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

Yesterday the Third Circuit released a unanimous precedential opinion in Reedy v. Evanson:

While working as a cashier at a convenience store, nineteen-year-old Sara R. Reedy was sexually assaulted and robbed at gunpoint by a serial sex offender. She reported the crime to the police within minutes, subjected herself to a rape kit examination, and gave detailed and consistent statements to law enforcement officers and hospital staff.

Reedy needed Sam Spade. Instead, she got Der Prozess:

However, Detective Frank Evanson of the Cranberry Township, Pennsylvania Police Department, the lead investigator assigned to Reedy’s case, believed that Reedy had fabricated the incident to cover up her own theft of cash from the convenience store. Approximately three months later, Evanson also became the lead investigator on another sexual attack that was substantially similar to the assault on Reedy and that Evanson knew was suspected to be the work of a serial rapist. Six months after the assault on Reedy, Evanson filed a criminal complaint against her, charging her with falsely reporting a crime, theft, and receipt of stolen property. Reedy spent five days in jail. The charges against her were dropped only when the serial rapist was captured and confessed to assaulting her, to committing the theft, and to committing the other sexual assault investigated by Evanson.

As Reedy alleged, after the assault, she immediately called the police, who took her straight to the hospital, where Evanson — who had never met her before — called her a liar, asked her how much "dope" she did each day, accused her of stealing the money, watched her break down crying, and then told her to save it "because tears aren't going to save you now."

Three months later, another woman reported an almost identical sexual assault; the perpetrator looked the same, acted the same, and initiated the attack at the same time of night only a mile and a half from Reedy's attack.

"Sherlock" Evanson didn't — or chose not to — connect the dots, and three months later sought charges against Reedy, in support of which he filed an affidavit riddled with material omissions and misstatements.

Thus, six months after being sexually assaulted, Reedy was in jail for the crime of truthfully reporting sexual assault. She stayed in jail for five days awaiting a bail reduction hearing, after which she was released, with her trial scheduled for nine months later. Less than a month before her criminal trial was to begin, the serial rapist was caught in the midst of raping a third victim, after which he confessed to all three assaults.

The District Attorney was kind enough to drop the charges against Reedy.

Reedy, unsurprisingly, sued.

Unlawful seizure was her primary claim:

The Fourth Amendment provides that people are “to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, ... and no Warrants shall issue, but upon probable cause ... .” U.S. CONST. amend. IV. It is well-established that the Fourth Amendment “prohibits a police officer from arresting a citizen except upon probable cause.” Orsatti v. N.J. State Police, 71 F.3d 480, 482 (3d Cir. 1995) (citing Papachristou v. City of Jacksonville, 405 U.S. 156, 169 (1972)).

Probable cause “requires more than mere suspicion[.]” Orsatti, 71 F.3d at 482. However, it does not “require the same type of specific evidence of each element of the offense as would be needed to support a conviction.” Adams v. Williams, 407 U.S. 143, 149 (1972). Rather, “probable cause to arrest exists when the facts and circumstances within the arresting officer’s knowledge are sufficient in themselves to warrant a reasonable person to believe that an offense has been or is being committed by the person to be arrested.” Orsatti, 71 F.3d at 483; see also Wilson v. Russo, 212 F.3d 781, 789 (3d Cir. 2000) (“Probable cause exists if there is a ‘fair probability’ that the person committed the crime at issue.” (citation omitted).). “Probable cause need only exist as to [one of the] offense[s] that could be charged under the circumstances.” Barna v. City of Perth Amboy, 42 F.3d 809, 819 (3d Cir. 1994). In analyzing whether probable cause existed for an arrest, we must take a “totality-of-the-circumstances approach.” Illinois v. Gates, 462 U.S. 213, 230 (1983).

The District Court granted summary judgment in Evanson's favor, inexplicably holding that, even though the affidavit was loaded with material omissions and misstatements, and even though Detective Evanson was plainly reckless in his disregard of exculpatory facts (like the presence of an almost identical crime three months later), there still was probable cause to arrest Reedy.

The Third Circuit's reversal of the summary judgment — along with their remand ordering the case to go to trial, and not just another round of summary judgment — packs a wallop for future unlawful seizure cases, particularly those involving rape victims:

In general, the District Court committed four types of error. First, it erred in its reconstruction of the Affidavit because it failed to consistently interpret the record in the light most favorable to Reedy and instead, contrary to the summary judgment standard, occasionally adopted interpretations that were the least favorable to Reedy. Second, the Court cited several inculpatory “facts” to support probable cause that were not actually supported by the record. Similarly, not all of Evanson’s arguably reckless omissions were actually included in the Court’s reconstructed Affidavit and analysis. Third, the Court erred in deciding that certain facts were inculpatory when they were either irrelevant or even exculpatory. Finally, the Court erred when it gave little weight to the highly significant exculpatory facts that the Landmark attack, with all of its similarities to the attack on Reedy, occurred before Evanson sought to arrest Reedy and that Evanson was responsible for investigating both attacks.

The Court goes on to describe each in detail.

The first is a powerful reaffirmation of what was already the law, law that has been inconsistently applied: when, at summary judgment in a civil rights lawsuit, a court goes back to look at the affidavit submitted by a police officer in support of an arrest, it must do so in the light most favorable for the plaintiff. It is for the jury, not the Court, to decide which parts of that affidavit were false and what the police officer's mindset was in submitting them.

The third, however, is perhaps the most interesting. As the Third Circuit noted, "The District Court thought it inculpatory that Reedy had failed to push the panic alarm while a gun was being pointed at her, and that she had declined professional counseling when it was offered to her."  Neither of those two judgments are legal judgments — they're moral judgments about how a woman "should" act while, and after, she is being raped.

As the Women's Law Project argued in its amicus brief in the case,

The district court also viewed Ms. Reedy’s “failure” to push the panic alarm while a gun was being held to her head as inconsistent with the behavior of a “genuine” rape victim. See App. 34a n.7, 37a, 38a (drawing negative inferences from Ms. Reedy’s “failure” to press the panic alarm). This inference is based on the assumption that victims should engage in active forms of resistance during their sexual assault. See, e.g., State in the Interest of M.T.S., 609 A.2d 1266, 1277 (N.J. 1992) (discussing assumptions historically made by courts). This is not true. Nor is it legally permissible, Pennsylvania having eliminated the resistance requirement three decades ago. See Act of May 18, 1976, Pub. L. 120, No. 53, §§ 1-2 (codified at 18 Pa. Cons. Stat. § 3107) ...

A review of ten years of research on the subject clearly reveals that active forms of physical resistance are used by only a minority of women (20-25%) who are sexually assaulted. Sarah E. Ullman, A 10-Year Update of Review and Critique of Empirical Studies of Rape Avoidance, 34 Crim. Just. & Behav. 411, 413-14 (2007). Physical resistance during a rape is particularly unlikely among women who have been sexually assaulted in the past. Id. This response to sexual assault is both understandable and more than reasonable. ...

The district court further buttressed its decision by accepting as inculpatory evidence the fact that Reedy did not access counseling services. See App. 32a, 34a n.7 (drawing negative inferences from Ms. Reedy’s choice to forgo rape crisis counseling). Yet again, the research documents that this behavior is consistent with the behavior of many sexual assault victims. Empirical evidence suggests that a sizeable portion of victims do not access mental health services. See Dean G. Kilpatrick et al., Drug-Facilitated, Incapacitated, and Forcible Rape: A National Study 56 (2007).

The Third Circuit adopted that argument almost entirely:

[T]he District Court’s implication that there is a duty to attend counseling is incorrect. There is no such duty. Moreover, implicit in the Court’s conclusion that an inculpatory inference can be drawn from Reedy’s decision not to attend counseling is a value judgment about how victims ought to respond to trauma. That is a highly debatable judgment, lacking any foundation in the record. Even if there were some basis for saying that refusing counseling is inculpatory, Reedy explained why she did not want counseling, saying that her earlier experience with sexual abuse would allow her to handle the trauma. When confronted, as the District Court evidently believed it was, with two explanations for Reedy’s decision to refuse counseling – either she was lying about the assault or she believed counseling was not necessary – the Court chose to operate on the least favorable interpretation of the evidence. That was error. Likewise, Reedy’s failure to reach for a panic alarm when a gun was pointed at her and she was being sexually assaulted, which are the facts we must accept at this stage, is not in the least inculpatory.

Fact is, none of that is controversial — the International Association Chiefs of Police, for example, has argued for years that there is no "model" or "example" rape victim, no one way in which women deal with the trauma of rape, and so police officers have to evaluate accusations on a case-by-case basis.

Apparently, some police officers and departments still haven't heard the message.

As they say, money talks. I hope it also teaches. 

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The Los Angeles Times featured a story about the legal saga that has enveloped the Christian bestseller The Shack:

"The Shack," William Paul Young's novel about a man rediscovering lost faith after the murder of his 5-year-old daughter, started out as a manuscript no one would touch. Finally, pastors Wayne Jacobsen and Brad Cummings discovered the book and created a start-up, Windblown Media, to publish it. The novel sold a million copies for them in the first year, eventually ending up at No. 1 on the New York Times' trade paperback bestseller list.

Then Hachette Book Group got involved. In May 2008, the publishing conglomerate — one of the largest in the country — cut a deal with Windblown Media to market and distribute the book. In the two years since, "The Shack" has become a 12-million-copy-selling phenomenon and the biggest Christian publishing sensation in decades.

But unlike Cinderella — at least in the Disney version — there's no happy ending in sight for Young, or for the two men, Jacobsen and Cummings, he once called friends and business partners.

For nearly eight months, the trio have been mired in a series of lawsuits, accusations flying over improper accounting practices, millions of dollars in missing royalties, contract breaches and copyright disputes. Hachette, meanwhile, just wants to know to whom it owes money — and how much.

I suppose none of them are in the mood for a reminder about that camel passing through the eye of a needle, not when — according to the federal interpleader complaint filed by Hachette — there's nearly a million dollars in royalties per quarter at stake.

Let's see if the lawyers can provide some balance and perspective on the case:

"In all of my 30 years of practice, Young's lawsuit is the most ridiculous I have ever seen," said Windblown Media's legal representative, Martin Singer, a partner with Lavely Singer. He claimed that Young's lawsuit was a "complete misrepresentation" of the author's financial state, with no mention of the more than $10.5 million Young had earned from "The Shack" to date.

Young's legal representative, Michael Anderson of Anderson & Loeb, scoffed at the countersuit. "They agreed in a written contract that Young was the sole author of 'The Shack,'" he said by telephone. "Back before the work was known to be a bestseller, both parties filed a copyright notice indicating that Young was the sole author. For three years Windblown has been publishing the book under Young's name. [The federal court] action is a belated attempt by [Jacobsen and Cummings] to take credit for a book they didn't write."

Apparently not. Regular readers will delight in seeing Martin Singer make another appearance on these pages; his gift for hyperbole is unparalleled.

From looking at the main pleadings — like the federal court complaint, Young's motion to dismiss, and Windblown's response — neither side's claims strike me as "ridiculous."

In essence, there are three claims, filed in this order:

1. Young sued Jacobsen and Cummings in state court for breach of contract;
2. Jacobsen and Cummings sued Young in federal court to obtain joint control of the copyright for The Shack;
3. Hachette filed an interpleader in federal court asking the court to take control of the money that keeps rolling in from sales of The Shack.

Let's look at the merits of each.

Starting with Young's state-law breach of contract allegations, "creative" accounting is common in Hollywood and in the music industry, so why not in the book industry, too? Young likely has little ability to monitor or police the transactions entered into by Windblown or Hachette, and in many instances — particularly with movies — the transactions at issue are not so much explicit fraud as they are bad faith. That is to say, there's nothing obviously fraudulent about the defendant's conduct, it's just not within the spirit of the party's agreement. That often leads to longer, more drawn-out litigation, since nobody sees themselves as being caught red-handed, they see the dispute as a difference of opinion.

Looking at Jacobsen's and Cummings' federal-law copyright allegations, it is indeed possible that the co-authors to a work, for reasons of convenience (and money), chose not to list themselves as "author" of the work either in the contracts or in the copyright registration. Those facts certainly make it harder for them to prove authorship in front of a jury, but they don't necessarily close the courthouse doors. Consider the Seventh Circuit's opinion in Janky v. Lake County Convention & Visitors Bureau, 576 F. 3d 356 (7th Cir. 2009):

This over-litigated case, involving a song by a doo-wop group, comes to us with 18 district court orders and memorandum opinions spread over a combined 239 pages. The district court's 46-page docket contains a staggering 371 entries. And the briefs of the parties on appeal are a bit unfocused to say the least. But although it's a tough job, someone has to do it, so with shoulder to the wheel, we forge on. ...

Under 17 U.S.C. § 201(a), "[t]he authors of a joint work are co-owners of copyright in the work." In other words, "the joint authors hold undivided interests in [the] work, despite any differences in each author's contribution." Erickson, 13 F.3d at 1068. The benefits of co-authorship are therefore significant: each author may use or license the joint work. Id. But when does a song qualify as a "joint work"? Section 101 of the Copyright Act defines a joint work as "a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole." 17 U.S.C. § 101. In Erickson, we determined that this language requires (1) intent to create a joint work; and (2) contribution of independently copyrightable material.

Since biblical analogies seem to go so well with this case, let's add another: the Synoptic Gospels, i.e. the Gospels of Matthew, Mark and Luke.

Embedded to the right is diagram of the shared content among those gospels — shared content that includes the line about the camel passing through the eye of a needle, which shows up verbatim in all three — explained as follows on Wikipedia:

The Gospel of Matthew, the Gospel of Mark, and the Gospel of Luke are known as the Synoptic Gospels because they include many of the same stories, often in the same sequence, and sometimes the exact same wording. This degree of parallelism in content, narrative arrangement, language, and sentence structures can only be accounted for by literary interdependence. Scholars believe that these gospels share the same point of view and are clearly linked.

In light of the nature of the similarities, most scholars believe the Gospel of Matthew and the Gospel of Luke were based on the Gospel of Mark and a lost, hypothetical gospel called Q. 

Which raises a question pertinent to the lawsuit: assuming Matthew and Luke contributed, respectively, only 20% and 35% of their own Gospels, would that be sufficient to be "independently copyrightable material" that could make them joint authors of the overall Synoptic Gospels? (Let's put aside divine inspiration; that might make the whole thing a work-for-hire, with copyright going to the person who contracted for the work.)

Probably so; "the essence of copyrightability is originality of artistic, creative expression." Ets-Hokin v. Skyy Spirits, Inc., 225 F. 3d 1068 (9th Cir. 2000). Adding text, or substantially re-writing an existing text — as The Shack apparently acknowledges Jacobsen and Cummings really did — is generally enough to make the contribution copyrightable.

