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

As The Legal Intelligencer reported,

When a top-level executive suddenly quits to take a job at a competing firm, the courts have the power to block the start of the new employment if the evidence shows that such an injunction is needed to prevent a likely misappropriation of trade secrets, the 3rd U.S. Circuit Court of Appeals has ruled.

The ruling came in Bimbo Bakeries USA Inc. v. Botticella, in which the appellate court considered whether the manufacturer of Thomas' brand English muffins was entitled to an injunction that barred one of its top-level executives from taking a new job with Hostess Inc.

Bimbo Bakeries won the first round in February when U.S. District Judge R. Barclay Surrick enjoined Chris Botticella, a former senior vice president at Bimbo, from starting the new job on the ground that Botticella's extensive knowledge of Bimbo's trade secrets -- including manufacturing secrets used to make the famous "nooks and crannies" in Thomas' English muffins -- made it substantially likely, if not inevitable, that he would disclose Bimbo's secrets to Hostess.

The Third Circuit affirmed.

The case turned on Pennsylvania law, specifically the Pennsylvania Uniform Trade Secrets Act (“PUTSA”) and the "inevitable disclosure" doctrine established by Air Products and Chemicals v. Johnson, 442 A.2d 1114 (Pa. Super. Ct. 1982):

Essentially, Johnson and Liquid Air remonstrate that the trial court improperly reasoned from Allis-Chalmers, supra,  Emery, supra, and Goodrich, supra, in holding that it was inevitable that Johnson would disclose information to Liquid Air. They contend that inevitability of disclosure is not the proper standard by which the trial court can determine that it was clear that an immediate and irreparable injury would result unless an injunction issued. While we do not adopt the reasoning of the trial court or its use of the term inevitable, we are unable to find that the trial court committed reversible error.

The lower court held that: "It would be impossible [for Johnson] to perform his managerial functions in on-site work without drawing on knowledge he possesses of Air Products' confidential information." (Trial Court Opinion at page 18.) We are satisfied that this expression of its determination of the likelihood of disclosure was proper. The court reasoned that the duties which Johnson was to perform at Liquid Air would make it impossible for Johnson not to disclose trade secrets. This was precisely the reasoning of the court in Emery, supra, which we find persuasive. Both courts held it would be impossible for the employee to perform his duties at the new employer without disclosing trade secrets. Accordingly, we hold that the trial court acted reasonably when it issued a preliminary injunction. Valley Forge Historical Society v. Washington Memorial Chapel, supra; Boyd v. Cooper, supra; Jostan Aluminum Products Co., Inc. v. Mount Carmel Dist. Indus. Fund, supra.

The above from Air Products isn't exactly a model of clarity, prompting the Third Circuit to engage in a bit of extrapolation:

With respect to the probability of disclosure required to warrant an injunction, the Superior Court stated at the outset of its analysis that Pennsylvania law permits the issuance of an injunction where a defendant’s new employment “is likely to result in the disclosure” of a former employer’s trade secrets. Id. at 1120 (emphasis added). The Court then determined that it was reasonable for the trial court to issue an injunction based on the inevitability that Johnson would disclose trade secrets, but the Superior Court explicitly chose “not [to] adopt the reasoning of the trial court or its use of the term inevitable.” Id. at 1124. Based on these statements it seems clear that the Superior Court believed that the trial court permissibly could have granted the injunction even if the disclosure of trade secrets was not inevitable.

...

The Superior Court subsequently stated that the “proper inquiry” in determining whether to grant an injunction to prevent the threatened disclosure of trade secrets is not whether a defendant inevitably will disclose a trade secret in the absence of injunctive relief, but instead whether “there is sufficient likelihood, or substantial threat, of defendant doing so in the future.” Den-Tal-Ez, 566 A.2d at 1232 (citing Air Prods., 442 A.2d at 1122-25; SI Handling Sys.,753 F.2d at 1263-64).

I'll pass over the interesting, but highly technical, question about the precedential effect of Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007), which Botticella argued held required the former employer show, as a prerequisite to an injunction, that it "would be 'virtually impossible' for an employee to fulfill his responsibilities for a new employer without disclosing a former employer’s trade secrets." In short, the Third Circuit held that the "virtually impossible" language from Victaluic Co. was dicta, and so did not bind them.

There's an underlying theme to the Third Circuit's ruling, which, like Air Products before it, didn't really lay down a rule but instead rejected the hard-and-fast rule suggested by the losing party. That underlying theme is: respect for District Courts' ability to assess the need for entering injunctions, even injunctions that impose a significant hardship, like the injunction here.

Put another way, rather than set a high bar for District Courts — as a ruling which incorporated terms like "inevitable" or "virtually impossible" would have — the Third Circuit set no bar at all, and instead deferred to the judgment and determinations of the District Court.

It's hard to argue with the logic of that; as much as we would like to set hard-and-fast rules to govern all situations, the simple truth is that every case is unique, and we have to leave some discretion in the system, have to have some trust in the trial judges, to make it work right.

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The False Claim Act envisions a broad definition under 31 U.S.C. § 3729(b) for when a defendant "knowingly" makes a false or fraudulent claim to the federal government:

(b) Knowing and Knowingly Defined.— For purposes of this section, the terms “knowing” and “knowingly” mean that a person, with respect to information—

(1) has actual knowledge of the information;
(2) acts in deliberate ignorance of the truth or falsity of the information; or
(3) acts in reckless disregard of the truth or falsity of the information,

and no proof of specific intent to defraud is required.

The burden of persuasion for proving it is, like under most federal statutes, only preponderance of evidence:

Unlike a large number, and perhaps the majority, of the States, Congress has chosen the preponderance standard when it has created substantive causes of action for fraud. See, e. g., 31 U. S. C. § 3731(c) (False Claims Act); 12 U. S. C. § 1833a(e) (1988 ed., Supp. I) (civil penalties for fraud involving financial institutions); 42 CFR § 1003.114(a) (1989) (Medicare and Medicaid fraud under 42 U. S. C. § 1320a-7a); Herman & MacLean v. Huddleston, 459 U. S., at 388-390 (civil enforcement of the antifraud provisions of the securities laws); Steadman v. SEC, 450 U. S. 91, 96 (1981) (administrative proceedings concerning violation of antifraud provisions of the securities laws); SEC v. C. M. Joiner Leasing Corp., 320 U. S. 344, 355 (1943) (§ 17(a) of the Securities Act of 1933); First National Monetary Corp. v. Weinberger, 819 F. 2d 1334, 1341-1342 (CA6 1987) (civil fraud provisions of the Commodity Exchange Act). Cf. Sedima, S. P. R. L. v. Imrex Co., 473 U. S. 479, 491 (1985) (suggesting that the preponderance standard applies to civil actions under the Racketeer Influenced and Corrupt Organizations Act).

Grogan v. Garner, 498 U.S. 279, 288-289 (1991).

But even though a whistleblower need not show specific intent to defraud, there nonetheless are limits on the claims. The Fourth Circuit recently decided US ex rel. Owens v. First Kuwaiti General Trading, affirming the District Court's grant of summary judgment:

Relator John Owens brought this qui tam suit under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729, et seq., against First Kuwaiti construction firm, his former employer. He alleged that the firm billed falsely for deficient work in connection with construction of the U.S. embassy in Baghdad and that it retaliated against him for actions taken in furtherance of his FCA contentions. The district court granted summary judgment to defendant.

The essence of Relator's claim is that defendant failed to live up to its contractual obligations. He produced no evidence either of knowing misrepresentations on defendant's part or of having been mistreated for any actions taken on behalf of his FCA claims. We therefore affirm the district court's judgment. Congress crafted the FCA to deal with fraud, not ordinary contractual disputes. The FCA plays an important role in safeguarding the integrity of federal contracting, administering strong medicine in situations where strong remedies are needed. Allowing it to be used in run-of-the-mill contract disagreements and employee grievances would burden, not help, the contracting process, thereby driving up costs for the government and, by extension, the American public.

I'm a sucker for Circuit Court opinions that state the law in plain English and cite to other Circuits, which is why I'm posting this one:

The FCA provides that suit may be brought against anyone who “knowingly presents” to the government “a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a)(1). It similarly allows suit against anyone who “knowingly makes ․ a false record or statement material to a false or fraudulent claim.” Id. at § 3729(a)(1)(B). In adopting the FCA, “the objective of Congress was broadly to protect the funds and property of the government.” Rainwater v. United States, 356 U.S. 590, 592 (1958).

The FCA's scienter requirement does not demand “specific intent to defraud” and can be satisfied by proving only “reckless disregard of the truth or falsity of the information.” Id. § 3729(b). Congress, however, has made plain “ ‘its intention that the act not punish honest mistakes or incorrect claims submitted through mere negligence.’ “ United States ex rel. Hochman v. Nackman, 145 F.3d 1069, 1073 (9th Cir.1998) (quoting S.Rep. No. 99-345, at 7 (1986)). This is because “[t]he FCA is a fraud prevention statute.” United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1019 (7th Cir.1999); see also Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 128 S.Ct. 2123, 2130 (2008). It does not allow a qui tam relator to “shoehorn what is, in essence, a breach of contract action into a claim that is cognizable under the False Claims Act.” United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 373 (4th Cir.2008).

The case itself is good example of when faulty government contracting work is not quite bad enough to warrant liability. The defendant there apparently messed up some of the building work, but no worse than other contracts with similar claims did, and — more importantly — no worse than envisioned by the contract itself. The whistleblower thus couldn't muster, at least in the Circuit Court's eyes, enough evidence to show the defendant even "recklessly disregard" the falsity of the claims it submitted.

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Talking Points Memo reports the latest on the Shirley Sherrod fiasco:

Shirley Sherrod said this morning on CNN that she would like to "get back at" Andrew Breitbart.

Asked if she would consider a defamation suit against Breitbart, the conservative blogger who posted the edited clip that got her fired, she said, "I really think I should."

"I don't know a lot about the legal profession but that's one person I'd like to get back at, because he came at me. He didn't go after the NAACP; he came at me," she went on.

To recap the underlying facts here:

BigGovernment.com "broke" a story yesterday about a speech given a few months ago by Shirley Sherrod, USDA Georgia Director of Rural Development, at an NAACP Freedom Fund dinner. In it, Sherrod tells a story from 24 years ago about not helping a white farmer as much as she could have because she was "struggling with the fact that so many black people had lost their farm land."

The point of this story, told in a public venue, was that she quickly realized that she had done wrong. "That's when it was revealed to me that it's about poor versus those who have. It's not so much about white...it is about white and black but it's not, you know...it opened my eyes."

Breitbart apparently edited the video he released, removing the context which showed the timeframe in which it occurred, Sherrod's quick realization of how wrong she had been, and Sherrod's subsequent friendship with the white farmers at issue. To anyone who saw the video and the report — including Secretary of the Agriculture Tom Vilsack and the NAACP — it appeared that Sherrod had unabashedly admitted discriminating against whites in her official duties.

The NAACP sharply criticized Sherrod, and Secretary Vilsack promptly fired her. Once the full tape was released, the NAACP apologized profusely for having been "snookered" by Breitbart, and Vilsack offered Sherrod her job back. Breitbart also posted a correction:

Correction: While Ms. Sherrod made the remarks captured in the first video featured in this post while she held a federally appointed position, the story she tells refers to actions she took before she held that federal position.

So if everyone supposedly now knows the truth, can she still sue for defamation?

Certainly.

Two words: Richard Jewel.

What came to mind when you read that?

If you're like me, you thought: Olympic Park Bomber.

Jewel wasn't the bomber, of course — that was Eric Rudolph — but after he was identified as a "person of interest," the media quickly cemented in the public's mind a nefarious, rather than heroic, connection between Jewel and the bombing. Subsequent corrections were issued, but the libelous link lingered.

He sued in Georgia, where Sherrod is based and where she would likely sue.

The problem, though, was the high bar he had to reach to prevail:

The central issue presented by this appeal is whether Jewell, as the plaintiff in this defamation action, is a public or private figure, as those terms are used in defamation cases. This is a critically important issue, because in order for a "public figure" to recover in a suit for defamation, there must be proof by clear and convincing evidence of actual malice on the part of the defendant. Plaintiffs who are "private persons" must only prove that the defendant acted with ordinary negligence. Jewell contends the trial court erred in finding that he is a "public figure" for purposes of this defamation action.

Atlanta Journal-Constitution v. Jewell, 555 SE 2d 175 (Ga. 2001). Jewel lost on that, though, and had to move forward in his case as a "public figure."

But he prevailed anyway, negotiating settlements with several media outlets that were apparently in the six or seven figure range. We'll never know what a jury would have found in his case, but we know that the defendants were certainly worried about it, despite the subsequent corrections.

Breitbart apparently senses the danger, and has, through his site, started a defense:

Did Breitbart really excise or ignore the exculpatory portion of Sherrod’s remarks? The initial version of the video included Sherrod’s change-of-heart conclusion that she ought to engage in class warfare rather than race warfare. Her subsequent remarks (the ones that were supposedly edited out) simply built on that theme. Also, does anyone really believe that Andrew Breitbart would intentionally distort a video clip to make a one-day splash? Risk his growing reputation with a deliberate, easily refutable distortion? For those clamoring for more careful consideration of context and intent, perhaps they should contemplate those questions.

Those are just the type of questions a jury would contemplate in assessing whether or not Brietbart acted with "actual malice." Indeed, there's reason to believe Brietbart had some objective in mind with the edited video:

It's also important to understand that Andrew Breitbart's timing of the release of the grossly distorted video of Sherrod, which he admits having had for weeks, may not be entirely random. Congress will soon vote on whether to fund part of a settlement between the USDA and African-American farmers who faced acknowledged discrimination -- farmers like Sherrod and her husband used to be. It's a tiny piece of the upcoming war supplemental bill.

The only way we'll actually get an answer to Breitbart's own questions is if Sherrod does indeed sue.

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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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Some time ago, I heard that this fall was the release of The Social Network, a movie based on the founding of Facebook.

That is, a movie about geeks in their bedrooms, but without bionic women, giant lasers, or nuclear weapons. Instead, all of the action happens on computers or in meetings. 

Thrilling.

Intriguingly, the script was written by West Wing creator Aaron Sorkin, who knows a thing or two about storytelling, and it was odd to see David Fincher directing it, given prior works like Se7ev, Fight Club, and The Game, but I just assumed everybody, including Sorkin and Fincher, has a mortgage to pay. Orson Welles rounded out his career selling frozen peas.

Last week, we learned who was doing the score: Trent Reznor.

David Fincher started inquiring about my interest in scoring his upcoming film, The Social Network. Yeah, the movie about the founding of Facebook. I've always loved David's work but quite honestly I wondered what would draw him to tell that story. When I actually read the script and realized what he was up to, I said goodbye to that free time I had planned. ...

Months later, I'm happy to tell you we're nearing the completion of this and I couldn't be happier with how it's turned out. The level of excellence that David operates on is inspiring and the entire process has been challenging and truly enjoyable. ...

Speaking of the film... it's really [ ] good. And dark!

"And dark?"

