example of this. Our philosophy that people own their information and control who they share it with has remained constant. A lot of the language in our terms is overly formal and protective of the rights we need to provide this service to you. Over time we will continue to clarify our positions and make the terms simpler.

Soothing words, or much more? 

Go back to the bolded portion of the license term above, which limits the license users granted to being used "on or in connection with the Facebook Service or the promotion thereof." What the heck does that mean? The Terms define "Facebook Service" as follows:

The "Facebook Service" means the features, services and properties that Facebook makes available through (a) www.facebook.com or any other Facebook-branded or co-branded website (including, without limitation, any and all sub-domains and all international, mobile versions and successors thereof), (b) the Facebook Platform and (c) other media, devices or networks now existing or later developed.

That doesn't really help -- what does it mean for content to be used "in connection with" Facebook?

Would that include, say, Facebook leveraging the "25 Things" meme and publishing its own book of other people's "25 Things" posts? Or could Facebook, as the founder of Rocketboom worried, use Rocketboom's videos 30 years down the road?

Under the literal meaning of the new Terms, both would appear possible, and there would be nothing users could do about it. Zuckerberg's reference to "email" is a dodge -- email services don't arrogate to themselves any publishing rights beyond your initial sending, certainly no rights to use your emails to promote the email service.

But Zuckerberg's dodgy, soothing email has much more legal meaning than he and his team probably realized. The Terms themselves note that "We reserve the right, at our sole discretion, to change or delete portions of these Terms at any time without further notice."

Did they just do that? That is, does Zuckerberg, the CEO and a Board Member, have the authority to bind Facebook to changes in their Terms?

Recall that disputes under the new Facebook Terms are governed by California law, under which "a corporate officer may have express authority to enter into an agreement on behalf of the corporation." Snukal v. Flightways Mfg., 23 Cal. 4th 754, 779, 3 P.3d 286, 305, 98 Cal. Rptr. 2d 1, 22 (2000).

Even if Zuckerberg doesn't have the express authority to change the Terms, he may have the implied authority given his preeminent role in the company and, perhaps most importantly, he has the apparent authority to bind the company to contractual terms.***

Users thus have every reason to incorporate Zuckerberg's blog post into their interpretation of the terms. Zuckerberg specifically said that "control" over sharing "has remained constant" across the new and old Terms and that "we wouldn't share your information in a way you wouldn't want." 

That is to say, Zuckerberg just clarified what's meant by "in connection with the Facebook Service:" the "Facebook Service" has a philosophy of ensuring user "control" over content sharing, and does not share information in a way users don't want.

Would that fly in front of the JAMS-appointed arbitrators in Santa Clara county?**** Facebook doesn't know the answer to that any better than I do, but I bet it would work. Companies are cross-examined with the words of their CEOs and officers every day in trials and arbitrations across the country.

It's a legal risk I'm personally willing to take.

Until they modify the Terms again, that is.

Footnotes:

* Did you catch the typo at the beginning of (b)? They split the infinitive "to use" at subsection (a) but repeated "to" a section (b). Reading the terms literally says you grant Facebook "... worldwide license (with the right to sublicense) to to use your name, likeness ..."

** Facebook has replied that they don't "own" your content, and that's partly true, the Terms don't claim any exclusive license or ownership right to your content, but they do claim a transferrable, non-exclusive license, which is all they could really want from you anyway.

*** Indeed, under the Snukal case it's quite possible that Zuckerberg would be considered as having both "operational" and "recordkeeping or financial duties," making his words irrefutably binding on the company, just as they were for the defendant in that case. 

**** Also a new provision, which I'll discuss tomorrow.

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[Update -- I've posted followups, What Do Facebook's New Terms of Use Mean for Your Content? and Facebook Rescinds Its New, Unfriendly Terms of Use in Favor of Its Old, Unfriendly Terms of Use. Finally, 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here.]