As you can imagine, everybody wants their own suit to go first while everyone else's suit waits its turn. The Anti-Injunction Act, however, precludes both District Courts from enjoining the state court from hearing Young's breach of contract claim:

In Atlantic Coast, the Court emphasized an order directed at a state court proceeding must be necessary in aid of jurisdiction — "it is not enough that the requested injunction is related to that jurisdiction." 398 U.S. at 295, 90 S.Ct. 1739. Acknowledging the language is nonetheless broad, the Court elaborated: an injunction is necessary in aid of a court's jurisdiction only if "some federal injunctive relief may be necessary to prevent a state court from so interfering with a federal court's consideration or disposition of a case as to seriously impair the federal court's flexibility and authority to decide that case." Id.

Without more, it may not be sufficient that prior resolution of a state court action will deprive a federal court of the opportunity to resolve the merits of a parallel action in federal court. "The traditional notion is that in personam actions in federal and state court may proceed concurrently, without interference from either court, and there is no evidence that the exception to § 2283 was intended to alter this balance." Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 642, 97 S.Ct. 2881, 53 L.Ed.2d 1009 (1977) (plurality opinion). In ordinary actions in personam, "[e]ach court is free to proceed in its own way and in its own time, without reference to the proceedings in the other court. Whenever a judgment is rendered in one of the courts and pleaded in the other, the effect of that judgment is to be determined by the application of the principle of res adjudicata by the court in which the action is still pending...." Kline v. Burke Constr. Co., 260 U.S. 226, 230, 43 S.Ct. 79, 67 L.Ed. 226 (1922). Therefore, it may not be sufficient that state actions risk some measure of inconvenience or duplicative litigation. In re Baldwin-United Corp., 770 F.2d 328, 337 (2d Cir.1985). An injunction may issue, however, where "the state court action threatens to frustrate proceedings and disrupt the orderly resolution of the federal litigation." Winkler v. Eli Lilly & Co., 101 F.3d 1196, 1202 (7th Cir.1996). In other words, the state action must not simply threaten to reach judgment first, it must interfere with the federal court's own path to judgment.

In re Diet Drugs, 282 F. 3d 220 (3rd Cir. 2002).

Although the federal courts have jurisdiction over the copyright and interpleader claims, they don't have jurisdiction over Young's breach of contract claim (since he didn't bring it there and the defendants didn't remove it to federal court), and so can't enjoin the state court from moving forward on it.

Moreover, there's no reason that all of these suits can't be litigated at the same time — of all of them, Hachette might have the most urgent claim in the form of the interpleader, since it doesn't know to whom it should pay that million dollars — up until the point of trial. In a case of this nature, the parties have ample resources to persue multiple actions at once, and the copyright claim is indeed a separate and distinct claim from the breach of contract claim.

That said, I think a District Court will likely look very suspiciously at Jacobsen's and Cummings' federal copyright claim. Even if their claim is meritorious, it plainly was a tactical move prompted by Young's state-law breach of contract claim. That's not necessarily wrong but it's also not very compelling; the District Court may decide to "abstain" from hearing the case or, more likely, to "stay" the case pending the conclusion of Young's case.

Nonetheless, the copyright claim obviously impacts the resolution of Young's claim, and the core issue in that copyright — who owns the rights to The Shack — won't be wholly resolved by Young's case, which revolves around the method of payments. There may be some judicial efficiency in having it run a parallel course, since the controversy is unlikely to go away on the resolution of Young's claim alone.

For any law students out there struggling through their Federal Courts class, take a peek at the briefs linked above — they'll tell you as much about Younger and Colorado River abstention as anything else.

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Today's The Legal Intelligencer includes an article titled, "Limited Liability Law May Apply in Duck Boat Accident" about the effect of the Limitation of Liability Act of 1851 on claims arising from last's weeks collision between a tugboat and a duck boat on the Delaware River.

The Limitation Act — which nominally limits the liability of a ship owner to the value of the ship itself — is a fascinating relic from a turbulent time in the United States, when whispers of war were beginning and the young agrarian nation was painfully converting to a steam-powered industrial society. The world's first commercial oil well would not be built, in Poland, and the world's first union railway station would not be built, in Indianapolis, for another two years.

With a lot of output, a big country, and not much transportation infrastructure, we needed investment in shipping, and lots of it.

Hence the Act.

Few would disagree that the Act has outlived its purpose, but it's still on the books.

It's just as well that the Legal article is subscription only, since it doesn't tell us much other than that defense lawyers think the tugboat and duck boat are free and clear while plaintiff's lawyers believe there are ways around it.

The press did a similar dance a few weeks ago, after Transocean invoked the same act to limit its liability following the catastrophic oil leak caused by the sinking of the Deepwater Horizon oil rig. Transocean's use of the Act so bothered Congress that they're trying to get the entire Act repealed; if that happens, this entire discussion will be rendered moot in the near future, as it should be: in our modern world of insurance, re-insurance, global finance, and limited liability companies, there's no need to give vessel owners special treatment. Ships will still be built and used, regardless of the Act.

But the Act is still on the books. I'm with the plaintiff's lawyers; there's plenty of ways to get around the Act and get these types of maritime accidents back in the state courts where they belong.

First, the Act doesn't apply if the liability of the vessel owner isn't actually at issue:

In construing the Limitation Act, this Court long ago determined that vessel owners may contest liability in the process of seeking limited liability, and we promulgated rules to that effect pursuant to our "power to regulate . . . proceedings." The "Benefactor," 103 U. S., at 244; Supplementary Rule of Practice in Admiralty 56, 13 Wall., at xiii; Supplemental Admiralty and Maritime Claims Rule F(2). Thus, we agree with respondent that a vessel owner need not confess liability in order to seek limitation under the Act. The Act and the rules of practice, however, do not create a freestanding right to exoneration from liability in circumstances where limitation of liability is not at issue. In this case, petitioner stipulated that his claim for damages would not exceed the value of the vessel and waived any claim of res judicata from the state court action concerning issues bearing on the limitation of liability. The District Court concluded that these stipulations would protect the vessel owner's right to seek limited liability in federal court. Then, out of an "abundance of caution," the court stayed the limitation proceedings so that it could act if the state court proceedings jeopardized the vessel owner's rights under the Limitation Act. 31 F. Supp. 2d, at 1170-1171. We believe nothing more was required to protect respondent's right to seek a limitation of liability.

Lewis v. Lewis & Clark Marine, Inc., 531 U.S. 438 (2001). Here, it's already been reported that K-Sea had an insurance policy* in excess of $100 million; if the plaintiffs stipulate their damages don't exceed that (which they reasonably could), then the Act's purpose has been met.

Second, even where the Act applies, there are plenty of exceptions:

The Limited Liability Act allows a vessel owner to limit its liability for any loss or injury caused by the vessel to the value of the vessel and its freight.[6] "Under the Act, a party is entitled to limitation only if it is `without privity or knowledge' of the cause of the loss."[7] If the shipowner is a corporation, "knowledge is judged by what the corporation's managing agents knew or should have known with respect to the conditions or actions likely to cause the loss."[8] Once the claimant establishes negligence or unseaworthiness, the burden shifts to the owner of the vessel to prove that negligence was not within the owner's privity or knowledge.[9]

In re Hellenic Inc., 252 F.3d 391 (5th Cir. 2001)(footnotes omitted, but they're worth reading if you're looking for more cases).

For anyone interested in the subject, the Admiralty and Maritime Law Guide has a couple cases on the Act. For anyone really interested, yesterday I went to a CLE on Boating Law and Liability — hosted, coincidentally, by Ride The Duck's maritime lawyer — that included a thick book of materials on maritime law that can be purchased, even after the CLE.

As noted by those materials, "the knowledge of a corporation necessarily is measured by the knowledge of the corporation's employees and agents." A clever plaintiff's lawyer would point out that the knowledge and negligence of the mate — the one who took the Fifth and refused to testify — is imputed back to the owners of the vessel.

All of which is to say: as nice as the Act sounds on its face to defense lawyers, that tugboat company and its insurer aren't going to just walk away from this tragedy.

Continue Reading...

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The Supreme Court released its opinion in Bilski v. Kappos this morning, which tested the sufficiency of a "business method" patent relating to the hedging of risk in investments.

Four Justices wanted to scrap "business methods" patents altogether. Five wanted to scrap just the patent at issue here.

Given the complexity of the issues involved, I'm pleasantly surprised to report that the actual holding of the case can be summarized with just a few quotes:

Section 101 defines the subject matter that may be patented under the Patent Act:

“Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”

Section 101 thus specifies four independent categories of inventions or discoveries that are eligible for protection: processes, machines, manufactures, and compositions of matter. “In choosing such expansive terms . . . modified by the comprehensive ‘any,’ Congress plainly contemplated that the patent laws would be given wide scope.” Diamond v. Chakrabarty, 447 U. S. 303, 308 (1980).

Slip op., 4.

The Court’s precedents provide three specific exceptions to §101’s broad patent-eligibility principles: “laws of nature, physical phenomena, and abstract ideas.” Chakrabarty, supra, at 309.

Slip op., 5.

In light of these precedents, it is clear that petitioners’ application is not a patentable “process.” Claims 1 and 4 in petitioners’ application explain the basic concept of hedging, or protecting against risk: “Hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.” 545 F. 3d, at 1013 (Rader, J., dissenting); see, e.g., D. Chorafas, Introduction to Derivative Financial Instruments 75–94 (2008); C. Stickney, R. Weil, K. Schipper, & J. Francis, Financial Accounting: An Introduction to Concepts, Methods, and Uses 581–582 (13th ed. 2010); S.Ross, R. Westerfield, & B. Jordan, Fundamentals of Corporate Finance 743–744 (8th ed. 2008). The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Allowing petitioners to patent risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.

Slip op., 15.

And that's it: hedging is an "abstract idea," and thus not subject to patenting.

That is undoubtably the correct result; this same morning, Fred Wilson over at AVC gave some basic advice for startups on the concept of hedging. I doubt Fred ever read the patent at issue here, or ever read any paper or article based on the patent. Hedging is an abstract concept that can be applied to a particular situation, no different from the Ruy Lopez in chess or moonwalking.

But not everybody's happy, since the Supreme Court took the nice, clean rule established by the Federal Circuit in its opinion denying the patent, threw that rule out, and restored the old mess. Patent professors like Dennis Crouch at Patently-O are frustrated:

In general, the opinion offers no clarity or aid for those tasked with determining whether a particular innovation falls within Section 101. The opinion provides no new lines to be avoided. Rather, the outcome from the decision might be best stated as "business as usual."

Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable “process,” beyond pointing to the definition of that term provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr.

By refusing to state any particular rule or categorical exclusion, the Court has almost certainly pushed Section 101 patent eligibility to the background in most patent prosecution and litigation.

Techies (and techie lawyers) are also similarly annoyed:

The Software Freedom Law Center, which supports open source licenses, lamented the ruling.

"The landscape of patent law has been a cluttered, dangerous mess for almost two decades," said Eben Moglen, Chairman of the Software Freedom Law Center. "The confusion and uncertainty behind today’s ruling guarantees that the issues involved in Bilski v. Kappos will have to return to the Supreme Court after much money has been wasted and much innovation obstructed."

These aren't merely theoretical considerations. Patents don't control what people are allowed to think, but they certainly control what people are allowed to do with what they think. Billions, potentially trillions, of dollars of revenue are dependent on the patent laws of the United States. Whole businesses live, die, and pursue or forgo opportunities based on those laws.

And, of course, every day, patent infringement lawsuits are filed, and millions of dollars are spent pursuing or defending those lawsuits. The issue is not one to be taken lightly.

Given the circumstances here — i.e., the abrupt and sporadic acceptance, and then rejection, of the patentability of some business methods by the Federal Circuit in the 1990s — it would have been better for the majority to have clearly reaffirmed the longstanding pre-1990s rule that business methods were not patentable, as the concurrence recommended.

The majority opinion and the concurrence are both worth reading; further, as the majority noted, "Students of patent law would be well advised to study [the] scholarly opinions" of the Federal Circuit in the case. Since patent law has just been made a bit messier again, it's a good idea to keep your mind limber.

Though I agree with the concurrence, the majority's reasoning isn't wrong per se. The problem, to me, is the philosophical underpinning of their interpretation.

Four of the majority's members' hesitation in going further was understandable:

It is important to emphasize that the Court today is not commenting on the patentability of any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection. This Age puts the possibility of innovation in the hands of more people and raises new difficulties for the patent law. With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck.

Slip op., 9-10 (Justice Scalia chose not to join that part, so that language is only a plurality opinion). But I don't think the majority's overall reasoning stands up: 

The Court’s precedents provide three specific exceptions to §101’s broad patent-eligibility principles: “laws of nature, physical phenomena, and abstract ideas.” Chakrabarty, supra, at 309. While these exceptions are not required by the statutory text, they are consistent with the notion that a patentable process must be “new and useful.” And, in any case, these exceptions have defined the reach of the statute as a matter of statutory stare decisis going back 150 years. See Le Roy v. Tatham, 14 How. 156, 174– 175 (1853). The concepts covered by these exceptions are “part of the storehouse of knowledge of all men . . . free to all men and reserved exclusively to none.” Funk Brothers Seed Co. v. Kalo Inoculant Co., 333 U. S. 127, 130 (1948).

Slip op., 5.

The problem with this analysis is that the second sentence contradicts the first. There are plenty of "abstract ideas" that are "new and useful:" consider the Ruy Lopez and moonwalking. Neither of these ideas teaches a person how to make anything, as is the focus of the Patent Act; rather, they teach people how to do something in a "new and useful" way, much like business methods do. 

Are they patentable? There's no way to know beforehand with certainty, and so there's a chilling effect on businesses or individuals. As Justice Stevens opened his concurrence, "In the area of patents, it is especially important that the law remain stable and clear." For someone like me, who represents plaintiffs enforcing patents, stability and clarity help me evaluate whether or not to accept a potential client's case.

Unfortunately, although the law is a bit more stable than it could have been — the majority did, after all, affirm the denial of the patent — it's less clear than the Federal Circuit had made it.

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As widely reported last week, the local Boy Scouts won a partial victory against the City of Philadelphia from a federal jury in the Eastern District of Pennsylvania:

A federal jury on Wednesday declared that the city of Philadelphia had violated the First Amendment rights of the local chapter of the Boy Scouts of America by moving to evict it from its city-owned headquarters if it refused to repudiate the anti-gay policies of the Scouts' national parent group.

In its verdict, the jury of six women and two men found that the city had imposed an "unconstitutional condition" on the Scouts and declared that it was not "reasonable" to do so.

But the jury found in favor of the city on two other claims. It rejected the Scouts' claim that the city had engaged in "viewpoint" discrimination, and it also rejected an Equal Protection claim by finding that the city had a rational basis for its actions.

Nevertheless, lawyers said the verdict must be described as a win for the local scout chapter -- known as the Cradle of Liberty Council -- because a win on any one of its three constitutional claims would prevent the city from going ahead with its planned eviction.