It seems there's a bit more to the story:

Based on the book The Accidental Billionaires – The Founding of Facebook: A Tale of Sex, Money, Genius and Betrayal by Ben Mezrich, Sorkin's script purports to tell the inside story of the beginnings of Facebook and its spectacular rise from Harvard-undergrad networking tool to worldwide media phenomenon. Some of the material is already familiar Internet legend: How Zuckerberg conceived of an early version of the site by posting pictures of female classmates so that other students could rank their hotness (original, huh?). How his early backers, the handsome, rich, athletic Winklevoss twins, ended up suing the geeky, awkward, middle-class Zuckerberg and settling out of court for $65-million (U.S.) – the same deal that's now being disputed in appeal courts – before going on to compete for the U.S. Olympic rowing team. And, of course, how Zuckerberg cemented his image as the sophomore CEO by attending meetings in tracksuits and shower sandals.

What is surprising is the way the script explodes the myth of the idealistic, pimply software geek writing code in his dorm room in an attempt, as Zuckerberg writes on his own FB profile, “to make the world a more open place by helping people connect and share.” This is the utopian vision that Zuckerberg has peddled all along – a vision that stands in sharp contrast to the increasingly invasive practices of the site (i.e., new settings that automatically default to share all your personal information with the world – including advertisers). In the movie, Zuckerberg's character comes off as a grasping, driven, sexually frustrated borderline sociopath who would gladly sell his best friend for a chance to get into the right nightclub, his inspiration for Facebook driven less by the hope of financial success than by the urge to control his own social destiny. While in real life Zuckerberg wasn't invited to the party, online he invented the coolest party in town.

I know what you're thinking. Stop the presses. Geek seeks social revenge through trappings of success. But there's more to be gleaned from The Social Network than a gossipy back story of the digital generation's answer to Bill Gates. Zuckerberg's dramatized misanthropy only makes him more enigmatic. What delicious irony that the wunderkind who connected hundreds of millions of people online has difficulty connecting with people himself. As his co-founder marvels in the script after finding out Zuckerberg has betrayed him, “I was your only friend. You had one friend.”

Since this is a legal blog, you can tell where this is going:

The movie, which clearly takes liberty with historical details, is presumably relying on the fact that Zuckerberg is a public figure and won't have a case for libel. How else to explain the brazen use of real names and regurgitated conversations that couldn't possibly be confirmed by either the author of the book or Sorkin? (While successful and entertaining, Mezrich's non-fiction work has come under attack in the past for being less than accurate.) 

We've discussed libel-in-fiction here before, like with Sgt. Jeffrey Sarver's suit against the producers of The Hurt Locker. As I wrote there:

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

(If you're itching for more about libel-in-fiction, peruse the cases citing Bindrim v. Mitchell.)

If The Social Network does indeed "take liberty with historical details" to make the story more salacious, while still retaining the undeniable connection to the real-life Mark Zuckerberg, then it could make the producers, writer and director liable for defamation. He could theoretically hook the actors into it, though that'd be a tough sell.

Mark Zuckerberg's status as a public figure does make it harder for him to prove defamation — since, under First Amendment law, he'll have to show the defendants' "actual malice" against him — but it doesn't make it impossible.

So what's going on here?

Here's one speculation (in When Is Fiction Just Fiction? Applying Heightened Threshold Tests to Defamation in Fiction) about why people don't sue over defamation-in-fiction:

In 2006, New Republic columnist Michael Crowley authored a critical profile of author Michael Crichton. Shortly thereafter, Crowley noticed a strong resemblance between himself and the character “Mick Crowley” in Crichton’s latest novel, Next. In addition to having nearly identical names, both Crowleys are graduates of Yale University and political journalists in Washington, D.C. In the novel, Mick Crowley’s appearance is brief but notable. He is a pedophile on trial for sodomizing a two-year-old child and, Crichton writes, his “penis was small.”

Crichton has apparently resorted to employing the small penis rule, a “sly trick” used in publishing to ward off defamation lawsuits. Assuming no man would come forward claiming to be a character with a small penis (or would invite such an inquiry), the scheming author simply depicts his target as less than fully endowed. The author then defames as he pleases and hopes his subject forgoes legal action due to the possible embarrassment of coming forward. Thus, the small penis rule is not really a rule, merely a tactic for discouraging litigation. In the end, Michael Crowley appears disinclined to file suit. Although “grossed out,” Crowley says that he was “strangely flattered” by his “sliver of literary immortality.”

Emphasis mine.

The issue isn't really whether or not Crowley is poorly-endowed, nor whether or not Mark Zuckerberg is a "grasping, driven, sexually frustrated borderline sociopath."

The issue is whether or not Crowley wants to put his manhood, or Mark Zuckerberg his history, on trial.

Truth is an absolute defense to defamation. Even if a defendant had only scant information about a person before they published their defamatory remark, once a lawsuit is filed, the defendant is entitled to use all of the means of civil procedure to discover any information that is relevant to the case or could lead to the discovery of relevant information.

Being a plaintiff in a defamation case — really, any case — is no walk in the park. The movie itself apparently tells the story of Facebook through flashbacks during court testimony; that's how invasive — or thorough, depending on your perspective — a civil lawsuit can be.

If sued, the makers of The Social Network will have access to information that Mezrich and Sorkin could have only dreamed of when writing, respectively, the book and the script. They'll be able to depose Zuckerberg and his friends under oath. They'll be able to subpoena any email he wrote to people about the book or the movie. If he claims financial losses, they'll be able to dig into his income and his assets.

They can depose his mom.

All so they can prove, at trial, that their allegations were true, which puts Zuckerberg in an additional conundrum: if any of the accusations actually are true, their proof at trial through testimony under oath will likely do more damage to Zuckerberg than either the book or the film did.

That's why, for example, when Orson Welles (in his pre-frozen peas days) allegedly defamed the bejesus out of William Randolph Hearst in Citizen Kane, Hearst did not sue, but instead embarked on a campaign against Welles and the film:

Citizen Kane was a brutal portrait of newspaper magnate William Randolph Hearst. When Hearst learned through Hopper of Welles' film, he set out to protect his reputation by shutting the film down. Hollywood executives, led by Louis B. Mayer, rallied around Hearst, attempting to buy Citizen Kane in order to burn the negative. At the same time, Hearst's defenders moved to intimidate exhibitors into refusing to show the movie. Threats of blackmail, smears in the newspapers, and FBI investigations were used in the effort.

Hearst's campaign was largely successful. It would be nearly a quarter-century before Citizen Kane was revived--before Welles would gain popular recognition for having created one of cinema's great masterpieces.

It seems Zuckerberg has decided to respond via public relations:

 On Friday, as Zuckerberg celebrated his 26th birthday, he faced another tsunami of anger, this time from Facebook users who turned the socially awkward youth into the world’s youngest billionaire.

Zuckerberg wanted to enjoy his birthday in the Caribbean. Instead, the pale-faced supergeek is spending the weekend in crisis meetings in California, seeking ways to calm many of Facebook’s users who fear that website changes mean he is going to sell details of their on-line lives to the highest bidder.

A horrified Zuckerberg told colleagues he wants to establish himself as a “good guy”, a task made more difficult as the draft script of the film leaked online.

Time will tell if Zuckerberg sticks with the positive public relations or if he begins a more sinister campaign, becoming the Citizen Kane of the 21st Century.

Maybe they'll make a movie out of that, too.

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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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Few enterprises generate as much frustration among their suppliers and consumers as the scientific publishing industry. The business model is so unfair it's comical:

• Governments, foundations, universities and private companies provide grants to researchers for scientific research;
• Researchers spend weeks, months, and sometimes years drafting papers based upon the results of their research;
• The papers are submitted to the publishers;
• The publishers send the papers out to other researchers, who peer review the papers free of charge;
• The publishers pick the best papers and publish them in their journals, without paying the authors;
• The publishers charge governments, foundations, universities, private corporations, and researchers to access the papers.

As PZ Myers says, "This is not to deny that the professionals who publish and edit at Nature Publishing Group aren't an essential part of the institution of publishing, but honestly, science journal publishing has the most incomprehensibl[y] screwed up model for making money that you can find just about anywhere." In England, free participation in the peer review process amounts to a subsidy to the industry worth nearly a quarter-billion pounds a year; in the United States, the subsidy is likely equal or greater. The peer review process is so unfair to the researchers that alternative models were explored recently in, ironically, a Nature Chemical Biology editorial.

The grip of the top scientific journals, though, is like the weather: everybody talks about it, but nobody does anything about it. While there are dozens of journals out there, there are only a handful of prestigious journals. If you're a researcher trying to make an impact and win the Nobel Prize, what are you going to do? Not publish your groundbreaking work in Nature?

It seems the University of California is asking its researches to do just that:

The University of California system has said "enough" to the Nature Publishing Group, one of the leading commercial scientific publishers, over a big proposed jump in the cost of the group's journals.

On Tuesday, a letter went out to all of the university's faculty members from the California Digital Library, which negotiates the system's deals with publishers, and the University Committee on Library and Scholarly Communication. The letter said that Nature proposed to raise the cost of California's license for its journals by 400 percent next year. If the publisher won't negotiate, the letter said, the system may have to take "more drastic actions" with the help of the faculty. Those actions could include suspending subscriptions to all of the Nature Group journals the California system buys access to—67 in all, including Nature.

The pressure does not stop there. The letter said that faculty would also organize "a systemwide boycott" of Nature's journals if the publisher does not relent. The voluntary boycott would "strongly encourage" researchers not to contribute papers to those journals or review manuscripts for them. It would urge them to resign from Nature's editorial boards and to encourage similar "sympathy actions" among colleagues outside the University of California system.

The threat is significant. As the letter from the University of California points out,

UC Faculty and researchers author a significant percentage of all articles published in NPG journals and are a major force in shaping the prestige of its publications. In the past six years, UC authors have contributed approximately 5300 articles to these journals, 638 of them in the flagship journal Nature. Using NPG’s own figures, an analysis by CDL suggests that UC articles published in Nature alone have contributed at least $19 million dollars in revenue to NPG over the past 6 years—or more than $3 million dollars per year for just that one journal. Moreover, UC Faculty supply countless hours serving as reviewers, editors, and advisory board members.

It's enough to make me wonder if the University of California's threat of a boycott is too significant.

The primary enforcement mechanisms for antitrust violations in the United States are two sentences in the Sherman Act:

[Section 1] Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. ...

[Section 2] Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony ...

The Sherman Act has produced almost as many court opinions (over 17,200) as there are protein-coding genes in the human genome (under 25,000). I won't pretend that I can decode for sure if anything about the Nature Publishing Group / University of California standoff violates either of those two sentences or their progeny of opinions; you often have to get to the Supreme Court before you know if a given antitrust claim is viable or not. Sometimes you have to get to the Supreme Court just know if a particular antitrust claim is subject to the "per se" rule — which prohibits certain conduct regardless of its effect — or the "rule of reason," which looks to the anticompetitive effects of the conduct before deciding whether or not it violates antitrust law.

But a few issues come to mind.

First, the University of California certainly thinks Nature is a monopoly — they use the word in their letter — and NPG's copyright policy suggets why:

NPG does not require authors of original (primary) research papers to assign copyright of their published contributions. Authors grant NPG an exclusive licence to publish, in return for which they can reuse their papers in their future printed work without first requiring permission from the publisher of the journal. For commissioned articles (for example, Reviews, News and Views), copyright is retained by NPG.

When a manuscript is accepted for publication in an NPG journal, authors are encouraged to submit the author's version of the accepted paper (the unedited manuscript) to PubMedCentral or other appropriate funding body's archive, for public release six months after publication. In addition, authors are encouraged to archive this version of the manuscript in their institution's repositories and, if they wish, on their personal websites, also six months after the original publication.

In one sense that's just creative accounting — NPG doesn't own the copyright for research papers, but they own an exclusive license to publish the work thereafter, and so control how and when the paper can be used. (A "personal website" of a researcher is typically where papers go to die; if the paper isn't in a journal, it won't be found.)

Nature, though, isn't the only journal in town; in addition to other paid journals, there are now dozens of open-source scientific journals out there, and their legitimacy is increasing every day. But the Nature journals are among the most prestigious, particularly in biology and its subfields. NPG thus publishes the journals everyone wants to be in and everyone needs to read.

Does that make it a monopoly in the market of scientific publishing? Maybe so. Problem is, being a monopoly isn't illegal; what's illegal is being a monopoly and abusing that position to increase or to maintain monopoly power. As described by the Court of Appeals for the D.C. Circuit in the Microsoft case:

Section 2 of the Sherman Act makes it unlawful for a firm to "monopolize." 15 U.S.C. § 2. The offense of monopolization has two elements: "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966).

US v. Microsoft Corp., 253 F. 3d 34, 50 (D.C. Cir. 2001)(emphasis added). The issue here would be whether Nature did anything to acquire or to maintain its monopoly power. Raising rates on the University of California to an unaffordable level seems contrary to such a plan; most monopoly claims are brought by competitors who claim that the monopolist has either engaged in predatory pricing or has otherwise precluded competition. Here, the problem isn't that there's no competition, it's that the competition isn't as prestigious. 

Second, looking on the other side of the dispute, an agreement among University of California researchers not to submit ~800 papers a year to, or to peer review many times that many papers in, Nature journals may well be a "conspiracy in ... restraint of trade or commence."

It does not matter, for example, that goal and likely effect of the proposed boycott is to benefit consumers in the end by driving subscription prices down:

The Supreme Court's treatment of monopsony cases strongly suggests that suppliers (under Southwestern Bell's theory of the market, the location owners) are protected by antitrust laws even when the anti-competitive activity does not harm end-users. In its leading monopsony case, the Supreme Court stated:

It is clear that the [anti-competitive buyer's price-fixing] agreement is the sort of combination condemned by the [Sherman] Act, even though the price-fixing was by purchasers, and the persons specially injured under the treble damage claim are sellers, not customers or consumers.

. . . .

The statute does not confine its protection to consumers, or to purchasers, or to competitors, or to sellers. Nor does it immunize the outlawed acts because they are done by any of these. The Act is comprehensive in its terms and coverage, protecting all who are made victims of the forbidden practices by whomever they may be perpetrated.

Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219, 235-36, 68 S.Ct. 996, 92 L.Ed. 1328 (1948) (citations omitted).

Telecor Comm. v. Southwestern Bell, 305 F.3d 1124, 1134 (10th Cir. 2002).

Thankfully for the University of California, it's unlikely that the proposed boycott is a per se violation of antitrust laws, given the Supreme Court's disfavor of per se antitrust claims in the context of boycotts:

[T]he specific legal question before us is whether an antitrust court considering an agreement by a buyer to purchase goods or services from one supplier rather than another should (after examining the buyer's reasons or justifications) apply the per se rule if it finds no legitimate business reason for that purchasing decision. We conclude no boycott-related per se rule applies and that the plaintiff here must allege and prove harm, not just to a single competitor, but to the competitive process, i. e., to competition itself.