Yesterday we talked about Facebook's new "Terms of Use," delivered to users by stealth, and how users who wanted to leave could likely enforce the old terms, which didn't include the new controversial licensing provisions.

Right now we'll talk about whether the new terms are enforceable, and later we'll talk about what they mean for your content.

There are two general types of website Terms of Use (or Service): "click wrap" and "browse wrap." Both unfortunately named after "shrink wrap" terms, i.e. the terms of software programs that purported to apply to the buyer the moment they tore off the plastic shrink-wrap around the box the software came in.

And that's about as concrete as the law gets here. As noted by a recent law review article, depressingly not available online, "amazingly few appellate opinions on point exist, and generally, the opinions are unrefined in their analyses." Cyber-Surfing on the High Seas of Legalese, 18 Alb. L.J. Sci. & Tech. 79 (2008).

As noted previously, Facebook's new Terms state that California's laws govern any dispute, so that's where we should look for guidance, but California law isn't much help. The California Supreme Court, which would decide the issue, hasn't spoken on click wrap or browse wrap terms at all.

The most recent case I found was an unpublished California state appellate court opinion upholding a browsewrap agreement, noting that “there was nothing inherently unfair in requiring [the consumer] access contractual terms via hyperlink." Cohn v. Truebeginnings, 2007 Cal. App. Unpub. LEXIS 6232.

But an unpublished state court appellate opinion is among the weakest authorities you can have -- California's own courts frown on even mentioning them in legal briefs.

The most persuasive authority available seems to be Specht v. Netscape Communs. Corp., 306 F.3d 17 (2d Cir. 2002), a ruling on California law by a Federal appellate court that doesn't even serve California (it serves Connecticut, New York, and Vermont):

It is true that ‘[a] party cannot avoid the terms of a contract on the ground that he or she failed to read it before signing.’ Marin Storage & Trucking, 107 Cal. Rptr. 2d at 651. But courts are quick to add: ‘An exception to this general rule exists when the writing does not appear to be a contract and the terms are not called to the attention of the recipient. In such a case, no contract is formed with respect to the undisclosed term.’ Id.; cf. Cory v. Golden State Bank, 95 Cal. App. 3d 360, 157 Cal. Rptr. 538, 541 (Cal. Ct. App. 1979)

...

We conclude that in circumstances such as these, where consumers are urged to download free software at the immediate click of a button, a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms.

Specht, 306 F.3d at 32.

Hmmm. Do we go with the unpublished California state appellate court or the published Federal appellate court opinion that has no authority in California?

Neither. The law is simply too unsettled to give a "right" answer one way or the other.

Which means common sense, tempered with caution, prevails: if you were a judge asked to decide whether a user in your shoes was bound to Facebook's new Terms, how would you decide?

If you're reading this post, you're obviously aware of the new terms, so your continued use would appear to demonstrate an acceptance of the Terms.

But what if, as the Facebook Group "People Against the new Terms of Service (TOS)" has recommended, you email or otherwise notify Facebook of the following:

Notice to Facebook: Notwithstanding FB's new Terms of Use, any use of my content is always subject to my privacy settings and FB's use terminates upon my termination of my account or removal of my content, whichever is the earlier, unless longer to display my shared content on the accounts of my friends.

Truth is, no one knows. Keep in mind that, if it comes down to a lawsuit, if you want to enforce those terms you're going to simultaneously argue that your use didn't constitute acceptance of Facebook's Terms while Facebook's providing service to you constituted acceptance of your Terms.

What does your common sense tell you about that argument?

Next up we'll look at the terms themselves and what they mean for your content.

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[Update -- I've posted a few followups: Are Facebook's New Terms of Use Enforceable?, What Do Facebook's New Terms of Use Mean for Your Content? and Facebook Rescinds Its New, Unfriendly Terms of Use in Favor of Its Old, Unfriendly Terms of Use. Finally, 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here.]

Facebook earned itself the wrath of Twitter by revising its Terms of Use (a/k/a Terms of Service) to grant itself a perpetual license to use all of your content (which is typical of social media sites), even if you leave the site (which is not typical).