In essence, the Boy Scouts raised four constitutional claims, two under the First Amendment and two under the Equal Protection Clause of the Fourteenth Amendment. The jury rejected both of the equal protection claims, one of which alleged the Boy Scouts were treated differently from other entities with similar membership policies, the other of which claimed the city had no rational basis (apart from animus towards the group) for evicting Boy Scouts.

The jury similarly rejected the Boy Scouts' First Amendment claim that the city had created a "nonpublic forum" for various other entities to use to promote their beliefs, from which it improperly excluded the Boy Scouts.

That left a single claim, which the jury accepted, that the City had unconstitutionally conditioned the subsidized use of city property upon the Boy Scouts limiting their own freedom of speech. As Judge Ronald Buckwalter explained in denying the city's motion to dismiss — which, unusually, and perhaps tellingly, was far more detailed than his order denying summary judgment for the city — an unconstitutional conditions claim works as follows:

The general idea behind the unconstitutional conditions doctrine is that the government “may not deny a benefit to a person on a basis that infringes his constitutionally protected interests—especially his interest in freedom of speech.” Perry v. Sinderman, 408 U.S. 593, 597 (1972). “Put another way, the Government may not propose a penalty ‘to produce a result which [it] could not command directly.’ ” Forum for Academic and Institutional Rights (FAIR) v. Rumsfeld (FAIR I), 390 F.3d 219, 229 (3d Cir. 2004) (quoting Speiser v. Randall, 357 U.S. 513, 526 (1958)), rev’d, Rumsfeld v. Forum for Academic & Institutional Rights (FAIR II), 547 U.S. 47 (2006). Unconstitutional conditions claims have proven troublesome, and courts have wrestled with how to best apply a series of Supreme Court cases that appear to be in some conflict. Additionally, there is a great deal of overlap between the doctrine of unconstitutional conditions and claims of viewpoint discrimination like the one addressed above. See Wyman, 335 F.3d at 92 (observing that “[t]he case before us,” which also involved the Boy Scouts, “lies at the intersection of these two lines of
authority”).

The Third Circuit recently examined the unconstitutional conditions doctrine in
FAIR I. There, a group of law schools challenged the Solomon Amendment, which withheld a broad array of federal funding from universities that did not provide access to military recruiters. Id. at 224. As the Third Circuit succinctly put it, “if the law schools’ compliance with the Solomon Amendment compromises their First Amendment rights, the statute is an unconstitutional condition.” Id. at 229. The court went on to find that forcing the law schools to accommodate military recruiters both violated the law schools’ right of expressive association and impermissibly compelled speech. Id. at 230-42. Having established this, the court applied strict scrutiny and determined that the government could not demonstrate that its actions survived this test. Id. at 243.

The Supreme Court reversed in FAIR II, stating that “[b]ecause the First Amendment would not prevent Congress from directly imposing the Solomon Amendment’s access requirement, the statute does not place an unconstitutional condition on the receipt of federal funds.” 547 U.S. 47, 60 (2006). In other words, the Supreme Court disagreed that the Solomon Amendment compromised FAIR’s First Amendment rights, whether framed as FAIR’s right to be free of compelled speech or its right of expressive association. See id. at 61-68.

The most prestigious law schools in the country banded together to litigate the FAIR cases — which revolved around, ironically, the government forcing private entities to accept military recruiters, who necessarily brought with them the military's policies prohibiting gays from service — and lost. As the Supreme Court held, there's no right to government subsidies: if the government could have taken them away for the heck of it, then it rarely matters if the government took it away because it didn't like the views of the targeted group.

That would seem to be a serious problem here for the Boy Scouts, because:

Under the ordinance that leased the property to the scouts, the city has the right to evict them without giving any reason at all, both sides have agreed.

Asked if the city would take that step, Smith said, "The verdict was just issued today, and we'll be considering all of our options."

I'd thus be surprised to see the verdict survive appeal. The City clearly misfired at summary judgment — a common occurrence in complicated cases — and, more importantly, the Boy Scouts only succeeded on what was arguably their weakest claim. Judge Buckwalter dealt with the Third Circuit's conflicting precedent on these claims in a compelling and persuasive manner, he did so only by assuming a number of facts favorable to the Boy Scouts, including the facts underlying the Boy Scout's unsuccessful viewpoint discrimination claim.

Under the Supreme Court's opinion in FAIR, if the City of Philadelphia didn't engage in viewpoint discrimination and could have kicked them out for no reason at all, then it rarely matters what the City's reason actually was. Where the government can discriminate in its subsides in opposition to gay rights, it can discriminate in favor of them, too.

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At the Weekly Standard, art critic Lance Esplund has an essay decrying the upcoming move of the Barnes Museum from Lower Merion, Pa., to Philadelphia:

Now after years of litigation, Albert Barnes’s intentions have been subverted and his will broken. And the Barnes Foundation is scheduled to be moved. Galleries have already been closed. Ground broken. Pictures crated. The thousands of artworks are all being uprooted from their home in Merion, Pennsylvania, a leafy suburb 20 minutes from downtown Philadelphia, and transplanted to the mall on the Benjamin Franklin Parkway next to the Philadelphia Museum of Art.

Advocates claim the relocation is being done in the name of progress, conservation, civic responsibility, and convenience. It all sounds benign enough if you fail to consider that the Barnes Foundation, unlike almost every other museum in the world, is a rooted organism. Yes, the artworks will arrive in Philadelphia, but the museum—the experience of its art—will be irreversibly maimed. And with its move there will be considerable collateral damage extending to the broader areas of museum stewardship, museum donors, and the public trust. Besides violating the legal will and stated intentions of the foundation’s sole benefactor—who stipulated that no work in his collection ever be loaned, deaccessioned, or moved from the building he had designed for it; that no object ever stray, not even an inch, from the precise spot in which he had personally placed it—the move is an unforgivable act that disregards the true purpose of museums.

The essay is primarily a celebration of the museum in its current form and the aesthetic choices by its creator.

Problem is, Esplund's having the wrong debate:

The new Barnes is scheduled to open in downtown Philadelphia by 2012. Rebranded as the Barnes Foundation Art Education Center, it will not follow the museum’s original footprint. It will be bigger—able to accommodate a projected four times the number of annual visitors, roughly 250,000 people. While the new Barnes’s galleries will supposedly replicate the scale, proportion, and configuration of the existing galleries, it will be through a Frankenstein’s monster-like revivification. And though almost all of the artworks are to be reinstalled as they were in Merion, there are exceptions.

Maybe so. But does that make the decision "unforgivable" because it is "violating the legal will" and will cause "collateral damage extending to the broader areas of museum stewardship, museum donors, and the public trust?" 

Pennsylvania law already strongly protects the intent of donors, even those long since deceased; consider the failed effort to expand Fox Chase Cancer Center into Burholme Park. Esplund's argument seems to be that, since Barnes himself "understood and advocated" that "[a]rtworks exist outside—above—their specific movement, mythology, time, and place," that "[e]ach piece is a gateway into an exploration of the language of art; the subject is secondary, even tertiary, to its function as a vehicle for life," and that Barnes settled upon a design that expresses these conception in a compelling way and sought by law to preserve that design, the Foundation should be bound forevermore by that design, come hell or high water.

Legal scholars call that the problem of "dead-hand control." (See, e.g., The Low Road to Cy Pres Reform: Principled Practice to Remove Dead Hand Control of Charitable Assets.) As much as we want to protect a person's right to dispose of their assets upon their death as they see fit, we can't bind the management of those assets to every last word of a testator's will, and have to make allowances when circumstances require we do so to preserve the testator's overall intent.

Here, the trustees tried to respect the dead-hand. The Judge tried to respect the dead-hand. Problem is, as described in Judge Ott's order permitting the move, "The Foundation was on the brink of financial collapse." Moreover, "the provision in Dr. Barnes’ indenture mandating that the gallery be maintained in Merion was not sacrosanct, and could yield under the 'doctrine of deviation,' provided we were convinced the move to Philadelphia represented the least drastic modification of the indenture that would accomplish the donor’s desired ends." 

The 2004 Order found exactly that: the move to Philadelphia represented the least drastic modification of the indenture that would accomplish the donor’s desired ends. That's called cy pres: the attempt by courts to follow a testator's intent as closely as possible.

Esplund briefly references the problem — i.e., "the brink of financial collapse" — that made the decision necessary in the first place:

The art dealer Richard L. Feigen, who was dismissed from the Barnes Foundation’s art advisory committee by Glanton in 1991 because he refused to support the deaccessioning plans, eloquently summarized the deceptiveness of the Barnes move in the Art Newspaper:

One could wonder whether the only reason not to homogenize the Frick Collection into the Metropolitan Museum of Art, the Gardner Museum into the Boston Museum of Fine Arts, the Phillips Collection into the National Gallery of Art, is that they have endowments large enough to keep predators at bay. .  .  . The arguments for this foolish project are specious. The present Barnes building could easily be made more accessible. Hours could be extended. Shuttle-buses could run continuously from the Philadelphia Museum of Art, a short 4.6 miles away. .  .  . Insufficient effort[s have] been made to tap private resources for the old Barnes .  .  . to sell the redundant real estate of Barnes’s valuable farm, its 19th-century American pottery collection or unrestricted paintings in the offices, which have been appraised at more than $30m. Despite its claims that the Barnes had run through its money and had to be “saved,” the establishment did not really want to “save” it, only steal it.

But all of that was considered by Judge Ott and rejected as simply not feasible (see pp. 29-32 of the Order). Instead of waxing poetic about the museum's current configuration — which surely is worthy of praise — how about Esplund offer some solutions to the problem that has made that configuration impossible to sustain?

As easy as it is to claim that moving the museum is "violating the legal will," the reality is far more complicated. There's no doubt Barnes wanted the museum to be public. As he wrote his lawyer back when creating the trust: "In short, I am building for the future, I want to guarantee my privacy, and I want to prepare the way for the gallery to be a public one after my death." (Order, p. 22.)

Esplund does nothing with that fact, either. He simply complains that the new, larger museum — with essentially all of the same artwork in a comparable, but more spread out, configuration — isn't within his views of Barnes' tastes.

But would Barnes have chosen that particular configuration over financial ruin? Judge Ott didn't think so. Most judges would agree. Aesthetics are nice, but someone's got to pay for them. If they can't, then the dead-hand has to give way.

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The University of Chicago Law School Faculty Blog is hosting a debate over a new paper, Ambiguity About Ambiguity: An Empirical Inquiry Into Legal Interpretation written by Ward Farnsworth, Dustin F. Guzior, and Anup Malani.

As the paper's abstract says:

Most scholarship on statutory interpretation discusses what courts should do with ambiguous statutes. This paper investigates the crucial and analytically prior question of what ambiguity in law is. Does a claim that a text is ambiguous mean the reader is uncertain about its meaning? Or is it a claim that readers, as a group, would disagree about what the text means (however certain each of them may be individually)? This distinction is of considerable theoretical interest. It also turns out to be highly consequential as a practical matter.

To demonstrate, we developed a survey instrument for exploring determinations of ambiguity and administered it to nearly 1,000 law students. We find that different ways of asking whether a statute is ambiguous produce very different answers. Simply asking respondents whether a statute is “ambiguous” as applied to a set of facts produces answers that are strongly biased by the policy preferences of those giving the answers. But asking respondents whether they would expect others to agree about the meaning of the statute does not produce answers biased in this way. This discrepancy leads to important questions about which of those two ways of thinking about ambiguity is more legally relevant. It also has potential implications for how cases are decided and for how law is taught.

It's not a minor issue. If the plain meaning rule fails, then:

[C]ourts often treat ambiguity as a kind of gateway consideration when they interpret a statute. If the statute is ambiguous, the judge might then become interested in sources of guidance, such as legislative history, that wouldn’t otherwise be considered. Or ambiguity might cause a judge to defer to an agency’s view of the statute, as under the Chevron doctrine. Or ambiguity might cause a judge to resort to a canon of construction such as the rule of lenity, or the doctrine that courts should prefer interpretations of ambiguous statutes that avoid difficult constitutional issues, or the rule that ambiguous statutes will be interpreted to avoid conflict with foreign law, or many others. Ambiguity also serves as an occasion for judges to consult their own views of policy, whether openly, quietly, or unconsciously

Here's a selection from the paper:

If we assume that a respondent’s policy preference is in some way a reflection
of personal views, then asking people whether a statute is ambiguous, or whether two different readings of it are plausible, evidently causes them to consult their own views of how they would like the statute to be read. We hypothesize that those two questions amount, in the experience of people who are asked them, to inquiries into how strongly they themselves feel sure that one reading is better than another, and those judgments are easily contaminated by the respondents’ preferences—as a matter of policy—for a particular outcome. Asking respondents whether ordinary readers of English would agree about the best reading, however, forces them to change their frame of reference. They no longer are asking themselves which reading they prefer, or how sure they feel that one of them is right. They are forced to look outside themselves, so to speak, and to consider what others would likely say. The outward investigation is merely hypothetical—a thought experiment; but it’s a consequential thought experiment, because it reduces the bias otherwise exerted by the respondent’s policy preferences.

In other words: a reader's mindset changes the way they interpret law. If a reader is simply asked to read a statute and interpret it, they will interpret it according to their policy preferences. If, instead, the reader is asked to read the statute the way they think a hypothetical unbiased person would read it, the reader is more likely to discern ambiguity and thus presumably more likely to reach an unbiased interpretation.

You can play the ambiguity game yourself using one of the examples from their study:

A federal statute, 21 U.S.C. § 841(b), provides for a mandatory minimum sentence of five years for anyone who distributes more than one gram of a “mixture or substance containing a detectable amount of lysergic acid diethylamide (LSD).” The defendant was caught distributing LSD that had been dissolved and sprayed onto blotter paper. The weight of the LSD alone was 50 milligrams, well below the statutory threshold. But if the weight of the blotter paper was included, the total weight was five grams, well above the statutory threshold.

The question is whether, under § 841(b), the blotter paper should be included in deciding, for purposes of sentencing, the weight of the LSD the defendant distributed. Under the defendant's reading of the statute, the blotter paper should not be included in deciding the weight. Under the government's reading, it should be included in deciding the weight.

Do you think the statute is ambiguous? If not, which way should it be interpreted? Is that the way you want it to be interpreted? How do you think others would interpret it?

My initial reaction to the study was the same as William Eskridge's:

The methodology for the questions seems to me to invite normativity from respondents: The authors repeatedly ask which reading of the statute is "better". I have no idea how a first-year law student would understand this kind of inquiry; I'd understand it as asking me to see "ambiguity" (or whatever) as a normative rather than a purely descriptive endeavor. It is hard for me to tell how serious a concern this is.

Indeed, that seems to be the biggest problem with the questions they asked. It is no answer for a court — or a law student — to deem a statue ambiguous and then give up. They have been asked to decide what a statute means, and so they must come up with an answer. Lacking anything else to go on, they will defer to their own policy interpretations.