Nynex Corp. v. Discon, Inc., 525 US 128, 135 (1998). Then again, the above might protect the University of California's refusal to purchase the Nature journals, but encouraging their researchers not to participate in the journals is another matter entirely. Moreover, though it's a lot harder to win a "rule of reason" case, it's not impossible, and a court could find that the University of California researchers conspired to restrain trade in scientific publications.

Sure, the University of California has a number of defenses, including their comparatively small role in the overall scientific publishing market. Moreover, the State of California is almost certainly immune from monetary antitrust damages under the Eleventh Amendment and Board of Trustees of Univ. of Ala. v. Garrett, 531 U.S. 356 (2001), but immunity for the researchers — i.e., the ones actually carrying out the boycott — isn't nearly as clear. Just last week the Ninth Circuit again considered the circumstances under which a state agency may be liable under antitrust laws. It's not as blanket an immunity as many think. (See more on antitrust immunity here and in California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97 (1980).)

Perhaps the bigger question is if Nature Publishing Group has the guts to go down that road — suing your largest supplier and consumer isn't the best business model — but my suspicion is that they would at least consider it.  They may see the writing on the wall, just as other publishing and media companies do. Record and film companies, for example, haven't hesitated in suing their customers.

That possibility is almost too unfair to believe: the University of California likely has no legal recourse against the Nature monopoly, while the monopoly might have recourse if the free labor calls it quits. But that's the product of one hundred years of antitrust law evolution in the hands of pro-corporate courts. As Justice Holmes, who shaped many of these antitrust laws, said: "this is a court of law, not a court of justice."

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Some background: the Oil Pollution Act establishes strict liability for anyone who spills oil, but limits that liability in the case of offshore rigs to $75 million per spill, plus removal costs. Congress has contemplated removing those caps for the BP spill and all future spills.

Over at the National Law Journal, David Ingram reports that BP, in addition to spilling oil and other substances all over the Gulf of Mexico, is now blowing smoke in the Washington, DC vicinity:

A private consultant for energy companies told Congress on Tuesday that any effort to rewrite oil spill liability laws retroactively would likely face a legal challenge based on breach-of-contract claims.

W. Jackson Coleman, managing partner of EnergyNorthAmerica, said that if successful, those breach-of-contract claims could cost the federal government billions of dollars in payments to the oil and gas industry.

Coleman testified at a hearing of the Senate Judiciary Committee, which is considering legislation to lift limits on damage awards. A former lawyer for the Interior Department and for Republicans on the House Committee on Natural Resources, Coleman said the drilling leases purchased by oil and gas companies are contracts with the federal government, and that the contracts were signed with certain expectations about liability.

He said there is ample precedent for companies to sue when the federal government changes the terms of those leases.

In 2000, for example, the U.S. Supreme Court ruled that the federal government had to return $158 million to Mobil Oil Exploration & Producing Southeast Inc. and Marathon Oil Co. after Congress passed a law limiting drilling off the Outer Banks of North Carolina. Justice Stephen Breyer wrote for an 8-1 majority in the case, Mobil Oil Exploration v. United States. Coleman worked on the case when it was before the U.S. Court of Federal Claims and he was at the Interior Department.

"Certain expectations about liability?"

Since when could you sue the United States government for monetary damages over your "expectations" about its laws?

The Mobil Oil Exploration case was an entirely different situation. There, the government sold a bunch of leases and then passed laws that precluded them from complying with certain terms of the leases. Such is, undoubtedly, a breach of contract: the government did not do what it contracted to do.

In the Gulf of Mexico, BP bought leases from the United States government to conduct offshore drilling. The government complied with every last word of those lease contracts. All on its own, BP screwed up and initiated the revenge of the dinosaurs.

The fact that BP bought the leases with the "expectation" that they would be subject only to the liability caps in the Oil Pollution Act is irrelevant. The government changes its laws all the time, including those relating to liability. In MGM v. Grokster, for example, the Supreme Court invented a wholly-new cause of action for "contributory" copyright infringement, putting Grokster out of business.

In one sense, though, these arguments over the Oil Pollution Act may be a tempest in a teapot, or I suppose a drop in the bucket.

First, the Oil Pollution Act's caps don't apply if the spill was caused by "gross negligence or willful misconduct" or "the violation of an applicable Federal safety, construction, or operating regulation." From the little bit we know about Transocean using seawater instead of mud or cement, and about the impotence of the "failsafe" blowout preventer, at least one of those is going to be met, possibly all of them.

Second, there are a lot of ways to sue BP; the common law of Texas, Louisiana, Mississippi, Alabama, and Florida all allow full recovery under negligence and trespass claims when a person is damaged by someone else's irresponsible conduct.

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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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At Mother Jones:

Michael Clauer is a captain in the Army Reserve who commanded over 100 soldiers in Iraq. But while he was fighting for his country, a different kind of battle was brewing on the home front. Last September, Michael returned to Frisco, Texas, to find that his homeowners' association had foreclosed on his $300,000 house—and sold it for $3,500. This story illustrates the type of legal quagmire that can get out of hand while soldiers are serving abroad and their families are dealing with the stress of their deployment. And fixing the mess isn't easy.

Michael went on active duty in February 2008 and was sent to Iraq. After he shipped out, his wife May slipped into a deep depression, according to court documents. "A lot of people say that the deployment is more stressful on the spouse than the actual person who's being deployed," Michael, 37, says in an interview with Mother Jones. May Clauer had two kids to take care of—a ten-year-old and a one-year-old with a serious seizure-related disorder. In addition, she was worried sick about her husband. Michael's company was doing convoy security in Iraq—an extremely dangerous job. "It was a pretty tough year for the whole company," he says. "We had IEDs, rocket attacks and mortar attacks, and a few soldiers that were hurt pretty bad and had to be airlifted back to the States."

Seeking to avoid hearing about the situation in Iraq, May stopped watching the news. She rarely answered the door, and Michael says he couldn't tell her when he went "outside the wire"—off-base. May also stopped opening the mail. "I guess she was scared that she would hear bad news," says Michael. That was why she missed multiple notices from the Heritage Lakes Homeowners Association informing her that the family owed $800 in dues—and then subsequent notices stating that the HOA was preparing to foreclose on the debt and seize the home.

In case you're wondering, there are indeed laws that are supposed to prevent this sort of thing from happening:

There are a bevy of laws that are supposed to protect servicemembers from losing their homes or jobs while they're on active duty, including the Servicemembers Civil Relief Act (SCRA). The homeowners' association's lawyer filed an affidavit wrongly claiming that neither of the Clauers was on active duty, says Barbara Hale, the couple's lawyer. Hale is seeking to have the court reverse the foreclosure and declare it "null and void," she says.

Aw, shucks. I'm sure the homeowners' association and their lawyer meant to investigate the issue, but reconsidered when they realized it was a lot more convenient to just lie about it.

Maybe I'm being too harsh; then again, the circumstances look, well, fishy:

In Texas, homeowners' associations can foreclose on homes without a court order, no matter the size of the debt. In May 2008, the HOA sold the Clauers' home for a pittance—$3,500—although its appraisal value was $300,000, according to court documents. The buyer then resold the house to a third person.

Maybe there's a good explanation for that, too.

Select Management Co., the company that manages Heritage Lakes, declined to comment for this story.

Or maybe not.

Unfortunately, abuse of solders-as-consumers is rampant; consumer protection laws in the United States are woefully inadequate, so if you're unable to fight tooth-and-nail to protect the minimal rights you have — perhaps because you're on the other side of the planet — then odds are good you'll just get rolled and have to fight in the courts for a few years to get back to where you've started. Progress has been made on that front under the current Administration and Congress, we're still a long way from an acceptable state of affairs.

I would normally leave it at that, but then The New York Times Magazine came along:

For the past few years, it’s been open season on Generation Y — also known as the millennials, echo boomers or, less flatteringly, Generation Me. Once described by the trend-watchers Neil Howe and William Strauss as “the next great generation” — optimistic, idealistic and destined to do good — millennials, born between 1982 and 2002, have been depicted more recently by employers, professors and earnestly concerned mental-health experts as entitled whiners who have been spoiled by parents who overstoked their self-esteem, teachers who granted undeserved A’s and sports coaches who bestowed trophies on any player who showed up.

As they’ve entered adulthood, they have inspired a number of books on how unmanageable they are in the workplace, with their ubiquitous iPods, flip-flops and inability to take criticism. Stories abound about them as college students, requiring 24/7 e-mail access to professors and running to Mom and Dad for help with papers or to contest a bad grade. A consensus has emerged that, psychologically, they’re a generation of basket cases: profoundly narcissistic and deprived of a sense of agency by their anxiously overinvolved parents — in short, a “nation of wimps,” as Hara Estroff Marano, the Psychology Today editor at large, has put it.

(Via Greenfield.) I normally refrain from reading, much less commenting about, such drivel, but the "nation of wimps" comment deserves a response.

The same day that story was published, Army Pfc. Christopher R. Barton, 22, died in Khowst province, Afghanistan, of wounds sustained when insurgents attacked his unit using small-arms fire.

"Nation of wimps?"

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Via the WSJ Law Blog, Amy Kolz at The American Lawyer has a new article about the False Claims Act:

"[FCA cases] are a big gamble," says Piacentile's counsel, former Boies, Schiller & Flexner partner David Stone of Stone & Magnanini, who cites cost-benefit analyses and good relationships with prosecutors as essential to his qui tam practice. "That's why you have to know what you're doing. Otherwise you can be in a case for ten years and not get anything."

But there is a darker perspective on Joseph Piacentile. Unlike most qui tam relators, he doesn't blow the whistle as an employee or business partner of the companies he has sued. Instead he relies on secondhand information collected through his own investigations. (Piacentile declined to comment for this article.) Defense counsel call him a professional mudslinger; some qui tam lawyers and former government lawyers say that he's a parasitic bully who files vague or questionable complaints and then pushes his way into settlements based on his qui tam savvy and his willingness to litigate. And Piacentile has a criminal history of his own--a 1991 conviction on fraud and tax charges--which some lawyers say can undercut his credibility as a plaintiff.

It's an interesting argument, worth the read, not least to see how lame most objections to the False Claims Act are these days. Piacentile "pushes his way into settlements based on his qui tam savvy and his willingness to litigate?"

Do billion-dollar companies lack the "willingness" to defend themselves in litigation? Do they hire lawyers who are not "qui tam savvy?"

Do they roll over every time some doctor from New Jersey with a fraud conviction "pushes" them?

That's what the corporate PR departments want you to believe, but even for Piacentile:

Out of 14 unsealed cases in which Piacentile has been a named relator, just four have successfully settled, seven have been dismissed (some without prejudice), and three are ongoing. In two of the three ongoing cases, those filed against Novartis and Sanofi-Aventis, the government has declined to intervene, a negative sign. And Piacentile's share in at least two of the four successful settlements has been relatively small. Two of the three corelators in Medco earned a combined award that was seven times greater than Piacentile's. Of the approximately $52 million in relators' awards in the 2007 Bristol-Myers settlement, Piacentile earned $7.3 million.

"Relatively small" is indeed relative. Though $7.3 million is a good chunk of change in most contexts, that's not necessarily the case in False Claims Act litigation, which typically require the relator prove systematic fraud by highly sophisticated entities that have covered their tracks thoroughly, often with the assistance of counsel. The cases frequently go on for years without trial, requiring thousands of attorney hours on plus extensive efforts by investigators, experts, and an army of support staff. It's not uncommon for relators to provide the U.S. Attorney's office several thousand pages of organized, indexed documents with explanatory memos at the very first meeting.

Qui tam cases are intense. They're expensive. They're prolonged.

Consequently, they're rare. There's ample incentive against filing them.

Maybe, in the big scheme of things, Piacentile is reaping more reward than some people think he should. It's hard to even evaluate; we don't know the details of the sealed cases. It bears mention here that, in all these cases, the U.S. Attorney's office and the Court obviously didn't have a problem with the awards that Piacentile received.

But let's keep our eye on the ball here. The rewards received by relators are but a fraction of the size of the fraud perpetrated by the defendants. The awards are capped by statute at 25% of the overall resolution of the case, 30% if the government doesn't intervene. Typically, courts (and lawyers) start around 15% and then adjust it up or down based on the facts of the case. See the Department of Justice’s Relator’s Share Guidelines (p. 17).

When we weigh the scales of equity, which is really worth of more complaint — that Piacentile has reaped a few million dollars for questionable investigation techniques, or that dozens of companies defraud the government of billions of dollars every year?

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Tricia Pil, M.D., is a pediatrician and a mother, with a terrible story to tell at Kevin, M.D.:

This is the true story of a hospitalization as told from three points of view: first, the recollections of the patient (who happens to be a physician); second, events as recorded in the medical charts by doctors and nurses; and third, the version put forth by the hospital.

FRIDAY

Patient:
It is fall 2005, and I am nine months pregnant. A healthy 33-year-old pediatrician, I am a longtime patient of Doctor A and Doctor B, who delivered my two young children at this hospital. My husband and I are eagerly anticipating the birth of our third child.
One evening after dinner, the contractions start coming every five minutes. My husband and I pack our bags and drive to the hospital. I am nearly 4 cm dilated. After observation, Doctor C calls Doctor A, makes a diagnosis of false labor and sends us home.

Chart:
9:25 pm: 33 year old gravida 3, para 2, 38 5/7 week seen in office this AM almost 3 cm. Negative PMHx, c/o contractions q 5 min. Cervix 3+. Will ambulate 2 hours.
12:15 am: Continued contractions q 5 min. Spoke with Doctor A–home or stay–patient chooses to go home. Keep appointment Monday for induction.–Doctor C

Hospital:
Your presentation to Triage was discussed with Doctor A by the OB Triage Specialist. Since there was no change in cervical dilation, you were discharged.

You can tell where the story is going.

The facts of her case are depressingly familiar to me. The diligent mother-to-be presenting at Labor and Delivery with the very symptoms her obstetrician and every book, magazine, and website about pregnancy says are a sign of labor. The dismissal of her concerns, the allegation that she is neurotic and overreacting, the matter-of-fact discharge without consulting her, and the falsification of medical records.

The mother-to-be's return, followed by eye-rolling, sighing, and the whispered complaint that she's back again. She's not in labor. She's crazy. She's annoying. The denial that she's in labor until the very delivery itself. The ludicrous demand: don't push. Wait for us. Resist millions of years of mammalian evolution.

Postpartum, the rough handling, the belittling of her conditions and concerns, more falsification symptoms in the medical record. Snide remarks. More allegations that she — not her condition and certainly not the doctors of the nurses — is to blame for everything.

Weeks and months later, the failure to take any responsibility at all, even after the fact, and to treat her like an idiot for believing she deserved better.

I've seen it all before. See it all the time. Our case intake files are filled with client narratives describing crude, heartless and substandard treatment that differs markedly from medical records but always say the patient chose to be discharged from the hospital, sometimes against medical device.

Alas, there's nothing I can do for most of them. I would not have put it the same way that a plaintiff's lawyer told her:

He listened sympathetically and then zeroed in on the key word–damages. Aside from my psychotherapy bills, it was hard to pinpoint a lasting physical injury to me or to my baby. “This case would be worth a lot more if we had three motherless children or a brain-dead baby in a wheelchair,” he said. That’s when I politely thanked him for his time.