We'll get to the substance of the change later. For now, a simple question: can Facebook unilaterally change terms of use without notifying users?

We get hints at the answer by comparing Facebook's old Terms, dated May 24, 2007, to the current Terms, dated February 4, 2009.

Here's what's really the most important change:

The old Terms:

By visiting or using the Site and/or the Service, you agree that the laws of the State of Delaware, without regard to principles of conflict of laws, will govern these Terms of Use and any dispute of any sort that might arise between you and the Company or any of our affiliates.

The new Terms:

You agree that all claims and disputes between you and Facebook that arise out of or relate in any way to the Terms or your use of the Facebook Service will be governed by the laws of the State of California (and United States federal laws applicable therein), without regard to principles of conflict of laws.

That's much better for Facebook users: California has some of the most pro-consumer laws in the nation.

Let's get back to Facebook's unilateral, stealth change.

Old Terms:

We reserve the right, at our sole discretion, to change, modify, add, or delete portions of these Terms of Use at any time without further notice. If we do this, we will post the changes to these Terms of Use on this page and will indicate at the top of this page the date these terms were last revised. Your continued use of the Service or the Site after any such changes constitutes your acceptance of the new Terms of Use. If you do not agree to abide by these or any future Terms of Use, do not use or access (or continue to use or access) the Service or the Site. It is your responsibility to regularly check the Site to determine if there have been changes to these Terms of Use and to review such changes.

New Terms:

We reserve the right, at our sole discretion, to change or delete portions of these Terms at any time without further notice. Your continued use of the Facebook Service after any such changes constitutes your acceptance of the new Terms.

Streamlined? Nope. The difference was probably Douglas v. United States Dist. Court, 495 F.3d 1062, 1066 (9th Cir. 2007), decided a month after Facebook's old Terms, which held:

Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side. Fn 1 Indeed, a party can't unilaterally change the terms of a contract; it must obtain the other party's consent before doing so. Union Pac. R.R. v. Chi., Milwaukee, St. Paul & Pac. R.R., 549 F.2d 114, 118 (9th Cir. 1976). This is because a revised contract is merely an offer and does not bind the parties until it is accepted." 

Fn 1: Nor would a party know when to check the website for possible changes to the contract terms without being notified that the contract has been changed and how. Douglas would have had to check the contract every day for possible changes. Without notice, an examination would be fairly cumbersome, as Douglas would have had to compare every word of the posted contract with his existing contract in order to detect whether it had changed.

That is to say, a month after Facebook claimed a unilateral right to modify its Terms without any notice to users of the change, the 9th Circuit (the Federal appellate court for California) ruled that companies were required to give notice. (Tech bloggers, like Ars Technica, picked this ruling up at the time, so I'm sure Facebook did, too.)

Arguably, Douglas does not directly apply to this circumstance, where Facebook and its users nominally agreed to permit such secret changes through the old contract, but it's unlikely such an argument would fly under California law, which often throws out unfair mass contract provisions like these for "unconscionability." See, e.g., Shroyer v. New Cingular Wireless Servs., 498 F.3d 976, 986 (9th Cir. 2007)(throwing out class arbitration waiver as "unconscionable and unenforceable under California law.")

Did I just mention a class arbitration waiver? Note that Facebook changed that part of their Terms, too.

Old:

To the fullest extent permitted by applicable law, NO ARBITRATION OR CLAIM UNDER THESE TERMS OF USE SHALL BE JOINED TO ANY OTHER ARBITRATION OR CLAIM, INCLUDING ANY ARBITRATION OR CLAIM INVOLVING ANY OTHER CURRENT OR FORMER USER OF THE SERVICE, AND NO CLASS ARBITRATION PROCEEDINGS SHALL BE PERMITTED.