As Judge Frank Easterbrook commented,

Judges read statutes in context, not as isolated clauses. So for Chapman v. United States, 500 U.S. 453 (1991), the LSD case, the judges asked not whether the LSD's carrier medium (blotter paper) is part of the same "mixture or substance" as LSD in the abstract (or as a matter of chemistry), but whether LSD-in-blotter-paper is the same sort of mixture as cocaine-in-mannitol or other common dilutants. And the judges knew (as the students answering the survey did not) that the statute provided alternative punishment levels for pure PCP and diluted PCP but treated the weight of all other drugs as including the entire "mixture or substance". This implied that the weight of LSD's carrier counts.

Even so, every judge of the seventh circuit (which sat en banc, see 908 F.2d 1312 (1991)) and every Justice of the Supreme Court deemed the statute ambiguous. It's a surprise to me that so many of the first-year students found clarity where, despite the aid of context, the members of the interpretive community found ambiguity. What divided the judges was not disagreement about the existence of ambiguity but disagreement about how to respond to that ambiguity. Some thought it appropriate to use linguistic context to make a best estimate of meaning; others wanted to put the linguistic context aside and consider practical effects—which when coupled with the rule of lenity or a desire to avoid constitutional questions led to a vote for the defendant.

I agree with his analysis, but it doesn't surprise me that the first-year students didn't recognize the ambiguity. One of the core components of "thinking like a lawyer" — which is what law school is supposed to teach — is the ability to review statutes, regulations, opinions, agreements, testimony, and other writings critically to discern the meaning of those writings.

It's thus no surprise to me that a first-year law student, with only minimal training in the law, would not perceive multiple possible interpretations of a complicated statute, particularly if they didn't have the benefit of any additional information. After all, even Congress and the President apparently didn't recognize the ambiguity or, at least, didn't find it important enough to rewrite the statute to avoid the ambiguity prior to enacting it.

Let's get back to the main finding: a reader's mindset changes the way they interpret law. Contrary to Steve Williams' response, this finding has practical implications for judges, since judges are asked to resolve ambiguities by adopting different mindsets, such as by attempting to divine the legislature's intent.

Judge Richard Posner's remarks exemplify the problem:

When judges say that the "literal" meaning of a statute should be followed unless the result is "absurd," they mean (or should I think be understood to mean) that the statute isn't clear once the context is understood.

And another way to put all this is that a statute is a communication and that in decoding a communication we draw on everything we know about the communicator and the subject matter of the communication in deciding what it means.

Problem is, that's putting the cart before the horse — what better evidence is there of a legislature's intent than the statute itself? Once we deem the statute ambiguous and start "decoding" even more ambiguous sources, like legislative history (e.g., "everything we know about the communicator and the subject matter..."), we've done little more than move into material even more ambiguous than the material with which we started.

Consider Judge Posner's opinion for the Seventh Circuit in Fitzgerald v. Chrysler Corp., 116 F. 3d 225 (7th Cir. 1997):

Read literally, [the Racketeer Influenced and Corrupt Organizations Act] would encompass every fraud case against a corporation, provided only that a pattern of fraud and some use of the mails or of telecommunications to further the fraud were shown; the corporation would be the RICO person and the corporation plus its employees the "enterprise." The courts have excluded this far-fetched possibility by holding that an employer and its employees cannot constitute a RICO enterprise. ... We do not understand the plaintiffs to be quarreling with this exclusion, even though it doesn't emerge from the statutory language; it emerges from a desire to make the statute make sense and have some limits.

That's simply "decoding" one ambiguity (i.e., the definition of "enterprise" in the RICO Act) by way of "decoding" even greater ambiguities (i.e., divining the legislature's intent and "sensible" judicial policy by way of a variety of sources).

That's where the paper's conclusion has practical application for judges: how did Judge Posner analyze which sources to review? How did he decide the persuasive weight he gave each source? How did he interpret them: according to the meaning he found in the sources, or according to the meaning he thought an "ordinary English speaker" would find?

The canons of statutory interpretation don't provide a clear answer to any of the foregoing questions.

That brings us back to the paper's conclusions about the effect of a reader's mindset on their interpretation: since courts don't have clear guidance on what "mindset" they should use in interpreting secondary sources to decode ambiguous statutes, the study suggests they're likely to use their "internal" mindset and thereby likely to end up with biased interpretations.

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Christianity, Islam, Hinduism, and Buddhism all agree: it's easy to miss the details when you're focusing on something important.

That's why they all have their own form of prayer beads so the faithful don't lose count of their mantras.

Science and medicine agree: you can save lives with checklists. You can even land airplanes on water. As Captain Sully says,

If you think you’re infallible, you’re kidding yourself.

Hence checklists.

Here's the first item on the litigator's checklist:

1. Did you check the rules?

That includes the federal or state rules of civil procedure, the local rules for the venue, and the judge's own procedures.

I do that before filing every motion and upon receiving every motion. It's repetitive, in a good way: the rules are the mantra.

Count the prayer beads.

Check the checklist.

Every time.

Yesterday I received a call from defense counsel in one of my cases:

Since the judge requires a phone conference prior to the filing of a motion to compel, will you agree to withdraw your motion and set up the phone conference instead?

Really? I checked the judge's procedures before filing.

So I checked them again: no requirement for a phone conference. I emailed a copy to the defense lawyer asking him to show me where it said the judge needed a phone conference.

A few hours later, another call:

You have a copy of the judge's old procedures. He updated them in November. Take a look on the court's website.

So I did.

Sure enough, between the time I filed the case — when I downloaded a copy of the judge's procedures and saved them in the case file — and the time I filed the motion, the judge changed them.

Just goes to show that you can make a mistake even without taking a shortcut, even if you have "a little local knowledge."

Check the checklist, and check to make sure you're using the right checklist.

Every time.

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Last week, Prof. Edward A. Hartnett (of Seton Hall University School of Law) posted Responding to Twombly and Iqbal: Where Do We Go from Here?

Hartnett's idea was eminently reasonable:

I also offer my own proposal, which focuses on the core issue at stake in debates about Twombly and Iqbal: should a plaintiff be able to obtain discovery in an effort to uncover evidence without which he or she cannot prevail?

Hartnett proposes amending Rule 12 of the Federal Rules of Civil Procedure to include:

Rule 12(j): Allegations Likely To Have Evidentiary Support After a Reasonable Opportunity for Discovery

If, on a motion under Rule 12(b)(6) or 12(c) that has not been deferred until trial, the claim sought to be dismissed includes an allegation specifically identified as provided in Rule 11(b)(3) as likely to have evidentiary support after a reasonable opportunity for discovery, the court must either (1) assume the truth of the allegation, or (2) decide whether the allegation is likely to have evidentiary support after a reasonable opportunity for discovery. In deciding whether an allegation is likely to have evidentiary support after a reasonable opportunity for discovery, the court must consider the parties‘ access to evidence in the absence of discovery and state on the record the reason for its decision.

If the court decides that the allegation is likely to have evidentiary support after a reasonable opportunity for discovery, it must allow for that discovery, under the standards of Rule 26, and deny the motion to dismiss. If the court decides that the allegation is not likely to have evidentiary support after a reasonable opportunity for discovery, the court must treat the motion as one for summary judgment under Rule 56, and provide all parties a reasonable opportunity to present all the material that is pertinent to the motion.

Again, eminently reasonable. Such an addition would immediately focus litigation on the real issues, thereby (1) enabling plaintiffs to conduct discovery into the most important areas while also (2) empowering defendants to have cases dismissed—prior to full discovery—if the plaintiff won't be able to prove an essential element of their case.

How could anyone think that was unfair?

The defense bar champions at Drug and Device Law tried to manufacturer an objection, but the argument degenerated into blather and insults. They barely even mention the details of Hartnett's proposal. Instead, they summarily dismissed him with:

Most of these proposals (except Professor Burbank's) actually go far beyond Twombly/Iqbal and would overrule all or most of the prior precedent we cited above. That strikes us as facially overkill and indicative of unexpressed (and in some cases, ulterior) motives at work.

...

We understand that a lot of academics feel that they have to help their students get jobs, or else eventually they won’t have jobs either.  Thus, they tend to support anything and everything that results in more, rather than less, litigation.

Oh, snap.

Then again, an accusation of "ulterior motives" probably would have meant more if it didn't come from someone paid by the hour to ensure corporations pay as little as possible to the people and families they hurt.

Frankly, reading through the post, I can't help but wonder if Beck et al. indeed have some "ulterior motive" in misrepresenting how defense lawyers use Ashcroft v. Iqbal in their practice:

So when we get a complaint, we look to see whether, there’s at least one actual fact pleaded that supports each essential element of a cause of action.  A plaintiff can plead more if s/he so pleases, but there has to be at least one – otherwise we’ll probably file a Twombly/Iqbal motion.

The implied concession there—that they won't file a motion to dismiss if "there's at least one actual fact pleaded that supports each essential element of a cause of action"—is rubbish. They don't run a charity over there at Dechert: if you file a case against one of their clients, they will come up with any argument they can to get it dismissed.

And that's where the problem with Twombly / Iqbal—really, just Iqbal—comes in. Every time a case is filed today, the defendant inevitably files a motion to dismiss claiming that the "actual facts" plead aren't "facts" at all, they're "conclusions," and so are not, under Iqbal, entitled to an assumption of truth.

What's the difference between a "fact" and a "conclusion?" Merriam-Webster says:

fact: an actual occurrence

conclusion: a reasoned judgment

Let me ask you, Dear Reader: who really won more votes in Florida in 2000, Bush or Gore?

Is your answer a "fact" or a "conclusion?" Do you know it as an actual occurrence, or did you make a reasoned judgment?

The problem with Iqbal is that it instructs courts—at the very beginning of the lawsuit, when they have nothing in front of them but a "short and plain" complaint—to perform a wildly subjective analysis about which allegations are merely "conclusions" and which of the non-conclusory allegations are "plausible." 

There's nothing new about that problem. It's the same problem that prompted Rule 8—the Rule supposedly interpreted by Iqbal—to be enacted in the first place:

You used to have the requirement that a complaint must allege the “facts” constituting the “cause of action.” I can show you thousands of cases that have gone wrong on dialectical, psychological, and technical argument as to whether a pleading contained a “cause of action”; and of whether certain allegations were allegations of “fact” or were “conclusions of law” or were merely “evidentiary” as distinguished from “ultimate” facts. In these rules there is no requirement that the pleader must plead a technically perfect “cause of action” or that he must allege “facts” or “ultimate facts.”

Rules of Civil Procedure for the District Courts of the United States: Hearings Before the H. Comm. on the Judiciary, 75th Cong. 94 (1938) (statement of Edgar B. Tolman, Secretary of the Advisory Committee on Rules for Civil Procedure Appointed by the Supreme Court); quoted by p.4 of Professor Stephen Burbank's testimony before the Senate.

The whole point of Rule 8 was to ensure that the right to civil justice didn't turn on metaphysical word games.

And yet we're supposed to come full circle because, as Beck et al. continue,

Twombly/Iqbal are about reining in the cost of litigation; we might feel differently about Professor Hartnett's proposal if it required payment of all a defendant’s costs of “appropriate” (the Article's term) discovery – should designated allegations nonetheless turn out to be unfounded.  But under the proposal as offered, there’s no penalty for over-designation.  If it’s one thing that the fifty-year life span of Conley established, it’s that unrestrained pleading imposes huge discovery costs on defendants.  Even Professor Burbank (who really tried hard) was reduced to relying upon a single study of tiny cases in which even then 25% of the parties believed the process was too expensive.  The excessive cost of modern discovery is simply not a issue capable of dispute any longer.

At least Burbank actually cited something. Defense lawyers think they're entitled to assert the cost of discovery—a cost due primarily to their own practice of relentlessly frustrating discovery at every turn—is "excessive" through sheer ipse dixit.

Sounds like a "conclusion" to me, not an "actual fact."

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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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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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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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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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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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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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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 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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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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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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[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. 

There's definitely a "special value" here: the plaintiff was going to rehabilitate the project and, presumably, re-sell it for a profit. A condemned building might be worth nothing to you and me, but it's worth a lot to a contractor with a vision. The plaintiff is entitled to recover those damages.

Maybe the plaintiff didn't present anything but the sizes of the loans, in which case the above is correct. But I bet they did, since the size of the jury's verdict reflects, in my view, the lost profit on the resale of the property contemplated by the plaintiff once they had rehabilitated and renovated it. Such a number -- a projection about future profits -- is certainly open to doubt, but it's a factual issue for the jury, and the defendant (the City of Philadelphia) easily could have presented evidence to the contrary.

Oh well.

Continue Reading...

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In the comments to "Can the Octuplets Sue for Medical Malpractice," B. Barton asks:

Numerous sources have reported that Ms. Suleman wanted these [6] remaining embryos transferred [2 of which split into twins]. Where does liability lie if that's true?

Good question. Since there's little doubt that it's a breach in the standard of care for a physician to transfer 6 embryos (monozygotic twinning is a known risk of IVF, so the doctor can't claim surprise at it), we can rephrase this question as: can a patient consent to a procedure that would ordinarily be medical malpractice?

First, a little background. There are two claims which sometimes get lumped together as "medical malpractice." One is the "negligence" claim most people think of, in which a doctor breached the standard of care by either not doing something they should have or doing something they should not have. The other is the "informed consent" claim, explained by the New Jersey Supreme Court as arising from "the duty of a physician to disclose to a patient information that will enable him to evaluate knowledgeably the options available and the risks attendant upon each before subjecting that patient to a course of treatment." Perna v. Pirozzi, 92 N.J. 446 (1983).

Every day, thousands of patients consent to unnecessary, experimental or risky procedures. So long as the patient was properly informed of the risks, benefits and alternatives, and the procedure was properly performed, the physician will not be liable for adverse consequences.

But this situation is far outside the realm of normal medical practice -- so much so that the Medical Board of California has opened an investigation into it. There's no shortage of fertility doctors with the opinion that:

"In order for IVF to cause octuplets, a doctor would have to place eight or more embryos back, which is way beyond the guidelines."

And many agree with Hickman to put eight embryos back would be medically unethical. Simply put, having multiples is a huge risk.

"You can have all sorts of problems with the brain forming properly. You can be left with cerebral palsy, injuries, blindness, problems with the lungs working," he said.

As such, this case is not analogous to situations where a patient chooses among reasonable options with differing risks and benefits, like a cancer patient electing to have surgery over chemotherapy. Instead, it's a patient requesting the physician breach the standard of care.

For obvious reasons, there aren't too many court opinions ruling on such a case (most plaintiff's lawyers would reject such cases as unwinnable, regardless of the law, given juror sentiment like B. Barton's). But there's reason to think a court would permit either the mother or the octuplets to bring such a claim, despite the mother's "consent" for the procedure.