I wanted an apology, answers and change–not money.

But the lawyer wasn't wrong. Obstetrical malpractice cases are difficult and expensive. They take years and hundreds, sometimes thousands, of hours, as well as hundreds of thousands of dollars spent out of pocket to pay for experts and other litigation costs.

Putting aside attorney time, her case would easily cost $250,000 just to survive summary judgment. You'll need an obstetrician to comment on the discharge and the delivery, a pathologist to look at the report on the placenta,  an emergency physician and/or hospitalist to comment on how the hospital handled her hemorrhaging, and a neonatologist to comment on how the hospital handled the baby's discharge and re-admission. If the defense coughs up some irrelevant expert — perhaps a psychologist, to say the mother had pre-existing undiagnosed depression, or issues with her father, or some other nonsense — you may need to get one of the same to rebut them.

Your paralegal will spend thousands of hours just sorting through the records to give you their thoughts and to get the records to the experts in a presentable and organized form, since the experts bill by the hour. If you are lucky and efficient, you can file all the necessary pleadings and motions, and conduct all the discovery and depositions, in less than 100 hours of work. That's a generous estimate; you will likely need many times that.

In discovery and at trial, the doctors will have explanations for everything, as will the defense lawyers. Your client is just in it for the money. Are you accusing these good doctors of falsifying medical records? That's outrageous. She's a liar. Why would the nurses and doctors falsify a medical record? They were trying to help her. It's her fault.

And on and on and on. For what? You don't have, as the tort reformers say, "economic damages." You "only" have so-called "pain and suffering," which more than a generation of insurance industry and health care industry propaganda has taught jurors to mean nothing.

It's hard for me to accept she "wants an apology, not money," because there's no money to be had. The insurance and health care giants have made sure of that. I didn't see Dr. Pil volunteer to deposit a retainer of $500,000 to cover the pre-trial costs and attorney's fee to have her rights vindicated. That's what it would take.

Birth injury cases are risky enough when the child has been injured and needs millions of dollars worth of care for the rest or his or her life. If there are no economic damages, then there is no question: you cannot take the case. If you do, it will swallow up your time and bankrupt you.

The hospital knows it. The insurance company knows it. That's why it's so insulting that they can't even apologize to her, a pediatrician, "one of their own," for treating her with less respect, and less concerned for her safety, than a veterinarian would have treated her pets.

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I haven't seen Iron Man 2, but Robert Farley and Davida H. Isaacs have, and they've written a great column about the legal issues at the heart of the story, The Stark Reality of Defense Contracting:

Iron Man 2 is the most expensive movie ever made about an intellectual property dispute....

In the United States, inventors are supposed to profit from their creations, as emphasized in the original comics. But Iron Man 2 takes a different tack. While trying to fend off Vanko, Stark is pressured by the U.S. government to give up the secrets of the Iron Man suit. After Stark refuses a senator's demand that he relinquish his body-armor technology, the government forcibly takes it from him, only to turn it over to a competitor that then uses the technology to fulfill its own defense contract. Consciously or no, this echoes the real world; the United States government can take such actions with almost total legal impunity.

In real life, most inventors aren't trying to "privatize peace." Many just want to get a government contract. Their inventions are kept as trade secrets, like the Iron Man suit, or they are patented. (In the film, Pepper Potts, played by Gwyneth Paltrow, demands action from "patent attorneys," but Stark Industries obviously hadn't patented the technology, or else the government would already have access to the information needed to reproduce the armor.) It is not unheard of for a potential contractor to provide the government with product specifications, only to then watch the government award the contract to a competitor that has suddenly and suspiciously generated remarkably similar technology. For example, Crater Corporation charged that Lucent Technologies improperly used its tennis-inspired coupler to fulfill a Defense Department contract.

These inventors theoretically have their own superpower at their disposal: the Fifth Amendment's "Takings Clause," which requires compensation for government appropriation. But it has one weakness: the military and state secrets privilege, which has been invoked with increasing frequency in the past 25 years.

... [Courts] have treated the privilege as legal Kryptonite, dismissing inventors' lawsuits. In Iron Man 2, Stark's competitor Hammer could have immediately begun production after acquiring the Iron Man suit, insisting that it had generated the technology itself. Had Stark sued, the government could have claimed state-secrets privilege, protecting details of the contract and production design from Stark's lawyers. Stark would have been left without recourse to obtain the evidence needed to prove his case.

I would have quoted more, but for my respect of their intellectual property rights.

Indeed, in Crater Corp. v. Lucent Technologies, the United States officially intervened and tried to halt the case entirely, because, it asserted, "any information to be obtained in [discovery regarding the manufacture or use of the coupler by or on behalf of the United States] was protected by the state secrets privilege." The Court of Appeals for the Federal Circuit didn't rule on that claim, because it dismissed the case under 28 U.S.C. § 1498(a), which:

provides "an affirmative defense for applicable government contractors." Va. Panel Corp., 133 F.3d at 869, 45 USPQ2d at 1232. If a patented invention is used or manufactured for the government by a private party, that private party cannot be held liable for patent infringement. Trojan, Inc. v. Shat-R-Shield, Inc., 885 F.2d 854, 856, 12 USPQ2d 1132, 1134-35 (Fed.Cir.1989); W.L. Gore & Assocs., Inc. v. Garlock, Inc., 842 F.2d 1275, 1282-83, 6 USPQ2d 1277, 1283-84 (Fed.Cir.1988).

And that's just what happened:

We affirm the district court's dismissal of Crater's patent infringement claims because there is no genuine issue of material fact that Lucent's use and manufacture of the allegedly infringing coupler was for the government. Because Lucent established its affirmative defense under 28 U.S.C. § 1498(a), Lucent's activities cannot be held to be infringing.

All's fair in love and war-for-profit.

Let's get back to the patent infringement versus trade secret issue.

Once Tony Stark invents his Iron Man suit, he has two legal options to protect his intellectual property: file for a patent or treat the suit as a trade secret. The law protects both patents and trade secrets, but in different ways.

With a patent, the inventor publicly discloses the invention by filing a patent. If the patent is granted, the inventor is granted exclusive legal domain over the use of the patent for a limited amount of time. If someone wants to build the same device, they can do so by simply reviewing the patent, but they will have to pay the inventor for the use or sale of that device. As a reward for making the instructions public, the inventor is granted a plethora of legal protections, such as the ability to file for injunctions against infringement, and to recover attorney's fees and treble damages in a lawsuit.

With a trade secret, the inventor is required to "take reasonable measures to keep the information secret." If they do that, and "the information derives independent economic value... from not being generally known to, and not being readily ascertainable through proper means by, the public," then federal law makes it a crime to misappropriate that information. Here's an example of the types of things that can get you indicted, such as under the Economic Espionage Act:

Taking the allegations in the Superseding Indictment as true, the defendant engineers were to design tire manufacturing equipment for "off the road" (OTR) tires for their employer Wyko. The defendants formed a plan to take unauthorized photographs of Goodyear's OTR manufacturing equipment under the guise of evaluating Wyko equipment. While at the Goodyear facility, defendant Roberts falsely told the security guard that he had signed a nondisclosure agreement within the past year. The defendants then falsely stated to the Goodyear engineer that they were there to evaluate Wyko-made equipment. Defendant Howley used his cellular telephone to take photographs of Goodyear's OTR manufacturing equipment while defendant Roberts acted as lookout. Defendant Howley emailed the photographs to his work email account and then sent them to defendant Roberts' work email account. Defendant Roberts emailed the photographs to Wyko employees in England.

With a trade secret, state common law allows compensatory relief, through typically not attorney's fees or treble damages. Similarly, it's harder to get an injunction for misuse of a trade secret than for infringement of a patent. (Here's an example in the Second Circuit of misappropriation being clear, but there being no clear risk of "irreparable harm," and so no injunction.)

So, Tony Stark gets to choose: disclose the details of the invention in a patent and correspondingly get superior civil (i.e. monetary) relief if someone copies it, or try to keep the invention secret himself and hope that criminal law dissuades people from stealing it.

In his case it's a no-brainer. He has no intent to sell the technology and he'd lose his advantage if others had it, too. A trade secret it is.

Continue Reading...

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One of my most popular posts was "Investing in Lawsuits" - The Free Market Counterpart to Liability Insurance, which analyzed a New York Times article on Juridica, a company that finances business litigation on the plaintiff's side. The post drew a thoughtful comment from Richard Fields, CEO and Chairman of Juridica, about their business model.

Via Legal Theory Blog, Dr. Maya Steinitz at Columbia Law School has posted a draft of Whose Claim is this Anyway? Third Party Litigation Funding:

This article is among the first to address litigation finance by institutional investors in the U.S. It describes the empirical reality of the industry; identifies and addresses the emergence of a secondary market in legal claims and the prospect of securitization of legal claims; discusses third party funding of international arbitration and; applies a bargaining analysis to understanding the systemic effects of the practice. Specifically, the article asks what happens when, through litigation funding, litigation ceases to be expensive and uncertain and when parties “bargain in the shadow of financing.” Using bargaining theory the article offers a three-step argument for a move away from a prohibition of litigation funding towards nuanced regulation of the industry.

After reading the abstract, I started rolling my eyes, and was sure that I'd have to drag out the most common tool in the lawyer-blogger's toolbox: the accusation that some pointy head ivory tower academic doesn't know how the real world works.

Here's why. As I wrote before:

[W]e already have an industry in which billions (potentially trillions) of dollars of investments are pooled to fund litigation directed towards a particular result. We call it "insurance."

There is a good reason that plaintiff's trial lawyers up against insurance companies (not just in personal injury cases like wrongful death or medical malpractice, but also a variety of "b2b" claims like director & officer liability) accept it as an article of faith that they will not get any reasonable settlement offers until the eve of trial. The economic relationship between insurance companies, defense lawyers, and policyholders creates a situation in which no one mentally accepts the legitimacy of the claim — much less a reasonable value of it — until they are staring down the barrel of a verdict.

Thanks to defense liability insurance, even the most obvious of cases will be met with denial and furious litigating of any and all liability, including a denial of basic common sense principles such as a truck driver being the "agent" of the trucking company or a hospital having a duty to its patients.

Virtually none of the articles about litigation funding even mention — much less to fairly evaluate — the fact that we are ready have a multi-trillion dollar market for litigation funding on the defense side. Such blindness makes it hard for plaintiffs' lawyers like me to see the articles as anything more than ignorance or propaganda.

I was thus pleasantly surprised to see Steinitz's article note,

Third party litigation funding is “a group of funding methods that rely on funding from the insurance markets or capital markets instead of, or in addition to, a litigant’s own funds.” In other words, it is the provision of funds by companies who have no other connection with the litigation. When provided to plaintiffs, third party funding promotes access to justice by enabling plaintiffs who have meritorious cases to bring litigation they would otherwise be unable to bring and to avoid premature settlements at a discount due to exhaustion of funds. When provided to defendants, it allows corporations who can afford to litigate but who do not want to incur any of the costs or risks associated with litigation to shift the costs and hedge the risks.

The door swings both ways; if we're going to worry about funding the plaintiffs' side of litigation then we need to worry about funding the defendants' side, too.

The most interesting development mentioned by Steinitz's article is this one:

The rise of the litigation funding industry i.e., of a primary market in legal claims, had an additional effect besides competitive pressures on global law firms. The last couple of years have also ushered in a secondary market in legal claims. Predominantly, this secondary market takes the form of litigation funding firms going public – selling shares to the public and listing on stock exchanges. But it is possible that in the foreseeable future we will also be witnessing the creation of a new form of securities—legal claims-backed securities. Reportedly, some tort litigation lenders are already in the practice of aggregating the claims they acquire and selling shares of the composite funds i.e., are engaged in a rudimentary form of securitization.

Now that's an interesting idea. And why not? We already have a secondary securitized markets for everything else — including liability insurance, which is often sold off through re-insurance — so why not for litigation, too?  

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The New York Times reports:

Private equity deal-makers, those kings of corporate buyouts, made billions for themselves when times were good. But some of their biggest investors, public pension funds, are still waiting for the hefty rewards they were promised.

The nation’s 10 largest public pension funds have paid private equity firms more than $17 billion in fees since 2000, according to a new analysis conducted for The New York Times, as the funds flocked to these so-called alternative investments in hopes of reaping market-beating returns.

But few big public funds ended up collecting the 20 to 30 percent returns that private equity managers often held out to attract pension money, a review of the funds’ performance shows.

It seems, too, that private equity managers all operate out of Lake Wobegone:

The funds vary in how they report their performance and calculate their returns, allowing a significant number to classify themselves as “top quartile,” or the best performers.

We've been cheated here in Pennsylvania, too:

In 2009, the Pennsylvania Public School Employees’ Retirement System paid $477.5 million in fees — 20 percent more than it did in 2008 and 283 percent more than in 2000, the earliest year for which data was available.

These funds generally charge fees totaling 2 percent of the money they manage and then take 20 percent of the profits they generate.

And yet, even after paying hundreds of millions of dollars in fees, the Pennsylvania fund is ailing. It lost more than a quarter of its value during its latest fiscal year and is now worth less than it was a decade ago, although its performance has improved recently.

There is a solution, you know.

It's called Jones v. Harris Associates, and it was decided last week:

On Tuesday the [Supreme] Court issued its opinion in No. 08-586, Jones v. Harris Associates. In a unanimous opinion by Justice Alito, the Court held that Gartenberg v. Merrill Lynch Asset Management, Inc. applied the correct standard for determining when an investment adviser has breached the fiduciary duty owed to captive mutual fund shareholders established under Section 36(b) of the Investment Company Act of 1940 (ICA). Under Gartenberg, Section 36(b) is violated when advisers’ fees are “so disproportionately large” that they “bear no reasonable relationship to the services rendered.”

Ultimately, the Court concluded, although Gartenberg “may lack sharp analytical clarity,” it has “provided a workable standard for nearly three decades.” The Court noted that the “fiduciary duty” standard established by the ICA represents a “delicate compromise,” protecting investors from fee arrangements not negotiated at arm’s length, but simultaneously shifting the burden of proof to the party claiming the breach of duty.

Why not use it? Even if pay-for-play doesn't drive public pension shareholder lawsuits, the pensions will probably be blamed for it anyway, so give me a call and we'll put you on a contingent fee. 

Don't worry: unlike private equity managers, we don't get a fat paycheck when we lose.

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One of the most common "tort reform" (and "patent litigation reform" and "anti-SLAPP") ideas is to enact "loser pays," in which the side that lost has to pay the attorney's fees or costs to the side that won.

In theory, "loser pays" (more officially known as "fee-shifting") will create a disincentive against filing frivolous lawsuits.