New:

With respect to any claims or disputes you intend to bring on behalf of a class, you agree to arbitrate whether a class could be certified before bringing such action in a court of law. If the arbitrator refuses to certify the class, you will continue to resolve your individual claims or disputes through binding arbitration. If the arbitrator finds that a class should be certified, you may file the class action in a court of law provided you waive any right to a trial by jury. Claims for injunctive or other equitable relief may also be brought in a court of law.

Another changed required by law, particularly California law.

So, are these changes valid or not? The plaintiff in Douglas kept using the services for years without noticing the changes, and even so they weren't applied to him. The same may not be true to users, like you, who are aware of these changes and keep using Facebook.

But what about your old content? If you leave now, does Facebook still have an non-exclusive license to use your content?

Likely not, given Douglas above, which holds, in essence, that Facebook's new Terms don't apply to you until you have actually assented to them. Facebook knows that, which is why their new Terms don't have that " It is your responsibility to regularly check the Site" garbage anymore.

But you're going to need to make some choices soon, since your continued use might be considered "assent" to the new Terms. We'll talk about that more tomorrow, as well as the deeper meaning of the Terms, particularly in light of Facebook's response to the controversy.

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Here are the facts, liberally edited by me:

Appellee purchased property for $ 20,000.00, including a building that was deemed uninhabitable by both the City and Appellee.

After Appellee purchased the Property, she contacted the Philadelphia Neighborhood Housing Service (PNHS) to assist her in securing a loan to rehabilitate the Property. A building inspector estimated the cost of renovation and repair to be $ 113,500.00. Another contractor estimated the cost of renovation and repair to be $ 122,590.00.

PNHS agreed to lend Appellee $ 65,000.00 to renovate and repair the Property. PNHS also agreed to help Appellee secure additional financing to reach the estimate provided by the inspector. Appellee successfully received a total mortgage commitment of $ 125,000.00 for the renovation and repair of the Property.

After Appellee received the mortgage commitments, but before any renovations were made, the City tore down the building on the Property.

So, what's it worth? The relevant Second Restatement of Torts provisions are below the fold.

One answer is market value. Plaintiff certainly didn't want that: they bought it for $20,000 and it was valued at $35,000 after the demolition, a gain of $15,000.

Another is "special value" (the Restatement calls it "peculiar value"). Here's what happened at trial:

The trial court read, in pertinent part, the following charge to the jury:

Plaintiff is entitled to be compensated for the harm done to her property. If you find that the property was a total loss, damages are to be measured by either its market value or its special value to the plaintiff, whichever is greater. The plaintiff is entitled to be reimbursed for losses reasonably incurred because of the damage to the property.

The City objected to that part of the trial court's charge which was based on Section 6.11 of the Pennsylvania Suggested Standard Civil Jury Instructions, 3rd Edition (Jury Instruction). The trial court overruled the City's objection. The jury found the City negligent in tearing down the building and entered a verdict for the Appellee in the amount of $ 80,000.00.

Oliver-Smith v. City of Philadelphia, 962 A.2d 728 (Pa. Commw. Ct. 2008). The Commonwealth Court reversed, holding:

'The fundamental purpose of damages for an injury to or destruction of property by the tortious conduct of another is to compensate the injured party for the actual loss suffered.' Department of Transportation v. Crea, 92 Pa. Commw. 242, 483 A.2d 996, 1001 (Pa. Cmwlth. 1977). Appellee presented evidence that she purchased the Property on April 8, 2003, for $ 20,000.00. The Property was later appraised, prior to demolition, at $ 20,000.00. Appellee did not present any evidence showing that she had spent any money repairing or rehabilitating the Property or that there were any unique characteristics of the Property that warranted a special value. The charge by the trial court of anything further than market value was, therefore, an erroneous extension of the range of permissible damages.

Appellee cannot receive as damages money that she never spent. Such unspent money is not actual damages, but a windfall. Section 911 provides for special value, but only for matters which can be accounted for. In this case, the loss of approved loans/mortgages which were never executed and to which no legal obligation ever attached does not amount to 'special value.' The trial court erred in directing the jury.