While patients can assume various risks of a procedure, a patient cannot assume the risk their doctor will commit malpractice. The reasoning is simple:

In the context of medical malpractice, the superior knowledge of the doctor with his expertise in medical matters and the generally limited ability of the patient to ascertain the existence of certain risks and dangers that inhere in certain medical treatments, negates the critical elements of the [assumption of risk] defense, i.e., knowledge and appreciation of the risk. Thus, save for exceptional circumstances, a patient cannot assume the risk of negligent treatment.

Morrison v. MacNamara, 407 A.2d 555, 567-568 (D.C. Ct. App. 1979). Thus, even if a patient appears to have "understood" and "assumed" that a procedure was generally risky, there still may be a claim for medical malpractice, as the law recognizes the superior knowledge of the doctor and does not expect patients to have the same technical understanding -- including an understanding of where the medical community draws the line -- as physicians.

Then there's the informed consent claim. As shown in the interview you referenced, it doesn't seem Nadia Suleman fully appreciated the risks of the procedure; she seemed to revel in them.

In some states, so long as the physician provided the same information as would be provided by a "reasonably prudent medical practitioner acting under the same or similar circumstances," then there's no claim for a lack of informed consent. Perna, supra. Again, however, we have to realize how far outside the bounds of normal medicine we are, and I don't doubt that many fertility doctors believe that no "reasonably prudent medical practitioner" would ever counsel a 33 year old woman with a history of successful IVF treatment to transfer 6 embryos.

In other states, the question is not what the patient themselves would have done with appropriate information, but what "a prudent person in the patient's position would have decided if suitably informed of all perils bearing significance." Perna, supra. The primary purpose of such a rule is to prevent disgruntled patients from claiming, after the fact, that they would have chosen a different option if the doctor had disclosed all the risks, but the door might swing both ways: the jury might be asked to determine what a prudent person in the patient's position would have decided if given all the appropriate facts, and find that a "prudent person" would have rejected the procedure.

Finally, it bears repeating what we're talking about here: the theoretical ability of the mother or the children to bring a claim for medical malpractice under the law. There's a high likelihood an actual jury would reject all of these claims out of hand.

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Continuing on from our discussion yesterday, medical malpractice, like any other negligence tort, is proven by showing:

(1) the defendant had a duty to the plaintiff to act a certain way,

(2) that the defendant breached that duty,

(3) that the defendant’s breach caused the plaintiff harm and

(4) that the harm caused is compensable under the law.

In most medical malpractice cases, the first element (the duty) is undisputed: every doctor has a duty to provide appropriate professional care and treatment to their patients. Similarly, the fourth (the harm) is usually not denied, though the defense will raise questions about the degree of harm actually suffered, particularly where significant non-economic damages (a.k.a., “pain and suffering”) are alleged.

In most medical malpractice cases, the fight is over whether the standard of care was breached and whether that breach actually caused the patient’s harm. The latter is sometimes the biggest issue in wrongful death cases, with the defense lawyer arguing that, even if the doctor had not been negligent, the patient still would have died.

The octuplets are different. There’s no question about the second element: the doctor very clearly breached the standard of care by transferring so many embryos through IVF. There’s also little question about the third element: the octuplets’ obstetrical and neonatal care appears to have been impeccable, so any birth injuries (or fetal or neonatal injuries) they suffer were likely caused by the multiple gestation and resulting placental insufficiency and premature birth.

As noted previously, the fourth element is up in the air – they’re all reportedly in good health – but a simple fact of neonatology and pediatrics is that problems can develop months or years down the line. Bronchopulmonary dysplasia, cognitive delays, and cerebral palsy are all very common among premature babies, even those with “normal” NICU courses.

Which leaves us with the first element: did the doctor who transferred those embryos have any duty to the resulting children?

Most of the cases brought arising from IVF revolve around either a failed attempt to prevent or terminate the pregnancy or a fertility clinic’s failure to screen the embryo for genetic defects. In each of those cases, courts have found that the ‘wrongfully born’ child has no claim against the clinic. But let’s take a careful look at what the “wrongful life” laws really prohibit. Here’s Pennsylvania’s statute:

WRONGFUL LIFE.-- There shall be no cause of action on behalf of any person based on a claim of that person that, but for an act or omission of the defendant, the person would not have been conceived or, once conceived, would or should have been aborted.

42 Pa.C.S. § 8305. Yet, as noted last time, that’s not what the octuplets would claim here. There was no attempt or desire to terminate any of them; the problem is that they were gestated in an unsafe manner, not that they should not have been transferred through IVF or gestated or born. They would not be claiming that they should have not been transferred through IVF or should have been aborted, but that one or more of their siblings should have been.

I have not found any cases raising that theory; the law here is anything but settled. To determine if a court would find such a duty, we can turn to that old war horse of law school classrooms, Tarasoff, cited by courts across the country for the factors to be weighed in establishing a legal duty:

[T]he foreseeability of harm to the plaintiff,

the degree of certainty that the plaintiff suffered injury,

the closeness of the connection between the defendant's conduct and the injury suffered,

the moral blame attached to the defendant's conduct,

the policy of preventing future harm,

the extent of the burden to the defendant and consequences to the community of imposing a duty to exercise care with resulting liability for breach, and

the availability, cost and prevalence of insurance for the risk involved.

Tarasoff v. Regents of Univ. of Cal., 17 Cal. 3d 425, 435 (1976). As Tarasoff continued, “The most important of these considerations in establishing duty is foreseeability. As a general principle, a defendant owes a duty of  care to all persons who are foreseeably endangered by his conduct, with respect to all risks which make the conduct unreasonably dangerous."

There’s no doubt of the foreseeability of the danger of transferring eight embryos, and no doubt of the moral, policy and community reasons for recognizing a legal duty. As noted by Dr. Thomas H. Murray, a bioethicist, the American Society for Reproductive Medicine acknowledged in a 2004 report that fertility programs may withhold services when they can provide "well-substantiated judgments" that the child will not receive adequate care, and to exercise such judgment particularly" when significant harm to a future child is likely." A professional duty is thus recognized, so why not a legal one?
 
Yet, in another sense, permitting the octuplets to claim that each other should not have been born raises similar philosophical problems as “wrongful life:” for example, who is to say which sibling should have not been born, and how many? Pennsylvania’s case law on “wrongful life” – a split Supreme Court, which prompted the statute above – gives us a forceful example of how courts (and lawyers) can cut such Gordian knots:

It is undoubtedly true, as a review of the cases on this subject indicates, that legal scholars are able to cite numerous theories and reasons to support the view that recovery must be defeated in all cases of this type, and therefore that courts should not even entertain such complaints. The view that we cannot calculate the value of existence as compared to nonexistence is only one such hyper-scholastic rationale used to deny a cause of action in these cases. Those holding such views are apparently able to overlook what is plain to see: that -- in cases such as this -- a diseased plaintiff exists and, taking the allegations of the complaint as true, would not exist at all but for the negligence of the defendants. Existence in itself can hardly be characterized as an injury, but when existence is foreseeably and inextricably coupled with a disease, such an existence, depending upon the nature of the disease, may be intolerably burdensome. To judicially foreclose consideration of whether life in a particular case is such a burden would be to tell the diseased, possibly deformed plaintiff that he can seek no remedy in the courts and to imply that his alternative remedy, in the extreme event that he finds his life unduly burdensome, is suicide. No court in the land would directly send such a message to these plaintiffs. We deem it unfortunate that some courts have indeed sent that message by implication.

Speck v. Finegold, 497 Pa. 77, 87 (1981, Flaherty, J., concurring).

The irony here is that, while the mother may bear some fault for these circumstances, her claim is far more simple, and more likely to prevail, than her children's claims. Indeed, the parents in the original “wrongful life” case, Becker v. Schwartz, were permitted to claim damages arising from the cost of care and treatment of their child, although not damages for noneconomic and emotional harm. Recall what I wrote above: every doctor has a duty to provide appropriate professional care and treatment to their patient, here the mother, if maybe not the children.

[Here's Part 1, see also Can a Patient Consent to Medical Malpractice? (A Followup on the Octuplets)]

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News has spread far and wide of the octuplets born to Nadya Suleman at the Kaiser Permanente Medical Center in California.

In one sense, their birth and continued life is a “miracle,” as they made it to 30 weeks gestation, about 8 weeks past the threshold of viability and about 4 weeks past the point at which serious mortality or morbidity are more likely than not. Importantly, the octuplets have made it through their first week of life (sometimes referred to as the “honeymoon” period in neonatal intensive care units) without having any serious complications, like higher-grade intraventricular hemorrhages ("IVH"), a.k.a. “brain bleeds.”

Yet, it was a completely avoidable “miracle,” the same as if Captain Sully on U.S. Airways Flight 1549 had intentionally landed on the Hudson River. Multiple pregnancies are inherently high risk, with the risks increasing exponentially with each new fetus in higher order multiples. Twins are more than twice as dangerous as singletons; triplets are more than one-and-a-half times as dangerous as twins, and on and on.

These risks are well known and accepted within the international medical community, which is why some countries, like as Belgium, prohibit in vitro fertilization of more than one embryo at a time, while others, like Sweden, impose financial disincentives against the practice. Sweden’s national healthcare system covers an unlimited number of single-embryo IVF treatments but only four multiple embryos IVF treatments. Here in the United States, embryo transfers are not regulated by the government, but there are professional guidelines.

The Practice Committee of the Society for Assisted Reproductive Technology ("SART") and the Practice Committee of the American Society for Reproductive Medicine ("ASRM") produced a joint Guidelines on number of embryos transferred, which, for the 33-year-old Nadia Suleman, holds:

For patients under the age of 35 who have a more favorable prognosis, consideration should be given to transferring only a single embryo. All others in this age group should have no more than 2 embryos (cleavage-stage or blastocyst) transferred in the absence of extraordinary circumstances.

Ms. Suleman certainly had a “more favorable prognosis” considering that she had six prior children, all of them through IVF.

Which brings us to the medical malpractice: what on earth was their doctor doing?

Some have speculated that the octuplets simple couldn't have come from IVF, since it's so far outside the guidelines, but everything we know from Kaiser Permanente tells us that's exactly what happened. Perhaps most troubling:

According to [Suleman's mother's] account, when her daughter discovered that she was expecting multiple babies, doctors gave her the option of selectively reducing the number of embryos, but she declined.

"Discovered?" She didn't expect multiples from eight embryos?

It’s hard to overstate how foolish, reckless and irresponsible it is for any physician to transfer eight embryos in IVF, particularly to a young and healthy mother with a history of successful pregnancies. The Suleman octuplets have become celebrities precisely because of the rarity of their situation – which is not over by any means – since, in the past, every octuplet pregnancy in the United States has resulted either in miscarriages (frequently miscarriage of all the embryos) or the death of at least one of the neonates, possibly more.

The procedure itself was reckless; to have done it without the patient's informed consent was unconscionable.

Tomorrow we'll talk about the law.

To raise a couple points now, every jurisdiction I know of, following the seminal New York case Becker v. Schwartz, prohibits the claim for "wrongful life," based in part upon the idea that the law is simply incompetent to calculate the "damages" that arise as a result of being born or born with a disability as compared to never existing in the first place. Parker v. Chessin, mod. sub nom. Becker v. Schwartz, 46 N.Y.2d 401, 413 N.Y.S.2d 895, 386 N.E.2d 807 (1978).

But that's not really the issue here. In contrast to a "wrongful life" claim, where the person born claims they should not have been, the octuplets born here can claim that while they should have been born, one or more of the other octuplets should not have been, and that each was put in danger by the others. That may become important soon -- while the first week is over without any apparent birth injury, the first month and first two years, both important milestones, are not. If it turns out that any of the octuplets has, say, bronchopulmonary dysplasia or cerebral palsy, it can hardly be said that the damages of having BPD or CP due to placental insufficiency and being born premature are philosophically impossible to calculate.

And then we'll get to the mother's claims; can she, for example, recover the cost of raising seven additional children?

[Continued at Part 2, see also Can a Patient Consent to Medical Malpractice? (A Followup on the Octuplets)]

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

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

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

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

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

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

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

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

Ruh-roh!

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

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

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

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

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

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

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

Continue Reading...

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So far I've seen three legal blogs pick up on Senator Hillary Clinton's "Emoluments" problem if she's appointed to serve as Secretary of State: Adam B at DailyKos, Jack Balkin at Balkinzation, and Eugene Volokh at the Volokh Conspiracy. Great work by all three.

The situation is tailor-made for a first-year ConLaw exam. By Executive Order dated January 4, 2008, President Bush enacted cost-of-living adjustments ("COLA") for a wide variety of Executive Branch employees, including members of the uniformed service, judges and justices, administrative law judges, the employees of Veterans Affairs and, importantly, the Cabinet.

The latter is the problem for Clinton, who on January 4, 2008, was in the middle of a Senate term set to end in 2012. Article 1, Section 6, Clause 2 of the United States Constitution states:

No Senator or Representative shall, during the Time for which he was elected, be appointed to any civil Office under the Authority of the United States, which shall have been created, or the Emoluments whereof shall have been encreased during such time; and no Person holding any Office under the United States, shall be a Member of either House during his Continuance in Office.

[sic for "encreased"]. Andrew Malcolm at the LATimes reads this clause, shall we say, strictly:

We're not lawyers. But we do speak English. And to our eyes that constitutional clause doesn't say anything about getting around the provision by reducing or not benefiting from the increase of said "Emoluments."

It flat-out prohibits taking the civil office if the pay has been increased during the would-be appointee's elected term. Period. Which it has.

It depends on what you mean by "English," "reducing" and "increased."

Starting with "English," as Chief Justice John Marshall wrote (while interpreting another separation of powers issue under Article I) "we must never forget that it is a constitution we are expounding." McCulloch v. Maryland, 17 U.S. 316, 407 (1819). It's not a dinner menu; everything must be interpreted in context, with an eye to the multiple balances of powers and interests reflected by the Constitution's text as well as past interpretations and future consequences.

Moving on to "reducing," there's nothing wrong with a Constitutional "fix;" indeed, there's every reason to believe that's just as the Framers, who themselves drafted a compromise document, would want. Reducing salary is also how we fixed the issues arising from this clause three times in the past, like with the "Saxbe fix," named after Nixon's last Attorney General, for whom the Congress specifically reduced his pay back to where it was prior to his term in the Senate. (You can see the notes to 5 U.S.C. 5312 littered with all three prior "Compensation and Emoluments" fixes). If Obama wanted to "fix" this situation by rescinding the COLA adjustments for the Secretary of State, that would fit within the purposes of the clause, as described below.

As for "increased," that's not nearly as clear as Malcolm believes, because of the complexities of government. Bush's Executive Order did not arbitrarily increase emoluments -- instead, the Order merely published the new numbers required on an annual basis by a statute most recently amended in 1990. See notes to 5 U.S.C. 5303. The "increase" for Constitutional purposes thus arguably occurred back in 1990; Bush did nothing more than carry the existing numbers through the method established there, hardly the same thing as a deliberate increase in salary.