As you can tell from the linked posts, I'm not a fan of fee-shifting. First, plaintiffs and plaintiffs' lawyers have ample incentive not to file a weak cases and tremendous incentive not to file frivolous cases, which by definition have no chance of success. Second, fee-shifting punishes plaintiffs for doing nothing more than exercising their civil rights and punishes defendants for doing nothing more than mounting a defense. There are some special cases — e.g., those involving systematic fraud, like with False Claims Act or RICO Act cases — where fee-shifting makes sense, but not for common law tort cases like this one:

The Topeka, Kansas-based Westboro Baptist Church, led by Rev. Fred Phelps, preaches an anti-homosexual message. Members maintain that combat deaths in Iraq and Afghanistan are God's retribution for America's tolerance of gay men and lesbian women.

Church members have promoted that agenda with a series of intentionally provocative demonstrations outside funerals of servicemen and women who were killed in combat, during which they chant and hold signs bearing messages such as "Thank God For Dead Soldiers."

Church members staged such a protest outside the funeral for Snyder's son, Marine Lance Cpl. Matthew Snyder, in Westminster, Md. Snyder's son was killed in Iraq in 2006 when his Humvee overturned.

Snyder sued.

Does anyone doubt that Snyder was appropriately exercising his right to civil justice? Does anyone believe Synder should not be entitled to have a court and jury assess his claim?

Certainly the District Court and the jury did not: they awarded him $5 million dollars for invasion of privacy and emotional distress.

Westboro Baptist Church appealed. The Federal Rules of Appellate Procedure have their own cost-shifting provision, Rule 39:

(a) Against Whom Assessed. The following rules apply unless the law provides or the court orders otherwise: 

(1) if an appeal is dismissed, costs are taxed against the appellant, unless the parties agree otherwise;

(2) if a judgment is affirmed, costs are taxed against the appellant;

(3) if a judgment is reversed, costs are taxed against the appellee;

(4) if a judgment is affirmed in part, reversed in part, modified, or vacated, costs are taxed only as the court orders. 

The Fourth Circuit Court of Appeals reserved the judgment in Snyder's favor on First Amendment grounds.

Thus, Synder now owes the Westboro Baptist Church $16,500 in costs. Thankfully there's no Federal Anti-SLAPP law: if there had been one, Synder would have been on the hook for all of Westboro's attorney's fees and costs, not merely the costs on appeal.

Civil it may be, but justice it is not.

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Last week, the Supreme Court agreed to hear Bruesewitz v. Wyeth. The case will decide:

Whether Section 22(b)(1) of the National Childhood Vaccine Injury Act of 1986 — which expressly preempts certain design defect claims against vaccine manufacturers “if the injury or death resulted from side effects that were unavoidable even though the vaccine was properly prepared and was accompanied by proper directions and warning” — preempts all vaccine design defect claims, regardless whether the vaccine’s side effects were unavoidable.

The relevant briefs and opinions are available at SCOTUSBlog.

There's an old saying that lawyers and judges bat around, "reasonable minds can disagree." (Of course, few people really believe that, but we all say we do.)

On the above question — in essence, whether Congress intended to wash away (i.e., "preempt") whole swaths of state-law product liability claims against vaccine manufacturers or if Congress merely intended to set up streamlined compensation for a certain class of rare but unavoidable vaccine-related injuries — the Georgia Supreme Court and the United States Court of Appeals for the Third Circuit reached expressly opposite answers less than one year apart from one another. The Georgia Supreme Court answered "no," while the Third Circuit answered "yes." 

The Supreme Court will tell us which Court was right.

I'll leave the merits of the arguments to others. Obviously, if a state Supreme Court and a federal Court of Appeals reached opposite conclusions, then "reasonable minds can disagree." The Third Circuit's opinion is here. The Georgia Supreme Court's opinion is here. Judge for yourself.

What caught my eye was this portion of Wyeth's brief to the Supreme Court, part of their argument for why the Supreme Court should hear the case:

Today, a new litigation threat to the nation’s vaccine supply exists. Approximately 5,000 petitions are currently pending in the "Omnibus Autism Proceeding" in Vaccine Court. HRSA, National Vaccine Injury Compensation Program Statistics Report (Sep. 14, 2009, http://www.hrsa.gov/vaccinecompensation/statistics_report.htm. While the omnibus proceeding will decide for all of the pending cases whether there is a causal link between childhood vaccines and autism, that ruling will have no preclusive effect outside of Vaccine Court. 42 U.S.C. § 300aa-23(e). Each claimant may elect to file a civil action after proceeding through Vaccine Court. Over 350 civil actions have been filed against vaccine manufacturers in various courts with allegations that childhood vaccines caused the recipient to develop autism.

The potential deluge of post-Vaccine Court litigation could lead to the same dangerous situation that existed in the mid-1980s. The number of childhood vaccine manufacturers has not increased since the enactment of the Vaccine Act. In the United States market today, as in 1986, there is still just one manufacturer for the polio vaccine, one for MMR, and two for the DTP vaccine. Compare 1986 U.S.C.C.A.N. at 6348, with FDA/CBER, Thimerosal in Vaccines, http://www.fda.gov/CBER/vaccine/thimerosal.htm (last updated Aug. 31, 2009). Thus, what Congress said in 1986 is true today: "The loss of any of the existing manufacturers of childhood vaccines at this time could create a genuine public health hazard." 1986 U.S.C.C.A.N. at 6348.

Wyeth Brief, pp. 17-18.

At first blush, Wyeth's reasoning seems sound. The question presented by Bruesewitz v. Wyeth could determine the fate of more than 5,000 pending cases. That makes Bruesewitz v. Wyeth worthy of attention.

But that doesn't make the case necessarily worthy of the Supreme Court's attention. Outside of constitutional rulings, the Supreme Court's primary job is to interpret the laws passed by Congress, not to enact new laws or to fret over the consequences of old laws. To the extent upcoming autism litigation is a problem, that's an issue for Congress — not the Court — to address.

If, indeed, "the loss of any of the existing manufacturers of childhood vaccines at this time could create a genuine public health hazard," then Congress could step in and immediately terminate all of the pending cases by amending the National Childhood Vaccine Injury Act of 1986. Congress could, for example, amend to law to clearly preempt all civil suits brought for injuries arising from polio, MMR, or DTP vaccines. 

Moreover, though 5,000 cases sure sounds like a lot, it's not really that much in the big picture. The Vioxx settlement involves ten times that many. And do you know how many cases it really turned into?

One.

Thanks to the Judicial Panel on Multidistrict Litigation, once litigation over a particular issue becomes too big, it can be consolidated into a single proceeding before a single judge. That's what happened to Vioxx, it's what's happening to Toyota, and it's what will happen to the Autism/Vaccine litigation. At this very moment, approximately 92,000 separate lawsuits arising from a wide variety of situations (ranging from asbestos poisoning to securities fraud) have been consolidated into a mere 310 MDL actions.

A "deluge" of one, I suppose.

And what will likely happen in that single case?

Probably the same thing that happened before the Special Masters and before the Court of Federal Claims: the plaintiffs will lose. Odds are good that the plaintiffs won't even get to a jury; all it takes is for the MDL court to find that plaintiffs' experts' theories do not satisfy Daubert and — poof — the cases are all over before a single witness testifies.

Consider this passage from the Cedillo opinion:

[...] Petitioners’ sequence of cause and effect depends upon a presence of persistent measles virus infection in Michelle’s body. However, the Special Master concluded that “the petitioners offered virtually no evidence concerning this necessary element in their proposed chain of proof– i.e., their claim that the measles virus, which they claim to persist in [autistic] children, is vaccine-strain measles virus.” Id. at *52. The Special Master also saw no logical sequence of cause and effect between the MMR vaccine and Michelle’s development of inflammatory bowel disease. Specifically, the Special Master found Dr. Krigsman’s theory that Michelle suffered from an MMR-induced inflammatory bowel disease to be factually incorrect because Michelle did not suffer from gastrointestinal inflammation, and Dr. Krigsman “gravely misunderstood the temporal history of Michelle’s gastrointestinal problems.” Id. at *114-15. The Special Master’s conclusion that Petitioners failed to demonstrate any relationship between the MMR vaccine and Michelle’s autism is eminently reasonable. He determined that they offered “virtually no evidence” to support their claim. See id. at *52.

That's a big problem. Given the amount of effort put into the case, it's hard to see the plaintiffs curing this problem down the road. Similarly, the primary study demonstrating a connection between the MMR vaccine and autism was officially retracted last month.

But we're getting ahead of ourselves with these details. The point is: if the Supreme Court agrees with the Georgia Supreme Court and finds that only claims arising from unavoidable vaccine injuries are preempted, the sky will not fall. Not even if the autism litigation goes forward.

Most likely, the sky won't even move at all.

And if it moves too much, then Congress can put it back, just like they did in 1986.

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

Here's the abstract:

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

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

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

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

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

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

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

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

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

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

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

And it sounds like a heckuva game to play.

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

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

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

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

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

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

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

[…]

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

Renner drinking alcohol after successful missions;

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

As THR, Esq. notes,

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

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

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

Hence, the complaint continues:

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

The Complaint alleges seven counts:

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

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

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

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

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

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

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

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

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

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

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

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

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

Let me explain.

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

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

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

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

All of that happens on a lawyer's desk.

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

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

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

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

Merits Brief, pp. 17–18.

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

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

Id., pp. 44–47.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Sometimes, a police officer's hunch is right:

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

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

Sometimes not:

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

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

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

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

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

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

There's a law for both:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

When it comes to the excessive force claim:

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

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

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

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

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

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

Courts of law, not of justice.

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

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

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

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

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

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

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

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

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

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

That would, indeed, be unconstitutional.

But it's not actually the law.

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

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

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

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

It's all so unfair.

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

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

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

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

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

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

So much for "originalism."

Stevens' conclusion puts the case in proper perspective:

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

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

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

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

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

(Emphasis mine; keep reading to see why.)

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

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

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

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

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

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

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

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

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

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

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

So what to do?

Change the burdens.

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

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

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

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

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

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

Just a thought.

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

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

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

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

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

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

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

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

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

Please govern yourself accordingly.

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

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

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

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

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

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

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

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

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

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

Touché.

Admissible in court, too.

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

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

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

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

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

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

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

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

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

(emphasis in original)

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

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

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

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

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

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

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

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

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

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

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

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

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

[and]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If Shakespeare can do it, can James Cameron?

Probably so.

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

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

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

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

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

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

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

As Spielberg's motion for summary judgment argues,

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

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

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

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

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

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

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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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Good for him:

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

...

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

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

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

Halliburton and KBR have disputed Jones' claims.

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

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

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

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

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

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

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

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

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

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

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

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

I recommend the authors journey down this road:

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

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

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

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

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

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

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

Highly recommended for anyone with an interest in constitutional history.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

...

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

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

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Business Week points us to the major cases.

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

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

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

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

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

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

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

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

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

Stay tuned for more discussion of each in upcoming posts.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Now Congress has jumped in:

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

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

...

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

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

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

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

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

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

Sword or shield. Not both.

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The Philadelphia Inquirer reports:

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

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

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

...

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

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

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

...

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

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

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

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

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

Section 1304. Court costs and attorney fees.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hello,

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

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

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

Sincerely,

The Google AdSense Team

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

So, can they sue?

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

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

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

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

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

So the question isn't so simple:

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

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

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

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

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

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

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

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

Last week, the Fulton County Daily Report noted:

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

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

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

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

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

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

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

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

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As The Philadelphia Inquirer reported on Friday:

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

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

...

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

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

...

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

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

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

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

...

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

WHYY has a copy of the complaint, available here.

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

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

Let's go back to 1866.

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

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

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

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

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

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

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

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

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

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

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

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

McGovern at 121.

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

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

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

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

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

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

As Popehat notes,

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

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

An interesting case to follow.

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

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

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

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

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

The Legal Procedure:

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

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

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

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

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

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

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

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

The Facts That Will Be Disputed:

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

The Valley Club has replaced its entire website with:

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

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

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

Plausible, but disputed:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So how do we show denial because of their race?

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

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

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

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

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

And it gets worse:

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

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

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

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

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

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

NBC Philadelphia says:

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

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

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

Bad enough. Then comes the kicker:

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

Wow.

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

§ 955.  Unlawful Discriminatory Practices

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

* * *

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

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

The Human Relations Act defines "public accommodation" as:

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

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

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

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

...

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

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

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

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

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

See you in court, guys.

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

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

Second, the Inquirer notes:

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

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

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

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

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

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

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

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

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

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

How bad was it? Turkewitz caught two outright falsehoods:

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

and

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

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

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

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

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

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

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

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

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

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

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

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

Finally, he concludes:

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

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

Thanks, but no thanks.

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The American Constitution Society's blog reports:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

...

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

Business Insider worries about the unintended consequences:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NLJ: How did this award get so big?

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

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

...

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

...

NLJ: What was special about this executive compensation agreement?

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

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

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

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

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

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

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

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

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

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

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

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

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The Am Law Litigation Daily brings us important news:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(via Sentencing Law & Policy)

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

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Two interesting stories today.

Twittering Teens Terrorize the City:

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

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

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

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

Judge Reprimanded for Friending Lawyer and Googling Litigant:

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

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

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

...

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

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

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

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

Where will we be ten years from now?

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

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

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

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

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

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

Because the permanent record society is here to stay.

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

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

But not their Twitter records.

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JURIST's Paper Chase reports an interesting development:

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

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

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

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

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

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

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

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

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

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

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

Except, you can't sue the officers:

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

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

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

Money.

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

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

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

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

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

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

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

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

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

No, it doesn't.

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

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

What's a "tort?"

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

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

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

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

What's an LLC?

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

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

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

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

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

Here's what you probably don't know:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No trickery needed, just some money and foresight.

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At The Legal Intelligencer Blog:

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

...

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

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

...

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

We've been down this road before.

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

The Pennsylvania Supreme Court agreed:

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

...

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

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

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

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

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

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

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

And thus came the sequel:

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

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

...

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

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

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

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

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

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

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

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

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

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

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

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A recent post at a prominent club / venue in San Francisco, DNA Lounge:

Several years ago, there was some kind of scuffle and one of our customers who was dancing on the stage fell off and hurt her ankle. She sued us. I'm not sure what exactly her reasoning was, but she did, because this is America, and you can sue anybody for anything. She claimed she had spent $4,000 on medical bills (chiropractors!) and asked for $500,000 in pain and suffering.

We learned in the discovery phase that this woman had also been in three automobile accidents in the previous two years, for which she had been going to chiropractors already. How about that.

We submitted this claim to our insurance company, like you do, and their lawyers handled it. They ended up settling the case by paying her around $11,000. And here's where it gets fun:

Our deductible was $10,000. So the lawyer, who was working for the insurance company, did right by the insurance company. It only cost them $1,000! But he didn't try to negotiate anything lower, because that would have been a waste of his time, since he wasn't working for us, and that was the part we would have to pay. Oh, but it gets better.

It turns out that the fine print on our insurance said, in longwinded, 4-point, incomprehensible legalese, that the rates we had been paying for years were merely "estimates". So after our claim, the insurance company "audited" us, and retroactively raised our rates for the last four years by $20,000 per year. So the fact that we filed a claim at all caused the insurance company to demand an additional $80,000 from us.

At that point, we hired our own lawyer who negotiated that $80,000 down to $40,000, paid out over a year instead of being due immediately. Plus several thousand more for the new lawyer, obviously.

Though the author heaps blame on the plaintiff for what happened here, the outcome would have been exactly the same if the claim had been legitimate: $10,000 out of pocket plus a retroactive bill raising the rates.

There were two causes of this expensive affair: an absurdly high deductible and an unethical, unregulated insurance company.

Every bricks and mortar business which invites customers onto its premises -- whether it's a nightclub, a coffee shop, a computer store, a hair salon, a gym, a jewelry store, a DVD shop, a law firm, whatever -- should expect paying its deductible from time to time to defend or to settle claims.

I know, you are perfectly safe, and flawless in your execution of all mundane asks like ensuring walkway cracks are repaired in a timely fashion.

Are your employees? Your customers? The building? The location? In the case above, a fight broke out; not necessarily the club's fault, but if they had inadequate security and did not react appropriately then indeed their responsibility, at least in part, which in many jurisdictions exposes them to potentially paying the whole judgment.

It's not like driving a car where you can take a handful of defensive driving steps and dramatically reduce your odds of being at fault. (Even there, you can still expect to cause an accident at some point.) Someone will get hurt, or at least claim they were hurt, at your premises. A nightclub that serves alcohol is continually exposed to liability from multiple sources, like slip and fall, premises security, and dram shop.

A $10,000 deductible sounds cheap when you pay the premium, and it is exactly that: cheap. You'll pay the deductible more than once. You might pay it every single year.

Moving on to the unethical insurance company, if the insurance company-appointed lawyer "didn't try to negotiate anything lower, because that would have been a waste of his time," call me. The policyholder's interests come first. Anything less is bad faith.

As for the "estimated" premium, perhaps this was during the Quackenbush era. That wouldn't fly in most jurisdictions these days and would form the basis of a fraud, deceptive trade practices, and consumer protection act class action lawsuit and an insurance commissioner investigation.

The post ends:

What's the lesson here, kids?

I think it's, "people are scum" and/or "never start a business."

No. A properly-insured business will find a slip and fall soft tissue case to be a minor annoyance for which they will be liable, if at all, a nominal sum.

The lesson is "don't skimp on your deductible" and/or "regulation of the insurance industry is important."

Did you choose a reasonable deductible? Have you called up your local, state and federal representatives lately to ask what they're doing to keep insurance companies honest?

And do you know who is trying to protect you right now? Trial lawyers. They're fighting every day to keep insurance companies from abusing policyholders the way DNA Lounge was abused.

You don't have to be a lawsuit horror story.

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

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

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

Evading The Obvious Spirit of the Agreement:

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

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

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

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

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

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

Making The Facts Fit Your Lawyer's Strategy:

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

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

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

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

Voiding Your Legal Protections, Like Attorney-Client Privilege:

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

...

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

...

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

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

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

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This article in The Philadelphia Inqurier raised an eyebrow or two:

A federal appeals court has upheld the Philadelphia Police Department's policy that forbids officers to wear Muslim head scarves on the job.

The U.S. Court of Appeals for the Third Circuit ruling, issued Tuesday, affirmed a lower court's ruling in a 2005 lawsuit filed by Officer Kimberlie Webb of the 35th Police District. Webb, who became a Sunni Muslim two years after joining the force in 1995, contended that the ban on the scarves, known as hijabs, violated her civil rights.

In 2007, a federal judge ruled in the city's favor, and the Third Circuit said accommodating Webb would severely damage the department's appearance of "religious neutrality."

Certainly not the first religious discrimination case raised against the government. Some background:

Congress initially enacted the Religious Freedom Restoration Act (RFRA) in 1993 to counter the Supreme Court's decision in Employment Div., Dept. of Human Resources v. Smith, 494 U.S. 872, 110 S. Ct. 1595, 108 L. Ed. 2d 876 (1990), which held that neutral and generally applicable laws are not susceptible to attack under the Free Exercise Clause of the Constitution even if they incidentally burden the exercise of religion. RFRA provided that any legislation imposing a substantial burden on religion would be invalid unless it was the least restrictive means of furthering a compelling state interest. 42 U.S.C. § 2000bb et seq. Shortly thereafter, the Supreme Court in City of Boerne v. Flores, 521 U.S. 507, 117 S. Ct. 2157, 138 L. Ed. 2d 624 (1997), struck down RFRA as it applied to the States because it exceeded Congress's remedial power under Section 5 of the Fourteenth Amendment.

Lighthouse Inst. for Evangelism, Inc. v. City of Long Branch, 510 F.3d 253, 261 (3d Cir. 2007). In addition to the Constitutional / First Amendment claims, last year the Third Circuit pointed out that, even if the federal RFRA was struck down, there are still numerous protections:

Although there are differences among the various federal and state religious protection statutes, most contain, at their core, the same fundamental structure and purpose. They recognize that neutral laws of general applicability may burden religious exercise as significantly as laws intended to interfere with religious exercise. The federal statutes, Pennsylvania's [Religious Freedom Protection Act (RFPA)], and a majority of the state statutes also acknowledge the government need not justify every action having some effect on religious exercise. Under those statutes, only substantial burdens trigger heightened scrutiny. RFPA's four definitions of 'substantially burden' emphasize the importance of this threshold. See 71 Pa. Stat. Ann. § 2403 ('significantly constrains or inhibits'; 'significantly curtails'; 'denies . . . a reasonable opportunity to engage in activities . . . fundamental to the person's religion'; 'violates a specific tenet of a person's religious faith.') (emphasis added).

Combs v. Homer-Center Sch. Dist., 540 F.3d 231, 261–62 (3d Cir. 2008).

The problem in the Webb case just decided is that, apparently, plaintiff's constitutional, state religious freedom, and sex discrimination claims were all waived. As noted by the opinion,

On October 5, 2005, Webb brought suit against the City of Philadelphia,2 asserting three causes of action under Title VII—religious discrimination, retaliation/hostile work environment, and sex discrimination—and one cause of action under the Pennsylvania Religious Freedom Protection Act (RFPA), 71 Pa. Stat. Ann. § 2401. ...  The District Court granted summary judgment on all claims, finding Webb failed to exhaust her administrative remedies for the Title VII sex discrimination claim, failed to meet the statutory notice requirements for the RFPA claim, and failed to raise a genuine issue of material fact for the Title VII religious discrimination and retaliation/hostile work environment claims.

Webb appeals only the adverse judgments on the religious discrimination and sex discrimination claims. She also raises, for the first time on appeal, certain constitutional claims.

The Third Circuit affirmed on all counts, which is to say, except for the religious discrimination claim, all of plaintiff's claims were dismissed for procedural reasons, either because they were initially filed the wrong way or were not raised until appeal.

It is easy to blame the lawyers for the outcome here, but the fault really lies with the roadblocks raised by federal and state statutes for the primary purpose of making it harder to file these claims. Each type of claim that could be raised here -- Federal free speech, Title VII discrimination (of two different types), Pennsylvania discrimination, and Pennsylvania religious freedom -- must be filed in a different way.

A federal free speech claim is a lawsuit brought under 28 U.S.C. 1983, filed directly with the District Court. Each Title VII discrimination claim, however, must first be raised specifically in a complaint (generally drafted on-site without the assistance of an attorney) to the Equal Employment Opportunity Commission. The same is true of state discrimination claims before the Pennsylvania Human Relations Commission. The Pennsylvania RFPA, in turn, has its own independent statutory requirements for suing the government, requiring that the plaintiff

give written notice to the governmental entity by certified mail, informing that agency of all of the following:

(1) The person's free exercise of religion has been or is about to be substantially burdened by an exercise of the agency's governmental authority.

(2) A description of the act or refusal to act which has burdened or which will burden the person's free exercise of religion.

(3) The manner in which the exercise of the governmental authority burdens the person's free exercise of religion.

Webb v. City of Philadelphia, No. 05-5238, 2007 U.S. Dist. LEXIS 11762, at *11–12 (E.D. Pa. Feb. 20, 2007).

Got all that? Making matters worse, often times the EEOC will send you to the PHRC, and vice versa, depending on how overburdened they are.

In that context, it's not surprising to see plaintiffs inadvertantly waive claims -- that's just what the system was designed to do.

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The New York Law Journal has an excellent, detailed article by Stephen M. Kramarsky on a recent 2nd Circuit opinion:

An overly narrow view of the scope of copyright protection risks harming the commercial market for entire classes of works; an overly broad view risks chilling creativity and creating impermissible monopolies on facts. Courts examining the line between fact and expression must keep these concerns in mind, particularly when considering cases that lie entirely outside of the traditional scope of copyright protection, as the court did recently in Associated Press v. All Headline News Corp.

...

The [Associated Press] asserts that it is particularly focused on providing reports of "breaking" news. Among other things, the AP makes its stories available to clients for use on their Web sites. Each story contains written copyright information that identifies the AP as author and/or owner of the story, and the AP registers copyrights in its news stories and photographs (a prerequisite to suit and certain kinds of statutory damages).

All Headline News Corp., according to the complaint, does not undertake any original reporting. Instead, its employees search the Internet for stories that they rewrite or repackage for republication (either in full or as excerpts). Some of AHN's stories are based on AP articles, but they are marketed to AHN's clients as originating with AHN. AHN distributes its articles to paying clients who publish them on their sites.

AP filed suit against AHN based on its alleged "free riding" on AP's original reporting, asserting claims for copyright infringement, violations of the Digital Millennium Copyright Act, misappropriation of "hot news" and various Lanham Act violations.

If you're interested in New York law, read the article for the scoop on the "hot news" state law tort, which has surprisingly thrived this long without being ruled as completely pre-empted by Congress' copyright legislation. Kramarsky concludes:

All of this aggregation and customization is becoming mainstream precisely because the Internet has greatly increased the number of information sources available, and consumers are struggling to work out how to package it.

Any limitations on that conduct are likely to harm not only consumers, but their information suppliers as well. Although the Associated Press court can hardly be faulted for its reading of New York law, its careful decision may have considerable unintended repercussions.

Keep in mind the facts of that case, which a respected practitioner in a nationally-published law journal has argued nonetheless goes too far, and focus on the bigger picture here, the federal copyright and DMCA issues (the DMCA, Kramarsky notes, "prohibits intentionally removing or altering any "copyright management information" or trafficking in works with removed or altered copyright management information." There's almost no case law on that section.).

A month ago Whet Moser at the Chicago Reader's Chicagoland bemoaned the "aggregation" done by Huffington Post, which exploited the inverted triangle followed by reporters:

On the left side [of HuffPo] there is a blog. Aside from the generic complaint about people who write for free, most people have come to accept that there are bloggers who quote things and link to them.

On the right side there are headlines. Here's where it gets tricky so pay attention and hopefully I won't have to explain this ever again. If you click on the headline, you go to another site--fine. If you click on "Quick Read," you get a piece of the article that the headline goes to, with an ad. If you click on "comment" you get that piece of the article with a comment box. ...

Those first couple paragraphs are written by a person who is paid to write that, often at great expense and with generous health benefits.

So: why do I think bloggers should get away with that? Why is the left side of ChuffPo fine and the right side questionable? People should be able to write about things. They should have the right to use them for: "purposes such as criticism, comment, news reporting, teaching." The person blogging about news things at ChuffPo is doing something unique, whether that person is insightful or an idiot. There's societal value to both. It's a tremendously important freedom and it's why the blogosphere is so rich. On the other hand, just slapping up a quote above a comments section--which, odds are, the other site has as well--feels cheap (and, technically, is cheap, that's the business model).

I don't know of anyone who says authors shouldn't be able to sue those who simply cut-and-paste without adding value, as is apparently the case with the "right side" of those Huffington Post "blogs." The issue there is one of degree.

The bigger question for bloggers (the "left side"), all of whom strive to add more value than they copy in their quest for credibility, is: does quoting some of an article as part of my larger work trigger copyright liability?

Just nine months ago the Associated Press tried to answer "yes," started enforcing per-word quotation licensing on bloggers, and got trashed everywhere. So they gave up.

The market has moved -- we're almost 15 years into the attention economy -- and there's no stopping it now. The AP's policy nominally requires paid licensing for quotes shorter than a tweet on twitter.

That won't do these days. Not when information is everywhere, when the best way you can make money is through permission marketing, getting the people who other people trust to say they trust your product or service. Not when Robert Scoble is arguing that even Twitter isn't the future of business advertising, that you need to get closer and more personal with people.

The big content producers "know" that, or at least know what they're doing isn't going to work much longer, and they're slowly getting it. Lawsuits won't "protect" their content, it will render that content invisible.

Which is why blogs will be fine, even with laws on the books that, arguably, permit a cause of action against them defended only by a vague "fair use" exception. A right with a "remedy" worse than the harm is not a right anyone will enforce.

[UPDATE: Just a few days after this post, the Associated Press announced it would "take legal action against Web sites that use newspaper articles without legal permission, the group said on Monday, in a clear shot at aggregators like Google." I do not think their chances of success are very high, for the reasons above. Moreover, this strategy -- going for the 800-lbs gorilla first, instead of low-hanging fruit -- is more evidence of a conscious decision not target bloggers, who are more likely to cause controversy.]

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At The National Law Journal (via How Appealing):

In a case stemming from an employer's theft of e-mails from the personal account of an employee who had sued him for sexual harassment, a panel of the 4th U.S. Circuit Court of Appeals recently became the first circuit to hold that plaintiffs must prove actual damages in order to be eligible for an award of statutory damages under the federal Stored Communications Act.

But the unanimous panel, led by Chief Judge Karen Williams, also ruled that a showing of actual damages is not required for awards of punitive damages or attorney fees. Van Alstyne v. Electronic Scriptorium Ltd., No. 07-1892.

The panel decision reversed a jury award of $150,000 against Bonnie Van Alstyne's employer, Edward Leonard, and $25,000 against Electronic Scriptorium Ltd., of which Leonard was president. The decision leaves intact a $75,000 punitive damages award against Leonard; a $25,000 punitive damages award against ESL; and an award of $135,723.56 in attorney fees and costs to Van Alstyne.

I don't think most non-lawyers recognize they can recover for conduct like this:

During discovery in ESL's suit, Van Alstyne became suspicious that several e-mails presented by Leonard were from her personal account. In a deposition, he admitted he had accessed Van Alstyne's AOL account after she left the company ...

Let's look a little closer at the law, as explained in the opinion (PDF):

Section 2701 of the SCA creates a criminal offense for whoever "intentionally accesses without authorization a facility through which an electronic communication service is provided" or "intentionally exceeds an authorization to access that facility," and by doing so "obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system." 18 U.S.C.A.
§ 2701(a)(1-2).

Section 2707 provides a private cause of action for "any . . . other person aggrieved" by a violation of § 2701. 18 U.S.C.A. § 2707(a). Under § 2707, a district court may award equitable or declaratory relief, a reasonable attorney’s fee and other costs, and "damages under subsection (c)." 18 U.S.C.A. § 2707(b). Subsection (c) provides:

The court may assess as damages in a civil action under this section the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation, but in no case shall a person entitled to recover receive less than the sum of $1,000. If the violation is willful or intentional, the court may assess punitive damages. In the case of a successful action to enforce liability under this section, the court may assess the costs of the action, together with reasonable attorney fees determined by the court.