In sum, there's a strong argument that's there is no emoluments problem -- the emoluments at issue here were increased in 1990, long before Clinton's term.

Let's go back to the purposes of the clause itself.

The Founders' Constitution has all the primary sources you could want. In short, the clause was enacted to prevent legislators from creating officers (or making them more lucrative) and then appointing themselves (or forcing the Executive to appoint them), a form of above-board corruption that had been prevalent in the British Parliament and in the Virginia Legislature. Some of the Constitutional Convention, like George Mason, wanted a complete bar on members of the Legislature serving in the Executive Branch, while others, like Rufus King, felt any such prohibition would be "chimerical" and would prevent talented, qualified leaders from proper service. As with many issues, James Madison proposed a compromised which carried the day.

The situation with Senator Clinton seems to have proved Rufus King right. Over the past few years there have been no limits to the revolving-door, back-scratching system in which members of Congress routinely engaged in direct and indirect self-dealing against the public interest. Many of those not taking money explicitly (like Rep. Cunningham and Sen. Stevens) are nonetheless more than happy to spend the public's money on special interests to secure lucrative jobs for themselves after their time in Congress. Adding insult to injury, there's no suggestion that Senator Clinton's rumored appointment would be part of a self-patronage maneuver to enrich her or anyone else. Indeed, she never voted on the increase, as it was an executive order, and not even one designed to increase salaries, just to keep pace with inflation and generalized costs.

The emoluments clause thus is the "chimera" warned of at the Constitutional Convention that has done nothing to thwart corruption in generations (perhaps ever) and has now, for the fourth time, impeded the appointment of a qualified candidate who indisputably did not seek or take the job for pecuniary reasons. Yet, the language is still there in our Constitution and we must not disregard it out of political convenience -- few actions are worse for our democracy than establishing or condoning a disregard for the Constitution.

Which is why, the above analysis notwithstanding, I think on January 20, 2008, then-President Obama should reverse the Executive Order as it pertains to the Secretary of State and then appoint Senator Clinton. It wouldn't surprise me if he did exactly that; if he didn't want to spend political capital and attention dealing with Sen. Lieberman or Sec. Gates, I doubt he'd want to do it over a couple thousand dollars of Hillary Clinton's salary.

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Breach of fiduciary duty class actions under the Employee Retirement and Income Securities Act ("ERISA") are as common as the day is long. If an employee pension plan loses a lot of value, odds are good there will be a lawsuit.

Unsurprisingly, the federal courts have clamped down on these lawsuits over the years. As the United States Court of Appeals for the Third Circuit (Pennsylvania, New Jersey and Delaware) just reaffirmed,

in the context of an ERISA plan that offers employees the option of investing in a fund consisting solely of the employer's own securities, there is a "presumption that a fiduciary acted prudently in investing in employer securities" and that, to rebut the presumption, "a 'plaintiff must show that the ERISA fiduciary could not have believed reasonably that continued adherence to the [Plan's] direction was in keeping with the settlor's expectations of how a prudent trustee would operate.'"

Ward v. Avaya Inc., (3d Cir. 2008, November 13, 2008, Jordan, J.)(on appeal from the District of New Jersey). The Third Circuit again rejected that "a company to be on the brink of bankruptcy before a fiduciary is required to divest a plan of employer securities," but held, in essence, that if the plaintiffs cannot show the stock plummeting and staying in the gutter, then they cannot win as a matter of law. In holding the plaintiffs cannot overcome the presumption as a matter of law, the Court describes:

At the outset of the class period immediately following the spin-off on September 30, 2000, Avaya's stock traded at $ 22.18 a share. As Ward takes pains to point out, it initially lost much of that value, and by August 2, 2002, after fluctuating significantly for some time, it reached a low of $ 1.15 a share. By April 25, 2003, the day after Ward's Count II class period ended, Avaya stock was trading at $ 3.24 per share. Following the end of the class period, however, Avaya's stock continued to rise and, by August 2003, was trading at around $ 10.00 a share. Between October and December 2003, the stock was trading between $ 12.00 and $ 14.00 a share. During 2004, Avaya stock usually closed at between $ 12.00 and $ 16.00 a share. Commensurate with its rising stock price, Avaya reported significant positive net income in 2003 and 2004. Further, like the plaintiff in Edgar and unlike the plaintiff in Moench, Ward's complaint fails to point to anything other than Avaya's financial struggles to support his breach of fiduciary duty claim.

The frustrating part here is that of course the plaintiff had no direct evidence, their case was dismissed under Fed.R.Civ.P. 12(b)(6) before they could conduct discovery. The message from the Third Circuit is thus loud and clear: if the company's stock has regained a substantial portion of its value, don't bother filing suit.

I have plenty of sympathy for the defendants here, directors who almost certainly did, in fact, believe they were simultaneously acting in the best interests of the company and the retirement plan beneficiaries. No could blame them for believing in the eventual success of their own company, and the company did, in fact, regain at least two-thirds of its prior market value, more than 10 times its lowest value just two years prior to that.

But that's precisely the problem -- of course the directors will believe in the eventual success of their own company. Indeed, aside from company officers, who could possibly be less objective about their own company? They're supposed to believe in the company's success, even against the odds.

The core problem, as the Third Circuit noted, is that "as the financial state of the company deteriorates … fiduciaries who double as directors of the corporation often begin to serve two masters. And the more uncertain the loyalties of the fiduciary, the less discretion it has to act." At what point should we expect that a "prudent" director will recognize their own lack of objectivity and step aside? The answer from the Third Circuit appears to be "never," at least not if the stock has regained substantial value.

Maybe, on balance, that makes the most sense, a "no serious harm, no foul" rule. The stock market is inherently unpredictable; if, for example, the directors had moved assets out of Avaya in the spring of 2003, the retirement fund likely would have missed out on Avaya's dramatic rise in the fall and winter of 2003. You don't invest your money in a 100% company fund to go willy-nilly at the first sign of trouble.

Nonetheless, though there are many plausible legitimate explanations, it's troubling to see issues like that decided on a motion to dismiss, denying plaintiffs the chance to see what the explanation actually was. The directors here could have completely breached their fiduciary duties and, after getting 'lucky,' still have cost beneficiaries one-third of their pension's value, potentially even more when compared to the fund's hypothetical value if it had been managed properly. Yet, the case was over before it started, merely because the fund lost 'only' one-third of its value as compared to value on the plaintiff's class certification date.

Finally, just how common are ERISA breach of fiduciary suits? So common that the Third Circuit held plaintiffs claims were also barred by a prior class action settlement in Reinhart v. Lucent Technologies, Inc., 327 F. Supp. 2d 426 (D. N.J.).

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Carolyn Elefant kicks off a discussion on "The Deterioration of Legal Writing," beginning with a Financial Week story, concluding:

While I believe that both factors -- the informality of e-mail and lack of quality teaching -- have contributed to the decline of legal writing skills today, I think the main problem is  the easy availability of low-cost, computerized legal research tools. These days, both students and lawyers can gorge on a glut of cheap reference sources, from today's less expensive LexisNexis and Westlaw, to tools like Casemaker or Versuslaw, to Google and other Internet search engines. Consequently, legal research has devolved into an exercise in "piling on", with lawyers adding cases and quotes merely to show strength through quantity of cases rather than quality.  At the end of the day, with so many resources available, legal analysis is suffering, and as a result, so too is the quality of legal writing, which relies on the quality of the underlying analysis for its impact and effectiveness. 

Evan Schaeffer chimes in with links to many of his great legal writing posts.

I had two "legal writing" classes in law school. Both were terrible; I encountered one teacher later who said she was glad to have moved back to consulting because it was "more funner" than teaching.

I'm not kidding.

Two points.

First, I challenge the notion that today's law students write any worse than their predecessors. It may be true, but I have seen no objective evidence of that. Complaints about writing ability are common for all employers, and complaints about the upcoming generation are as old as written history. Take this complaint:

On the matter of overwork they are particularly stern. They want to work hard, but not too hard; the good, equable life is paramount and they see no conflict between enjoying it and getting ahead. The usual top executive, they believe, works much too hard, and there are few subjects upon which they will discourse more emphatically than the folly of elders who have a single-minded devotion to work. Is it, they ask, really necessary any more? Or, for that matter, moral?

....Out of necessity, then, as well as natural desire, the wise young man is going to enjoy himself — plenty of time with the kids, some good hobbies, and later on he'll certainly go for more reading and music and stuff like that. He will, in sum, be the apotheosis of the well-rounded man: obtrusive in no particular, excessive in no zeal.

That's from 1956; Kevin Drum dug it up in response to an article just posted that was virtually identical.

Second, while great legal writing requires a career-long dedication to excellence, not-bad legal writing just requires keeping in mind a couple points:

1. There may be rules for the formatting of legal arguments, but there are no rules for the content — do not force the content of your writing into an artificial form.
    
2. Remember and use the twenty-odd years of writing education that preceded law school. Write sentences in which nouns perform specific actions upon direct objects. Use topic headings and thesis sentences and appropriate paragraph divisions. Present information in a logical form. Read what you wrote aloud; does it sound confusing? If so, then it's confusing to read, too.
    
3. The very worst examples of legal writing are the edits of cases in law school textbooks. Judges usually do not write opinions with frequent leaps in logic, sentence fragments, and the generous use of the ellipsis.
    
4. The second worst examples of legal writing are Supreme Court opinions, which are the product of a delicate compromise amongst multiple Justices and which are deliberately limited in scope so as not to exceed the actual holding.
    
5. The third worst examples of legal writing are law review articles, which must conform to multiple literary conventions that have nothing to do with ease-of-reading or persuasion.
    
6. The best examples of legal writing that are easily accessible are trial court and intermediate appellate court opinions. These opinion state facts and then apply them to law, with little interference (at least apparent on the face of the opinion) from politics or compromise or convention.

In short, writing not-bad requires reading a few short books on writing, like Strunk & White's Elements of Style and Joseph M. Williams' Style, then reviewing some basic court opinions, and then applying the same principles to your own work.

Finally, never be afraid to disregard your writing instructor's advice; odds are they're looking to move on to something "more funner" anyway.

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We're aiming for new heights of nerdom here at Litigation & Trial, combining comic books, movies, old law school contract cases, equitable principles, permanent injunctions, and recent circuit splits in one post. The Watchmen lawsuit -- which is less copyright infringement and more commercial litigation, since the dispute is largely over contract terms -- gives us license (har har) to do so.

Graphic novels (née "comic books") are serious money these days, at least when adapted for the big screen. In addition to the normal superhero adaptations, like Iron Man and The Incredible Hulk (which have generally done quite well), particular attention has been paid to noir comics like Sin City and 300. (The Nolans' Batman adaptations are a hybrid, drawing from noir variations on Batman, like The Dark Knight Returns.)

Watchmen, published in 1986-87, is perhaps the most heralded of the noir comics, a complex and character-driven drama set in a alternative-history 1980s United States in which superheroes (the bulk of which have no obvious superpower) have been suppressed as unaccountable vigilantes, while Nixon is on his fifth term as president.

Such a complicated tale obviously presents numerous visual, thematic and temporal problems for moviemakers, in addition to normal stress of taking a work revered by a subculture and making it widely appealing without offending the subculture or alienating the masses. Multiple attempts to make the movie since the story was published have fizzled out; even Terry Gilliam, who has no trouble bringing madness to the big screen, deemed it unfilmable.

But Zack Snyder, who directed the enormously successful 300 (which made $450 million on a $60 million budget), has apparently done it and done it well.

Since he's appearing on this blog, you can guess what happened next: the production company, Warner Brothers, was sued.

The movie buzz is that the case has substantial merit and could turn the movie into a loss for WB, and the original documents are available online for your perusal. In essence, Fox bought the complete rights to Watchmen, tried to begin production, gave up, quitclaimed the rights to the producer (with the terms of that quitclaim disputed), then entered into multiple disputed subsequent agreements. Here's the Court's outline (as formatted by Deadline Hollywood):

1986-90: Fox acquires motion picture rights in The Watchmen.

1990: Fox enters into a domestic distribution agreement with Largo Entertainment, a joint venture of JVC Entertainment Inc., Golar (Larry Gordon), and BOH, Inc. The “Largo Agreement” established Fox’s domestic distribution rights, through a license from Largo, in “subject pictures” as defined in the agreement.

June 1991: Fox enters into a “Quitclaim Agreement” with Largo International, through which Fox “quitclaims to Purchaser all of Fox’s right, title and interest in and to the Motion Picture project presently entitled Watchmen, which included specifically described literary materials. Notably, the agreement provides that, “if Purchaser elects to proceed to production, the Picture shall be produced by Purchaser and shall be distributed by Fox as a Subject Picture pursuant to the terms of the Largo Agreement ...” In consideration for the rights to Watchmen, Fox was to be reimbursed for its development costs ($435,600) plus interest plus a profit participation in the worldwide net proceeds of any Watchmen picture.

Nov. 1991: The Largo Agreement was amended; Watchmen was listed as a project quitclaimed to Largo.

Nov. 1993: Larry Gordon, through Golar, withdraws from the Largo Entertainment joint venture; Largo conveys any rights it has in Watchmen to Gordon/Golar. Based on the 1991 quitclaim, the Court may infer that Gordon now stood in the shoes of Largo with respect to Watchmen and held whatever rights it acquired through the 1991 Quitclaim, which left Fox with the distribution rights it retained through that agreement.

1994: Fox negotiated a “Settlement and Release” agreement with Gordon which contemplated that the Watchmen project would be put in “perpetual turnaround” to Lawrence Gordon Productions, Inc. The “turnaround notice” gave Lawrence Gordon Productions “the perpetual right . . . to acquire all of the right, title and interest of Fox [Watchmen] pursuant to the terms and conditions herein provided.” The turnaround notice then described the formula for determining the buy-out price in the event that Gordon elected to acquire Fox’s interest. Thus, the document suggests that Gordon acquired an option to acquire Fox’s interest in Watchmen for a price. In fact, the notice obligated Gordon to pay the buy-out price on the commencement of any production of a Watchmen film. The notice also provided that the agreement was personal to Gordon and that, “prior to payment of the Buy-Out Price,” he could not assign rights or authorize any person to take any action with respect to the project.

(emphasis mine) WB now argues the full rights were quitclaimed multiple times; Fox claims they granted an option the producer failed to exercise, so the rights are still their's. A court last week denied WB's motion to dismiss. Variety summarizes:

At the heart of Fox’s suit, filed in February, is the contention that it never ceded rights to the property. And according to the federal Judge Gary Allen Feess, Fox retained distribution rights to the graphic novel penned by Alan Moore and illustrated by Dave Gibbons through a 1991 claim. Furthermore, Feess appears to agree that under a 1994 turnaround deal with producer Larry Gordon, Gordon acquired an option to acquire Fox’s remaining interest in "Watchmen," which was never exercised, thereby leaving Fox with its rights under the 1994 agreement.