Id. § 2707(c).

In the face of the plain meaning of the statute, why was the "actual damages" limitation even contested on appeal?

Likely because the defendant argued that, without actual damages, the plaintiff couldn't recover at all. Not punitive damages, not attorney's fees, not anything. The Court disposed of that summarily:

Although "[t]here is no established federal common law rule that precludes the award of punitive damages in the absence of an award of compensatory damages," People Helpers Found., Inc. v. City of Richmond, 12 F.3d 1321, 1326 (4th Cir. 1993), we have held, in accordance with "the majority rule" that, absent statutory language to the contrary, punitive damages are not recoverable absent proof of actual damage, id. at 1327.

The SCA, we believe, provides such language. Section 2707(c) states, "[i]f the violation [of the SCA] is willful or intentional, the court may assess punitive damages." 18 U.S.C.A. § 2707(c). This sentence lacks the limiting language associated with an award of actual damages and statutory damages, with no references to persons "entitled to recover." The sole limitation is that the violation of the SCA be "willful or intentional," a threshold which the jury found to be met in this case.

Accordingly, we find no error in the district court’s award of punitive damages absent a showing of actual damages. See Saunders, 526 F.3d at 152-155 (approving award of punitive damages under the Fair Credit Reporting Act without award of actual damages); Yohay v. City of Alexandria Employees Credit Union, Inc., 827 F.2d 967, 972 (4th Cir. 1987) (noting "[a]ctual damages are not a statutory prerequisite to an award of punitive damages under the [Fair Credit Reporting Act]"). We must vacate and remand this award, however, for the district court to reevaluate in light of our ruling above that Van Alstyne was not entitled to statutory damages in this case absent proof of actual damages.

So there you go.

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Fresh off of my juror twittering post yesterday, KevinMD points us to a Newsweek story:

What might you overhear if you got 100,000 doctors together in one virtual room? You could find out if you had access to the social network Sermo. It's just one of a growing cadre of sites designed for the nation's practicing physicians. Here, doctors from across the country can consult each other about the ordinary and the weird (or "zebras" in the lingo). There are queries about treatments for everything from plantar warts to photographs of mystifying rashes and even questions about an unfortunate fellow with postorgasmic nausea.

...

But there are other questions as yet unanswered: ... What if comments are pertinent to a malpractice case? Both Sermo and WebMD say they zealously protect physician anonymity from all third parties.

What if a treating physician called another physician in the room for an informal discussion session about a treatment, and was later sued for medical malpractice?

That conversation would be discoverable, since it's relevant to proving the physician's conduct relative to the standard of care and it's not privileged (unlike, say, a post hoc Peer Review Committee).

Nothing about the message board changes that analysis. Would it make the responding physician liable? Probably not, as they're not responsible for the patient's care -- but again, there's no real need for a whole new method of analysis here. Just think of what the answer would be in the bricks & mortar world.

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TortDeform points us to an excellent article in Mother Jones about systemic fraud in the franchise industry, an article which includes this passage:

Hoping to recoup their losses, Welshans and Williams sued in Maryland federal court. But Coffee Beanery struck back in Michigan; a federal judge there ordered the couple—as required in the fine print of their franchise agreement—to instead take their dispute to a private arbitrator selected by the company. (Such binding arbitration clauses are boilerplate in contracts for everything from cell phones to credit cards.) Welshans had to borrow another $100,000 from his brother-in-law just to proceed with the process, which required steep fees up front.

...

She ordered the couple to pay $187,452 in legal fees and arbitration expenses—not including their own legal tab or the cost of travel to and from Michigan. Among the charges: $16,800 for Barron's services, $35,571 for a court reporter and transcription, even $504 for the Beanery lawyers' lunches.

Arbitration has a place in the American legal system. It is no panacea, but for many businesses it enables a comparatively quicker and less painful (though often more expensive, given the arbitrator's fees) method for resolving disputes with other businesses.

But let's be real: anyone who demands they alone have the right to choose the arbitrator is trying to defraud you.

There is a huge roster of fair and impartial arbitrators who would be happy to hear your case, and multiple services (like AAA and JAMS) willing to provide you options. No business has good reason for demanding they be able to unilaterally choose the arbitrator in advance.

If the parties want to name a particular arbitrator in advance, that's fine, as the parties have an opportunity to explore who that person is, but leaving the option open for an unfettered choice down the line after the wrongful conduct has occurred is unreasonable and should be prohibited by the Federal Arbitration Act (keep in mind -- arbitration is not a "contractual" right, it's a statutorily-prescribed method of dispute resolution, making Congress complicit in these abuses).

I wouldn't buy the time of day from someone who proposed that and neither should you.

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It's an article of faith among many businesses and lawyers: Delaware. It doesn't matter what the question is. Where should you incorporate? What should the governing law of your contract be? 

Delaware! Delaware's good for business.

Right?

Not necessarily. Much ink has been spilled over why, exactly, businesses constantly incorporate in Delaware and/or insert Delaware into choice of law provisions in their contracts. Among the most common reasons is: Delaware has more developed and thus stable precedent than any other jurisdiction.

I'm not sure this reason stands even on its own merits. E.g., the law of malpractice and negligence is very well-developed and yet we still find plenty of legal issues to litigate, and still rarely settle until immediately before trial. 

This "stability" has long been under fire, most recently as noted by The Harvard Law School Corporate Governance Blog, addressing two recent Chancery Court opinions on shareholder suits against Citigroup and AIG:

These cases seem to support the claim by William Carney and George Shepherd in The Mystery of Delaware Law’s Continuing Success (William Carney & George Shepherd, 2009 U. ILL. L. REV. 1) that Delaware law is infected by costly indeterminacy. After these cases, where, exactly, does a duty of loyalty claim for breach ofCaremark duties stand?

The courts in these cases distinguished a claim that directors ignored the inadequate controls of patent business risks (Citigroup) from one that the directors ignored inadequate controls of insider wrongdoing (AIG). While these distinctions seem clear, and the cases seem rightly decided on their facts, the distinctions fray at the edges. Deliberately and knowingly ignoring either kind of risk can give rise to a claim. The defendants in Citigroup, even if careless, did not sink to that standard, while the AIG defendants did. So how does insider wrongdoing affect the determination? Must the flags be redder to trigger liability where there is no insider wrongdoing, but the risk could bring the company down? If so, how much redder? Is there a sliding scale for the degree of insider wrongdoing the defendants allegedly ignored. In AIG, the complaint supported an assertion that the insiders led, in Vice Chancellor Strine’s words, a “criminal organization.” Would the result be different if the alleged wrongdoing had been somewhat less pervasive? But does not the pervasiveness tie to the defendants’ knowledge, which leads back to square one?

 

In fairness, though, this does not necessarily support a criticism of Delaware law. As Chancellor Chandler wrote (with Anthony A. Rickey) in responding to Carney & Shepherd’s criticism in Manufacturing Mystery: A Response to Professors Carney and Shepherd’s “The Mystery of Delaware Law’s Continuing Success (2009 U. Ill. L. Rev. 95), Delaware is at least no more indeterminate than other jurisdictions.

Indeed, I argued in my own response to Carney & Shepherd, The Uncorporation and Corporate Indeterminacy, (2009 U. ILL. L. REV. 131), that indeterminacy is inherent in corporate law rather than specifically in Delaware jurisprudence. The solution is to turn to “uncorporate” law, which leads directly to my next two points.

 

Well said, and the whole post (as well as its references to Wachtell, Lipton, Rosen & Katz client memorandum posted here and Francis Pileggi's own comments here) are required-reading for those interested in shareholder derivative suits.

The overarching theme bears repeating -- the law is fundamentally "indeterminate." Businesses aren't going to be able to change that by just doing what every other business does because they think they should.

The problem is compounded by the way many businesses "choose" Delaware law, often in conjunction with an arbitration or choice of venue provision that ensures that Delaware law will be "applied" by a court or arbitrator with no experience in Delaware law. How "stable" and "determinate" can that possibly be?

 

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After the firestorm of criticism last week, including on this blog, Facebook CEO Mark Zuckerberg announced (on Facebook's blog and in a media conference call):

Beginning today, we are giving you a greater opportunity to voice your opinion over how Facebook is governed. We're starting this off by publishing two new documents for your review and comment. The first is the Facebook Principles, which defines your rights and will serve as the guiding framework behind any policy we'll consider—or the reason we won't consider others. The second document is the Statement of Rights and Responsibilities, which will replace the existing Terms of Use. With both documents, we tried hard to simplify the language so you have a clear understanding of how Facebook will be run. We've created separate groups for each document so you can read them and provide comments and feedback. You can find the Facebook Principles here and the Statement of Rights and Responsibilities here. Before these new proposals go into effect, you'll also have the ability to vote for or against proposed changes.

Credit where it is due: the new "Statement of Rights and Responsibilities" describes the legal relationship between users and Facebook the way that Facebook's officers have been describing it.

In short: users retain total control over their content, and can terminate Facebook's license at will. Users still can't really sue Facebook for anything, but might be able to sue developers or operators of third-party applications if they breach the new terms.

In long, start with governing law:

14.1 You will resolve any claim, cause of action or dispute (“claim”) you have with us arising out of or relating to this Statement or Facebook in a state or federal court located in Santa Clara County. The laws of the State of California will govern this Statement, as well as any claim that might arise between you and us, without regard to conflict of law provisions. You agree to submit to the personal jurisdiction of the courts located in Santa Clara County, California for the purpose of litigating all such claims.

Good news! As noted before, California has very pro-consumer laws. You'll also notice that Facebook got rid of the class action waiver (which was likely illegal anyway) and the arbitration requirement, too. No longer must you drop $6,000 or more just to start an arbitration against them.

Then, the licensing, the part that caused so much trouble last time:

You own all of the content and information you post on Facebook, including information about you and the actions you take (“content”). In order for us to share your content and provide you with our services, you agree to the following:

2.1 You give us permission to use, store, and share content you post on Facebook or otherwise make available to us (“post”), subject to your privacy and application settings.
2.2 You may delete your content or your account at any time with the understanding that removed information may persist in backup copies for a reasonable period of time (but will not be generally available to other users), and that content shared with others may remain until they delete it.
2.3 For content that is covered by intellectual property rights (like photos and videos), you specifically give us the following permission, subject to your privacy and application settings: you grant us a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use, copy, publicly perform or display, distribute, modify, translate, and create derivative works of (“use”) any content you post on or in connection with Facebook. This license ends when you delete your content or your account.
2.4 We always appreciate your feedback or other suggestions about Facebook, but you understand that we may use them without any obligation to compensate you for them (just as you have no obligation to offer them).

(Emphasis mine). Finally! No more fussing around with ambiguity: Facebook twice reiterates that their license is "subject to your privacy and application settings," and that deleting either your content or your account terminates the license to that content.

That is exactly how users expect the system to operate. Facebook also omitted the annoying and erroneous "irrevocable" from the license.

I'll have more to say later. But let me raise one really interesting issue:

9. Special Provisions Applicable to Developers/Operators of Applications and Websites

If you are a developer or operator of a Platform application or a website using Connect (“application”), the following additional terms apply to you:

9.2 When users add your application or connect it to their Facebook account, they give permission for you to receive certain data relating to them. Your access to and use of that data will be limited as follows:
9.2.1 You will only use the data you receive for your application, and will only use it in connection with Facebook.
9.2.2 You will make it clear to users how you are going to use, display, or share their data.
9.2.3 You will not use, display, or share a user’s data in a manner inconsistent with the user’s privacy settings without the user’s consent.
9.2.4 You will delete all data you received from us relating to any user who removes or disconnects from your application unless the user gives you permission to keep it.
9.2.5 You will delete all data you received from Facebook if we disable your application or ask you to do so.
9.2.6 We can require you to update any data you have received from us.
9.2.7 We can limit your access to data.
9.2.8 You will not transfer the data you receive from us without our prior consent.
9.3 You will not give us data that you independently collect from a user or a user’s content without that user’s consent.

...

That would appear to make users "third-party beneficiaries" to Facebook's relationship with developers / operators of Facebook or Connect services. Which means users would likely have standing to sue if that developer / operator violated the terms, including violations of privacy settings (under 9.2.3).

Here's a California appellate court from just two weeks ago:

"Under Civil Code section 1559, a third party can enforce the terms of a contract 'made expressly for the benefit of [the] third person.' 'Expressly' in this context is interpreted to mean 'merely the negative of 'incidentally.'' (Gilbert Financial Corp. v. Steelform Contracting Co. (1978) 82 Cal.App.3d 65, 70 [145 Cal. Rptr. 448].) The contract need not be exclusively for the benefit of the third party in order to permit enforcement, and the third party does not need to be the sole or the primary beneficiary. Further, the third party need not be identified as a beneficiary, or even named, in the contract. (Prouty v. Gores Tecology Group, supra, 121 Cal.App.4th at pp. 1232–1233.) 'If the terms of the contract necessarily require the promisor to confer a benefit on a third person, then the contract, and hence the parties thereto, contemplate a benefit to the third person. The parties are presumed to intend the consequences of a performance of the contract.' (Joson v. Holmes Tuttle Lincoln-Merc. (1958) 160 Cal.App.2d 290, 297 [325 P.2d 193].)"

National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc., No. A120072, 2009 Cal. App. LEXIS 170, at *25–26 (Cal. Ct. App. Feb. 11, 2009).

Here's the statute itself:

A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.

Cal Civ Code § 1559 (2008).

That's great for users, but I'm sure developers and operators will have something to say about it Are they ready to be legally bound to users by Facebook's terms?

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Now that Facebook has rescinded its "new" Terms, let's talk about 13 problems with the Terms, 2 questions to consider about the site, and 10 changes Facebook should make.

If you see “new Terms” below, that refers to the Terms Facebook enacted on February 4, 2009, then rescinded. “Old Terms” refers to the Terms in place before then, which are now the current terms.

13 THINGS YOU SHOULD KNOW ABOUT FACEBOOK'S CURRENT TERMS OF USE

1. Facebook wants to make money using your information. That doesn't make them evil; users worldwide are fine with Google, another free service,  reading their searches and emails to target advertising. But Facebook isn't a charity, and their current business model is aimed at sending you targeted advertising or at finding a way to monetize what they know about you. Keep that goal -- and not the goal of "sharing" -- in mind when you consider Facebook's Terms.  Keep in mind, too, what would happen with your information if Facebook was sold to another company. 

2. Facebook has the right to use your  information and content  "for any purpose, commercial, advertising or otherwise." Your use "automatically grants" them "an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license" to anything you  put on the service, and, for the new Terms, anything you enabled someone else to post, like if you put a "Share on Facebook" button on your blog. The old Terms permit you to terminate this license by removing your content from the site. The new Terms did not recognize that right of termination; Facebook could use your content forever, for any purpose, without your permission. That's what the hoopla was all about.