Frankly, I agree with the Court's ruling (denying the motion to dismiss) but not the reasoning, which I'll get to below. For now, it's a motion to dismiss: all disputed facts and ambiguities are resolved in the plaintiff's favor and all reasonable inferences are  made in the plaintiff's favor. The meaning could be as Fox alleges, but that'll require some testimony and extrinsic evidence.

But that's not what this post is about. This post is about the remedy requested in paragraph 30 of Fox's complaint:

Fox is entitled to preliminary and permanent injunctive relief enjoining and preventing Defendants, their agents' and employees, and all persons acting in concert or participation with Defendants, from having, copying, distributing, displaying or making any other unauthorized use of The Watchmen in a manner inconsistent with Fox's rights as detailed herein.

As a practical matter, I can assure all graphic novel fans that no one wants to stop or even delay this movie. Fox doesn't want to scrap the picture, they want as big a piece as they can get, and they want the injunction for leverage. We're watching a negotiation-by-litigation.

Yet, as a legal matter, if they prevail, they can halt distribution entirely.

But, you say, recalling first year contract law, wouldn't that be a tremendous waste of money, the type of economic destruction generally discouraged by a long line of post-formalist, legal realism cases, like Jacob & Youngs v Kent, 230 NY 239; 129 NE 889 (N.Y. 1921, Cardozo, J.)(denying specific performance where home contractor used wrong brand of plumbing pipes)? Yes, but that's the choice you made through your elected representatives and the copyright laws they have enacted.

So how can the law allow Fox to sit by while WB (and their producers, directors, actors, etc) pours their sweat, tears and money into a work, just to later bring a lawsuit requesting not a cut of the profits but total destruction of the work?

It may not sit by. The doctrine of laches was created to thwart people to squat on their rights, lie in wait, and choose not to sue until it will most damage and prejudice the other party.

The doctrine of laches is a judicial escape hatch enabling courts to dismiss or limit lawsuits that, though brought within the statute of limitations, would be inequitable to permit because of the conduct of the party bringing the lawsuit. It's closely related to the doctrine of unclean hands, a similar tool courts use to deny equitable remedies to those who have behaved badly in the context of the dispute.

Since the doctrine of laches has its roots back in the English common law, the elements in all 50 states are roughly the same, so we might as well look to Pennsylvania:

Laches bars relief when the plaintiff's lack of due diligence in failing to timely institute an action results in prejudice to another. Because it is an affirmative defense, the burden of proof is on the defendant or respondent to demonstrate unreasonable delay and prejudice. See Weinberg v. State Bd. of Exam'rs. of Pub. Accountants, 509 Pa. 143, 147, 501 A.2d 239, 242 (1985). Thus, "[t]he party asserting laches as a defense must present evidence demonstrating prejudice from a lapse of time . . . [such as] that a witness has died or become unavailable, that substantiating records were lost, or that the defendant has changed [her] position in anticipation the opposing party has waived his claims." Richard, 561 Pa. at 496, 751 A.2d at 651. Furthermore, "[t]he question of laches is factual and is determined by examining the circumstances of each case." Weinberg, 509 Pa. at 148, 501 A.2d at 242 (quoting Leedom v. Thomas, 473 Pa. 193, 200-01, 373 A.2d 1329, 1332 (1977)).

Commonwealth ex rel. Corbett v. Griffin, 946 A.2d 668, 676-677 (Pa. 2008). Like most equitable doctrines, it has essentially no elements: the court finds it or it does not.

Obviously, such equitable powers apply to common law claims. Can it apply to statutory claims like copyright infringement?

In most circuits, yes. The Eleventh Circuit just grappled with that in Peter Letterese & Assocs. v. World Inst. of Scientology Enterprises et al, 2008 U.S. App. LEXIS 14496; Copy. L. Rep. (CCH) P29,589 (July 8, 2008). They unearthed a fantastic Learned Hand quote:

It must be obvious to every one familiar with equitable principles that it is inequitable for the owner of a copyright, with full notice of an intended infringement, to stand inactive while the proposed infringer spends large sums of money in its exploitation, and to intervene only when his speculation has proved a success. Delay under such circumstances allows the owner to speculate without risk with the other's money; he cannot possibly lose, and he may win.

That describes Fox's conduct precisely: they couldn't make it, so they waited for someone else to get it together then filed suit after WB tests Synder and crew out on 300, figures out a plausible script, puts together a cast and crew, films it, and makes its way through a good deal of post-production. But that was before there was an explicit 3-year federal statute of limitations for copyright claims. What now? The Eleventh Circuit sums up other responses:

In answering the question of whether the defense of laches may be interposed in a copyright infringement suit, therefore, we cannot agree with the conclusion of the Fourth Circuit, which is an unqualified "no." See Lyons P'ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789, 798 (4th Cir. 2001). Prather recognized the applicability of general equitable doctrines, and like tolling, laches falls into that category. Cf. Teamsters & Employers Welfare Trust of Ill. v. Gorman Bros. Ready Mix, 283 F.3d 877, 882 (7th Cir. 2002) ("What is sauce for the goose (the plaintiff seeking to extend the statute of limitations) is sauce for the gander (the defendant seeking to contract it)."). However, we remain mindful of the Fourth Circuit's invocation of separation of powers principles which counsel against the use of "the judicially created doctrine of laches to bar a federal statutory claim that has been timely filed under an express statute of limitations." Lyons P'ship, 243 F.3d at 798. We therefore answer this question with a presumptive "no"; there is a strong presumption that a plaintiff's suit is timely if it is filed before the statute of limitations has run. Only in the most extraordinary circumstances will laches be recognized as a defense. Cf. Chirco v. Crosswinds Communities, Inc., 474 F.3d 227, 234 (6th Cir. 2007) (noting the limited applicability of laches to copyright cases in "what can best be described as unusual circumstances"); Jacobsen v. Deseret Book Co., 287 F.3d 936, 951 (10th Cir. 2002) ("Although it is possible, in rare cases, that a statute of limitations can be cut short by the doctrine of laches, we see no reason to supplant the statute of limitations in this case." (internal quotation marks and citation omitted)).

But we're not yet done:

Even where such extraordinary circumstances exist, however, laches serves as a bar only to the recovery of retrospective damages, not to prospective relief. As the former Fifth Circuit explained in a patent infringement action:

Although laches and estoppel are related concepts, there is a clear distinction between the two. The defense of laches may be invoked where the plaintiff has unreasonably and inexcusably delayed in prosecuting its rights and where that delay has resulted in material prejudice to the defendant. The effect of laches is merely to withhold damages for infringement which occurred prior to the filing of the suit.

Estoppel, on the other hand, "arises only when one has so acted as to mislead another and the one thus misled has relied upon the action of the inducing party to his prejudice." Estoppel forecloses the patentee from enforcing his patent prospectively through an injunction or through damages for continuing infringement.

Studiengesellschaft Kohle mbH v. Eastman Kodak Co., 616 F.2d 1315, 1325 (5th Cir. 1980) (internal citations omitted).

Arguably, the big damages here have yet to occur, and will occur when the film is distributed for hundreds of millions of dollars. But I still don't understand why WB didn't raise laches as an affirmative defense in their Answer to Fox's Complaint. There's a legitimate argument that the real infringement damages occured during scripting, casting, filming, and post-production, where Fox was shut out of the creative process it presumably wanted to control.

Moreover, the quitclaim agreement itself (the source of most of Fox's claimed rights) includes a clause where, if the movie is ever made, Fox is entitled to the money it initially spent (at least half a million, circa 1990) plus interest. That's serious money by now, at least enough to warrant adding one line about laches to your Answer and briefing the issue.

THE POINT (other than to learn):

There's been a lot of hoopla about this sentence in the judge's order:

It is particularly noteworthy that nothing on the face of the complaint or the documents supplied to the Court establishes that Gordon, the claimed source of Warner Brothers' interest in 'Watchmen,' ever acquired any rights in 'Watchmen.'

That's a problem, but it's not the end of the road. Let's presume Fox still legally has the rights to Watchmen. Now what? Do they get an injunction?

As the Eleventh Circuit continued,

Rather, under "well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief," and a court's decision to grant or deny such relief is within the exercise of its discretion.  [eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391, 126 S. Ct. 1837, 1839 (2006)]

A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

Id.

Even if laches doesn't directly apply, and even though "irreparable injury" is presumed in copyright cases, Fox may have waived its "irreparable injury" by allowing virtually all of Watchmen to be completed (excepting some post-production) before filing suit in February 2008. Fox did exactly what Learned Hand complained about: waiting for WB to finish what Fox could not, then suing when they got wind that it was good.

They're no longer in it for protection of their creative endeavor; they're in it just for the money. That won't do. WB's goal is to show that to the judge.

But I think Fox has a bigger problem: the 1994 agreement. Under that, the last of all agreements with Fox, Gordon (the producer) has a perpetual right to exercise his option to make the film. Fox's complaint mentions the 1994 agreement but does not claim breach of it, just breach of the 1991 quitclaim, which means Gordon (now WB) can still exercise the option, buying out the rights.

And that raises yet another problem for Fox when they then try to claim their due under the 1994 option: laches, which can completely bar a contract claim, not just pre-suit damages. When did Fox first know Gordon was trying to make the movie? Recall from the Court's outline, "The notice also provided that the agreement was personal to Gordon and that, “prior to payment of the Buy-Out Price,” he could not "assign rights or authorize any person to take any action with respect to the project."

Here's a 2001 article about an attempt, long after the relevant agreements with Fox. Did Fox move to protect its rights then? Did it tell Gordon not to "authorize any person to take any action with respect to the project?" Here's a rumor:

[P]rivately, Warner Bros execs are decrying to me what they say is Fox's "opportunistic claim," noting that "Fox sat on its so-called rights for years while other studios in town developed this property. In fact, Paramount greenlit the movie for production and Fox never said a word! Fox even had an opportunity to re-acquire the project at some point and it passed on it!"

Did Fox try to "speculate without risk with the other's money?"

I'd say "we shall see," but we probably won't. Once the injunction and the option are decided, the case will likely be sufficiently narrowed to be settled easily; the spread won't be worth the risk anymore.

 

UPDATE: On December 24, 2008, District Judge Gary A. Feess issued a brief ruling holding "Fox owns a copyright interest consisting of, at the very least, the right to distribute the Watchmen motion picture," with a promise to issue a more definite ruling soon. It's hard to say what the practical effect is of such a holding (it's obviously not good news for WB); I still believe an injunction is unlikely. I'll write more when the full order comes out.

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If you have any interest in international law at all, you should check out this post at SCOTUSBlog on the new International Court of Justice opinion in Medellin.

The truly fascinating part is how the Bush administration has repeatedly attempted to avoid having any court, SCOTUS or ICJ, decide these issues (understandibly so -- the ramifications of this case are tremendous), and so has pressured Texas to halt the executions, including by direct Presidential order, yet Texas has steadfastly refused.

So we've got a three-way showdown. Can the ICJ trump the US Government or can the US Government avoid the question by trumping Texas? The "easy" answer is "yes" to either or both -- but that will collapse either the sovereignity of the US or the sovereignity of the States or both, so the Bush Administration can't do either.

Perhaps this conflict is why there are no historical instances of a double-layer federal/republic state-within-a-state-within-a-state.

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There's a lot of chatter (at Election Law Blog and Concurring Opinions) about this footnote in Exxon v. Baker (by Souter, writing for the Court):

The Court is aware of a body of literature running parallel to anecdotal reports, examining the predictability of punitive awards by conducting numerous “mock juries,” where different “jurors” are confronted with the same hypothetical case. See, e.g., C. Sunstein, R. Hastie, J. Payne, D. Schkade, W. Viscusi, Punitive Damages: How Juries Decide (2002); Schkade, Sunstein, & Kahneman, Deliberating About Dollars: The Severity Shift, 100 Colum. L. Rev. 1139 (2000); Hastie, Schkade, & Payne, Juror Judgments in Civil Cases: Effects of Plaintiff’s Requests and Plaintiff’s Identity on Punitive Damage Awards, 23 Law & Hum. Behav. 445 (1999); Sunstein, Kahneman, & Schkade, Assessing Punitive Damages (with Notes on Cognition and Valuation in Law), 107 Yale L. J. 2071 (1998). Because this research was funded in part by Exxon, we decline to rely on it.

(emphasis supplied by ELB and CO). What's interesting, too, is that they tagged Columbia Law Review, Yale Law Journal, and Law & Human Behavior as well.

I'm with Hoffman at CO on it -- the Court isn't laying down a rule excluding litigant-funded research, they're just declining to consider there, and offering a rebuke to academics who taint their own work by accepting funding from parties with multi-billion-dollar interests in their outcome.

Moreover, it bears note that the record here included nothing about the predictability of punitive damages awards -- it's a case about an oil tanker spill -- all of that information came in through judicial notice. So let's review Federal Rule of Evidence 201:

Rule 201. Judicial Notice of Adjudicative Facts

(a) Scope of rule.

This rule governs only judicial notice of adjudicative facts.

(b) Kinds of facts.

A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.

(c) When discretionary.

A court may take judicial notice, whether requested or not.

(d) When mandatory.

A court shall take judicial notice if requested by a party and supplied with the necessary information.

(e) Opportunity to be heard.

A party is entitled upon timely request to an opportunity to be heard as to the propriety of taking judicial notice and the tenor of the matter noticed. In the absence of prior notification, the request may be made after judicial notice has been taken.

(f) Time of taking notice.

Judicial notice may be taken at any stage of the proceeding.

(g) Instructing jury.

In a civil action or proceeding, the court shall instruct the jury to accept as conclusive any fact judicially noticed. In a criminal case, the court shall instruct the jury that it may, but is not required to, accept as conclusive any fact judicially noticed.

First, the "fact" here is obviously open to reasonable dispute. Second, the source of the information obviously opens up questions about its accuracy.

Finally, the Court was declining to exercise judicial notice of that research, a decision that, even when done at the trial level, stands essentially unreviewable. If a trial court wants to make you prove the sun rises in the east and sets in the west, that's its prerogative. If the fact is so obvious, you should be able to prove it easily.

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You could do worse than to read this elegant critique by Jack Balkin of Scalia's opinion.

And here is the point: The argument that the Second Amendment constitutionalized the right of self-defense does not follow directly from the Amendment’s original meaning, as Scalia claims it does. Just because a reading is consistent with original meaning, that does not mean that it is required by original meaning.

Rather, it is a permissible construction or gloss on the Amendment. It is a gloss that develops over time, and becomes generally and widely accepted by Reconstruction, and continues throughout the 19th century, as Scalia’s opinion suggests. However, because Scalia wants to insist that this was always an original purpose of the Amendment, he reads this 19th century history as proof of the original purposes of 1791. This is anachronistic. And, as noted above, he confuses original meaning – i.e., the content of the words used – with original purpose and original expectations.

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In New York comes word of an attorney being ordered to repay $403,000 for mishandling a judge's estate. To wit:

Nearly half of the $403,000 Ambrosio ordered Taylor to pay to Phillips' estate stemmed from her handling of the $696,000 in net proceeds from a court-approved sale of one of Phillips' properties.

Taylor acknowledged taking the funds from the proceeds to cover legal fees for work she performed for Phillips before she was appointed his guardian. The payments were made without court approval.

Citing the difficulty of determining the "precise amount" Taylor had paid herself for legal work without court approval, Ambrosio ordered her to repay the $197,000 she admitted taking from the proceeds.

"What exactly she purports to have done to earn $2,500 a week in counsel fees from [Phillips'] funds for seventy-four straight weeks remains a mystery," the judge wrote. "In paying herself counsel fees without any prior court approval, Taylor made herself final arbiter of the reasonableness of her fees. This self-dealing conduct clearly conflicted with her obligation as guardian."

Taylor was suspended late last year from the practice of law by the Appellate Division, 1st Department. Ambrosio wrote that she was suspended for "at best, withdrawing funds from the guardianship account for legal fees without court permission, or, at worst, intentionally converting guardianship funds."

Yep, that will do it. The unauthorized taking of client funds, particularly where the client is incompetent, dead, or otherwise unable to defend themselves, is the surest way to get hit with malpractice and/or a judicial order compelling repayment.

Regardless of if you take any, always know by what right you're even touching the client's funds.

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SCOTUSBlog, of course, gets the jump on the first analysis of Heller v. DC, striking down the gun ban, noting:

Second, what standard of review will apply [to future cases]? Scalia rejects rational basis (note 27 page 56, which the District did not urge) and says that the District law falls under any other standard, without exactly saying why. The SG offered a fairly relaxed standard (except as applied to the DC law), but the Court did not bite. Federal laws regulating guns, and perhaps those increasing sentences for gun use, are likely to be challenged, whatever the standard and chance of success.

Here's the note:

27 JUSTICE BREYER correctly notes that this law, like almost all laws, would pass rational-basis scrutiny. Post, at 8. But rational-basis scrutiny is a mode of analysis we have used when evaluating laws under constitutional commands that are themselves prohibitions on irrational laws. See, e.g., Engquist v. Oregon Dept. of Agriculture, 553 U. S. ___, ___ (2008) (slip op., at 9–10). In those cases, “rational basis” is not just the standard of scrutiny, but the very substance of the constitutional guarantee. Obviously, the same test could not be used to evaluate the extent to which a legislature may regulate a specific, enumerated right, be it the freedom of speech, the guarantee against double jeopardy, the right to counsel, or the right to keep and bear arms. See United States v. Carolene Products Co., 304 U. S. 144, 152, n. 4 (1938) (“There may be narrower scope for operation of the presumption
of constitutionality [i.e., narrower than that provided by rational-basis review] when legislation appears on its face to be within a specific prohibition of the Constitution, such as those of the first ten amendments. . .”). If all that was required to overcome the right to keep and bear arms was a rational basis, the Second Amendment would
be redundant with the separate constitutional prohibitions on irrational laws, and  would have no effect.

That's awfully circular -- the right to equal protection under the laws is obviously a "specific, enumerated right," but it is well-settled that there are numerous classes of discrimination that get different standards of review. For example, discrimination based on race is reviewed strictly, discrimination based on sexual orientation is reviewed for rational basis, while discrimination based on gender is reviewed on an intermediate standard.

Same goes for the "specific, enumerated right" of free speech -- limitations on indecent speech are reviewed differently from political arguments.

it sounds like the Supreme Court could not get a majority to agree on a standard, so they dodged the question entirely. Sometimes that is understandable, but not here, where they are completely overhauling the interpretation of a constitutional amendment.

My bet is that this case goes the way of the failed Commerce Clause cases of the 1990s: a sweeping constitutional protection that disappears when the absence of popular support is revealed. There will be new challenges to gun laws, but not a complete repeal of the existing system.

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West Virginia Business Litigation details an interesting case:

The lawsuit alleges that Frank, a former West Virginia Grand Master, was expelled from the Masons as a result of his successful efforts to reform the organization and eliminate practices that were, at best, anachronistic and, at worst, illegal ...

Plaintiff Haas' goal was to make Masonry more tolerant, friendly, decent and accepting of everyone regardless of nationality, race, religion or disability. ...

The lawsuit raises questions about membership in a fraternal organization, such as whether a member is entitled to due process if he is to be expelled from the membership, and, if so, what type of due process.  

But I think the more important question presented by the action is the public policy aspect: can an organization, even one that is private and fraternal, take punitive action against a member for activities that are intended to rid the organization of illegal or unethical practices?  I would hope the answer is no, but that’s what the lawsuit will decide.

At least in Pennsylvania, the Pennsylvania Human Relations Act holds:

§ 953. Right to freedom from discrimination in employment, housing and public accommodation.

The opportunity for an individual to obtain employment for which he is qualified, and to obtain all the accommodations, advantages, facilities and privileges of any public accommodation and of any housing accommodation and commercial property without discrimination because of race, color, familial status, religious creed, ancestry, handicap or disability, age, sex, national origin, the 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 is hereby recognized as and declared to be a civil right which shall be enforceable as set forth in this act.

Would the Masons count as a "public accommodation?" That generally depends on if it's open to the public, a question much harder to answer than you'd think. Here's Wikipedia on admission:

Generally, to be a regular Freemason, a candidate must:^[20]

• Be a man who comes of his own free will.
• Believe in a Supreme Being. (The form of which is left to open interpretation by the candidate)
• Be at least the minimum age (from 18–25 years old depending on the jurisdiction).
• Be of good morals, and of good reputation.
• Be of sound mind and body (Lodges had in the past denied membership to a man because of a physical disability, however, now, if a potential candidate says a disability will not cause problems, it will not be held against him).
• Be free-born (or "born free", i.e. not born a slave or bondsman).^[50] As with the previous, this is entirely an historical holdover, and can be interpreted in the same manner as it is in the context of being entitled to write a will. Some jurisdictions have removed this requirement.
• Have character references, as well as one or two references from current Masons, depending on jurisdiction.

Deviation from one or more of these requirements is generally the barometer of Masonic regularity or irregularity. However, an accepted deviation in some regular jurisdictions is to allow a Lewis (the son of a Mason),^[51] to be initiated earlier than the normal minimum age for that jurisdiction, although no earlier than the age of 18.

Seems awfully public to me, which would make the law apply. Eagle-eyed law students, though, will note that Boy Scouts of America v. Dale interprets the First Amendment as superseding these "public accommodations" laws where necessary to protect expressive freedom, and on the face of it I can't see how the Masons' discrimination would be different from the Boy Scouts'.

The same analysis would thus likely apply to West Virginia -- making the Masons' original conduct that Haas tried to reform protected, rather than illegal, and they can say they fired him for deviating from their expressive message. Similarly, the United States Constitution, where applicable, trumps Haas' state-law tort claims (defamation, etc).

 

I underline "where applicable" to emphasis that, just because there's a Constitutional right in the vicinity of the facts at issue doesn't automatically mean the conduct is protected. The Masons could very well have gone beyond mere protection of their expression into intentionally harmful conduct, which isn't protected at all.

Indeed, the Boy Scouts are a good example -- their victory in Dale translated into the City of Philadelphia revoking the free rent they had enjoyed on Philadelphia City property. Again, the right to express yourself doesn't automatically translate into, say, the right to enjoy a tax break.

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I spotted this intriguing entry with regard to the Bear Stearns indictment and the duty of corporate counsel to employees:

[Defendant Tannin] raised the issue of whether to approach a lawyer regarding his doubts about the market. “Who do we talk to about this?” wrote Tannin in an e-mail, sent from his private account, to co-defendant Ralph Cioffi. “Outside counsel? (And here we have to be careful because our outside counsel is [Bear Stearns Asset Management’s counsel] NOT our counsel — This is another very big issue we at least need to think about.)”

He was right -- if he had talked to Bear Stearns' lawyer, they would not have told him what was in his best interest. They would have told him what was in the best interest of the company. More below the fold.
Continue Reading...

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At Drug and Device Law:

In Greer v. Medtronic, No. 4;08CV042-P-B, slip op. (N.D. Miss. Apr. 25, 2008), plaintiff pleaded a host of product liability claims against Medtronic relating to an implantable cardiac defibrillator. But the decedent had died on January 22, 2005, and plaintiff didn't file her complaint until February 20, 2008, seemingly a month after the three-year statute of limitations had expired.

Plaintiff insisted that her complaint was timely, because she was not aware of the likely cause of the decedent's death until February 21, 2005, when she received a letter from Medtronic allegedly alerting her to a possible defect in the defibrillator.

...

The court held that, after Lowery, plaintiffs must still be aware of both the injury and its possible cause for the statute of limitations to begin to run.

But, said the court, in a case pleading wrongful death caused by the alleged failure of a defibrillator, the death itself put plaintiff on notice of the injury's possible cause. Plaintiff knew the decedent "died from heart failure on January 22, 2005. At that moment, with the exercise of reasonable diligence, she could have discovered that she probably had an actionable injury or knew or reasonably should have known that some negligent conduct had occurred." Greer, slip op. at 6. The statute of limitations thus began to run on the date of death and expired three years later.

What a terrible ruling. The Court is holding, in essence, that, if a person dies while receiving any medical care at all, they should automatically start suing every medical provider and manufacturer involved in their care. If they don't, and malpractice is later discovered, they won't be able to sue later.

The discovery rule does not simply save allegedly untimely claims by plaintiffs. It safeguards rights in a way that does not require a person sue every time an adverse event occurs. The Greer court just said exactly the opposite: every time something bad happens, you must sue everyone immediately, regardless of the evidence you have.

I don't think that's good policy for anyone.

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Brad Pitt may have walked out of a film and into a lawsuit:

Brad Pitt faces possible legal action after pulling out of a movie.

The 43-year-old was to have played the part of an investigative reporter in a big screen adaptation of the British TV miniseries State of Play.

Production was to have started earlier this month.

Universal says it's keeping the option open of suing Pitt if his part can't be recast in time to keep the other actors in place.

The other stars of State of Play include Edward Norton, Helen Mirren, Rachel McAdams, Jason Bateman and Robin Wright Penn.

Universal likely isn't taking a "no harm, no foul" approach because it likes Brad Pitt. Rather, every plaintiff has a duty to mitigate the damages caused by a defendant (particularly in breach of contract situations). If the plaintiff does not, they are not entitled to those damages resulting from their failure to mitigate.

If the movie does in fact fall apart, it would be a truly fascinating trial. There are few large-scale economic endeavors more speculative, and harder to estimate the results of, than a big budget drama. The trial would involve a day or two of testimony and then three weeks of expert testimony on the likely results of the movie.

On appeal (virtually guaranteed with this much money at stake), Brad Pitt's lawyer would certainly attack the plaintiff for failing to connect the breach of contract to all of those damages. Just another issue that a plaintiff has to look out for to avoid buying themselves an appeal and retrial or, worse, total dismissal.

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Pa. marriage law in 'upheaval,' questioned in suits, disputes:

Officials who issue marriage licenses in Pennsylvania have been busy this year defending Pennsylvania's marriage law, or at least each county's interpretation of it.

In recent months, judges have been called upon to answer these questions:

_Must a county issue marriage licenses for couples who want to self-unite in nonreligious ceremonies, that is, get married without anybody officiating? ANSWER: They must.

_May counties refuse a license to an undocumented alien who wants to marry a citizen if the alien fails to provide proof of legal residence? ANSWER: They may not, according to a federal judge who ruled on such a case in Luzerne County.

_Are marriages valid if performed by people who were "ordained" by online churches in a matter of minutes and have no congregation? ANSWER: Not according to a judge in York County.

In the York County case, a Common Pleas judge invalidated a woman's 10-month marriage, finding that the friend who officiated at her wedding didn't have the power to do so under Pennsylvania law even though he was ordained online by the Universal Life Church. The judge ruled the woman's friend didn't qualify as a minister under state law because he had no regular congregation or place of worship.

...

The trouble is, Pennsylvania first put its marriage law in writing in 1682, but that has not stopped it from being interpreted differently, county by county, ever since.

Complicating matters was the Legislature's decision to do away with common law marriage, effective Jan. 1, 2005.

The American Civil Liberties Union and others disagree with Cleaver and some county officials who argue that the abolition of common law marriage somehow affects the way the remaining law for licensed, ceremonial marriages should be interpreted.

The article includes an interesting Q&A that dives into a number of policy hypotheticals that law students know all too well.

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Lessig Blog takes a good look at the dispute between John McCain and Fox News.

When in April we launched the campaign to get the candidates and political parties to require that any network televising a presidential debate do so freely, a friend wrote, "Oh come on. Do you really think a network is going to threaten a presidential candidate over a copyright claim?" I did, though I confess I thought it was more likely a network would be the cat's paw for another candidate. The Fox network has now proven me wrong.

Lessig is always worth reading; this piece is no exception. To me, the critical point here is, how did we let the notion of intellectual "property" invade our consciousness to such an extent that a presidential candidate must specifically reserve the contractual right to re-broadcast images of himself at a debate? How does it seem normal and ordinary to us that a network should have total control over the republication of a critical part of the quintessential public debate?

Lessig has been a tireless warrior in the fight to make politicians, lawyers and the public rethink their conception of intellectual property. In American history, the norm was for intellectual "property" not be protected; the norm was for the market of ideas to be protected and made as free as possible. Our property-based view of ideas didn't really start until the 1920s, and to this day has never been fully justified by any legal or economic analysis.

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Today the Supreme Court of the United States heard arguments in the Medellin case (background here). SCOTUSBlog sums up the argument nicely here.

The case is intrinsically fascinating, with a conservative President ordering a State to abide by an international tribunal's ruling. One problem is manifest: the Constitution clearly makes Treaties the "law of the land," akin to Constitutional Amendments and thus superior to state law, Marbury v. Madison clearly leaves the final act of legal interpretation to the Supreme Court, and well-settled precedent leaves the President extensive authority to exercise discretion in the realm of international relations.

It's not relevant for our purposes what the right answer is for any of those. What's useful for us is that there are often legal questions no one wants answered. A good number of legal relations are carried forward in a loose state of compromise, without a clear expression of any of the legal principles or how they apply. Litigation and trial forces these questions to be answered.

Keep that in mind when someone says they're willing to have their day in court.

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The WSJ Law Blog links to a fascinating chart of all the amici, their positions, and a summary of their arguments.

The issue couldn't be any clearer than that: banks, brokers, accountants and corporate front groups lined up against consumer groups, pensions, states and defrauded investors.

Do you need to guess which side the United States joined? Which side are you on?

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