3. Facebook collects information on you from sources other than your posted content. As their Privacy policy says, "We may use information about you that we collect from other sources, including but not limited to newspapers and Internet sources such as blogs, instant messaging services, Facebook Platform developers and other users of Facebook, to supplement your profile."

4. Facebook has, in the past, broadcast user's private information in ways users didn't want or expect. Two notable examples were the "Beacon" service, which defaulted to broadcasting what users did on third-party sites (e.g., what products they bought) and the misleading "deactivation" policy, in which closing an account merely "deactivated" it without prohibiting access to any of the  content . Facebook has also been criticized for confusing privacy settings -- for example, by inputing your location you have automatically joined that locality's "network," and thus by default are accessible through searches by people in that area.

5. Facebook wants to use your name, likeness and image for their commercial purposes. The new Terms had a license not just your content, but your very identity,  which they could use  for commercial  purposes like using your name to endorse or market products.The reason Facebook wanted this additional license seems clear: the "Beacon" service above, which Facebook had to retreat from, likely violated existing laws in many states, particularly New York, prohibiting the use of another's likeness in an advertisement without proper consent and compensation. The new Terms tried to run  around those laws. Recall, too, that Facebook would have had that right forever.

6. Facebook can sell information about you to third parties. Their privacy policy says they may "use" your information "without identifying you as an individual," and that they "do not provide contact information to third party marketers without your permission." Everything else is fair game.

7. Facebook can delete your whole account without warning. Under both Terms, Facebook can pull the plug "for any or no reason, at any time in our sole discretion, with or without notice."

8. The content Terms are so onerous they ban even the "25 Things" meme. "User conduct" says "you agree not to use the Service or the Site to ... upload, post, transmit, share or otherwise make available any ... chain letters." Oops. The old Terms also ban "any content that we deem to be harmful, threatening, unlawful, defamatory, infringing, abusive, inflammatory, harassing, vulgar, obscene, fraudulent, invasive of privacy or publicity rights, hateful, or racially, ethnically or otherwise objectionable." The new Terms went a long way towards cleaning up those ridiculous prohibitions.

9. Facebook does not permit any commercial use whatsoever. The old Terms are very clear: "You understand that except for advertising programs offered by us on the Site (e.g., Facebook Flyers, Facebook Marketplace), the Service and the Site are available for your personal, non-commercial use only." The new Terms changed all that, requiring that your profile be for personal uses but allowing you to create Pages for commercial purposes.

10. Facebook isn't responsible if a third-party application abuses your personal information. From Facebook's privacy page: "However, while we have undertaken contractual and technical steps to restrict possible misuse of such information by such Platform Developers, we of course cannot and do not guarantee that all Platform Developers will abide by such agreements."

11. Facebook isn't liable if they lose your content, give you a virus or allow your account to be hacked. Under both Terms, the "Disclaimers" and "Limitation on Liability" have multiple provisions preventing you from suing them for just about anything. Here's one example: "Under no circumstances will the Company be responsible for any loss or damage, including any loss or damage to any User Content or personal injury or death, resulting from anyone's use of the Site or the Service, any User Content or Third Party Applications, Software or Content posted on or through the Site or the Service or transmitted to Users, or any interactions between users of the Site, whether online or offline."

12. If you can find a way to sue Facebook, you have to go through arbitration. The old Terms made you use the American Arbitration Association in the location determined by the AAA Rules (likely your domicile), whereas the new Terms make you use Judicial Arbitration and Mediation Services in Santa Clara County, California, though you're permitted to appear by phone. It's unclear why Facebook switched from AAA to JAMS; either way, be glad they're not using the National Arbitration Forum, which has been accused of stacking the deck in favor of defendants like credit card companies.

13. If you can find a way to sue and win in arbitration, your compensation is severely limited. The old terms' "limitation on liability" limit you to "the amount paid, if any, by you to company for the service during the term of membership," capped at $1000. The new terms entitle you to a minimum of $100, with a cap of "the amount paid by you, if any, to Facebook during the twelve months immediately preceding the day the act or omission occured that gave rise to your claim."

2 THINGS TO CONSIDER ABOUT FACEBOOK'S SITE:

14. What should the default privacy settings be? Should Facebook presume you want to share everything, some things, or nothing? And with whom should it presume you want to share? Your friends? Their friends? Their friends’ friends? What about people in your location or your former classmates? The default settings are very powerful, since they’re often not changed and because users are often confused by what the changes even mean, so they should be chosen carefully.

15. When one user deletes a post on Facebook, what should happen to other users' comments to that post? This scenario represents a larger issue for Facebook, one they were likely attempting to address with the new Terms. Facebook's primary purpose is to facility communication, usually in the form of one user posting a status update, link or photo and other users commenting in response to that update, link or photo. So who "owns" those comments?  Who "owns" a comment which quotes the original post? Don't look to the law:  the point of Terms is to  establish a relationship and  settle  questions.  How do users want or expect such a deletion to function?

10 THINGS USERS SHOULD ADVOCATE BE INCLUDED IN FACEBOOK'S NEW TERMS OF USE:

16. Users should retain the right to remove their own content from the system. Users expect and should have the right to remove any content from Facebook, and thereby terminate Facebook's license, at any time. That’s what the old Terms permitted, and it’s essential for any artist who, down the road, is asked to grant an “exclusive” license to their content.

17. Facebook should not have any rights to user’s name, likeness or image except where specifically permitted. It’s reasonable for Facebook to get a blanket, revocable license from you for your content; the whole service works by distributing your content to others, and a blanket license enables them to easily introduce new features that distribute your content in new ways. Name and likeness are a completely different matter. Given Facebook’s poor history in the past regarding likenesses (e.g., the “Beacon” service), Facebook should be upfront about when it is going to use your likeness for a commercial purpose and should ask you for permission for that specific use.

18. Facebook’s Terms should be written (or summarized) in plain English. The controversial “licenses” term was a 120-word sentence that “granted” a “license” (a “license” defined by six adjectives) over the course of two subclauses (“(a)” and “(b),” which together included twenty different verbs), two sub-subclauses (“(a)(i)” and “(a)(ii)”), and a modifying end-clause (“each of (a) and (b)”) that ended with a legalese preposition (“thereof”). Possibly worse, the license included an ambiguous clause – “subject only to your privacy settings” – which caused numerous users to conclude, wrongly, that Facebook’s entire license was limited to the user’s privacy settings. The clause, at most, limited the license only for content posted, not content shared or the user’s likeness, and, at worst, actually reinforced that users retained no license control at all, but instead “only” the ability to limit privacy settings.

19. Facebook’s Terms should be built on trust, not distrust. “You agree” appears eleven times in the old Terms and fifteen times in the new Terms; “Facebook agrees” does not appear in either. Both Terms bear far more in common with the release people signed to be ridiculed by Borat than a mutual agreement. If Facebook says, like Gmail, that “We will not use any of your content for any purpose except to provide you with the Service,” they theoretically increase the likelihood of being sued, but they also make the relationship much clearer and more trusting.

20. Facebook should bear some legal and financial responsibility. As noted above, you are essentially a guest on Facebook's servers, and they can kick you off whenever they want, for "any or no reason." Unless the Terms include provisions that are legally enforceable, in an affordable manner, users have no “rights.” When Facebook says, “you can’t sue us, just trust us,” they really mean “we don’t trust ourselves enough not to make mistakes and get sued.” Even if you come up with a way to sue them, your damages are limited to what you paid Facebook ($0), a big problem given how a basic JAMS arbitration costs almost $8,000 just to get the ball rolling. Facebook has cause to be concerned about exposing itself to liability among 175 million users, but there is a comfortable middle ground where Facebook’s liability isn’t open-ended but users are still protected.

21. Facebook should only be permitted to delete or restrict your account for “cause.” As noted above, Facebook both can delete your account without warning and prohibits you from myriad activities online. 175 million users includes a lot of trolls, spammers, harassers, and con artists, and that’s okay – Facebook can reserve for itself broad reason for “cause,” like the new Terms included, such as if a user “intimidates or harasses any user” or “does anything that is illegal, infringing, fraudulent, malicious or could expose Facebook or the Facebook Service users to harm or liability.”

22. Facebook should agree to take reasonable steps to secure user’s personal information and should be required to report any disclosures. Know what happens if Facebook goofs and sends your personal, identifying information to third parties? Nothing. What happens if Facebook knows a third-party application is harvesting personal addresses and selling them to spammers and scam artists? Nothing. The liability here doesn’t have to be unlimited, but it should be something, possibly a set fee, like $250 per violation per user.

23. Facebook should guarantee the security of your content. Facebook expects and wants its users to put a substantial portion of their lives online, including extended conversations with friends. Users have every reason to expect, and to make Facebook responsible for, guaranteeing their data will not be lost or corrupted. Again, Facebook doesn’t have to be completely responsible for every lost customer a business suffers, but they should have a meaningful level of legal and financial responsibility.

24. Facebook should permit a jury trial of class actions against Facebook, with attorneys fees and costs if Facebook loses. The old terms illegally prohibit class actions. The new terms permit class actions, so long as you first arbitrate whether you can bring a class and you waive your right to a jury trial. Such a limitation might be illegal, too, and it flies in the face of Zuckerberg's claim that "we need to make sure the terms reflect the principles and values of the people using the service." There needs to be real, meaningful, enforceable responsibility when Facebook breaches one of the terms above.

25. Facebook should keep many of the new Terms. The new Terms changed the governing law to California (likely out of convenience), one of the most pro-consumer states in the nation. That’s great. It was also great how Facebook came up with specific ways for people to conduct business through Facebook. Finally, Facebook really did shorten the Terms and make them a little bit more coherent (such as in areas like “User Content”) and they shouldn’t shy away from that.

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[Update - see also 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here.]

Facebook responded swiftly to the social media uproar over its new Terms of Use by reverting to the old Terms.

Great news, with one problem: the old Terms aren't that great. Mark Zuckerberg described Facebook's old Terms as "overly formal and protective," and promised to revise them promptly.

He's being euphemistic.

Some of the "old" (now "current") Terms were downright illegal and unenforceable, like making users responsible for checking for updates to the Terms and making users waive class action status, as covered in my first post.

Other "old" Terms followed the carpet bombing and kitchen sink methods of contract drafting, with the same point made multiple times in multiple excessive ways that rendered the Terms a farce.

Here's one example: in response to the controversy, Facebook started a Group to discuss the Terms, "Facebook Bill of Rights and Responsibilities." The Discussion Board for that Group was promptly swarmed by racist trolls.

That's a problem for the trolls themselves, as the "User Conduct" section says users "agree not to use the Service or the Site to:"

upload, post, transmit, share, store or otherwise make available any content that we deem to be harmful, threatening, unlawful, defamatory, infringing, abusive, inflammatory, harassing, vulgar, obscene, fraudulent, invasive of privacy or publicity rights, hateful, or racially, ethnically or otherwise objectionable;

Awfully broad, no? The "new" (now "rescinded") Terms narrowed that whole paragraph to "intimidate or harass any user."

But under the "old" Terms such trolling is  also a problem for Facebook, since their "User Content Posted on the Site" section says:

You are solely responsible for the photos, profiles, messages, notes, text, information, music, video, advertisements, listings, and other content that you upload, publish or display (hereinafter, "post") on or through the Service or the Site, or transmit to or share with other users (collectively the "User Content"). You may not post, transmit, or share User Content on the Site or Service that you did not create or that you do not have permission to post.

Who "published," "displayed," "transmitted to" or "shared with other users" the messages in that Group? Why, the creators and administrators of that Group, Simon Axten, Mark Zuckerberg, and Barry Schnitt. All Facebook employees, one of them the CEO.

Who are now arguably made responsible for those messages.

Hmmm. Probably not what Facebook intended or what users expect.

I'll have more about what was different in the "new" (now "rescinded" ) Terms and what Facebook should put in their Terms.

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[I've posted a followup in light of Facebook's response, i.e. rescinding the new terms -- Facebook Rescinds Its New, Unfriendly Terms of Use in Favor of Its Old, Unfriendly Terms of Use. Further, 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here. Also, some thoughts on the even newer, much better Terms Facebook has proposed.]

Now that we've covered whether Facebook can slip new terms into the service and whether they can enforce their terms at all, it's time to look at what the new "Licenses" terms mean.

Facebook's new "Licenses" section says:

You hereby grant Facebook an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license (with the right to sublicense) to

(a) use, copy, publish, stream, store, retain, publicly perform or display, transmit, scan, reformat, modify, edit, frame, translate, excerpt, adapt, create derivative works and distribute (through multiple tiers), any User Content you

(i) Post on or in connection with the Facebook Service or the promotion thereof subject only to your privacy settings

or

(ii) enable a user to Post, including by offering a Share Link on your website

and

(b) to use your name, likeness and image for any purpose, including commercial or advertising,

each of (a) and (b) on or in connection with the Facebook Service or the promotion thereof. 

We'll come back to the bolding. For now, I reformatted it to make the distinct sections clearer* and italicized the portions that aren't unusual, as you can see from Amanda French's comparison of the terms at MySpace, Yahoo's Flickr, Google's Picasa, YouTube, LinkedIn and Twitter. For any of these sites to function, they need at lease some license to use your content.**

The main difference is that MySpace, Flickr, Picasa, YouTube and Twitter all explicitly recognize that their license to such "User Content" ends upon your termination of the service or your removal of content. Facebook and LinkedIn don't -- once you provide content, they have a license to use it forever.

There are three other important licensing differences. Under the new Terms you:

1. grant Facebook a license to all content you enabled someone else to post,
2. grant Facebook a right to use your name and likeness, and
3. grant Facebook the right to use content and your likeness not just for purposes of Facebook's service, but also in Facebook's promotional efforts.

That's a lot to swallow, particularly since you can't ever revoke any of it.

Good thing Mark Zuckerberg, Founder, CEO and Board Member of Facebook (keep those last two in mind), jumped in to respond to the criticism:

One of the questions about our new terms of use is whether Facebook can use this information forever. When a person shares something like a message with a friend, two copies of that information are created—one in the person's sent messages box and the other in their friend's inbox. Even if the person deactivates their account, their friend still has a copy of that message. We think this is the right way for Facebook to work, and it is consistent with how other services like email work. One of the reasons we updated our terms was to make this more clear.

In reality, we wouldn't share your information in a way you wouldn't want. The trust you place in us as a safe place to share information is the most important part of what makes Facebook work. Our goal is to build great products and to communicate clearly to help people share more information in this trusted environment.

We still have work to do to communicate more clearly about these issues, and our terms are one example of this. Our philosophy that people own their information and control who they share it with has remained constant. A lot of the language in our terms is overly formal and protective of the rights we need to provide this service to you. Over time we will continue to clarify our positions and make the terms simpler.

Soothing words, or much more? 

Go back to the bolded portion of the license term above, which limits the license users granted to being used "on or in connection with the Facebook Service or the promotion thereof." What the heck does that mean? The Terms define "Facebook Service" as follows:

The "Facebook Service" means the features, services and properties that Facebook makes available through (a) www.facebook.com or any other Facebook-branded or co-branded website (including, without limitation, any and all sub-domains and all international, mobile versions and successors thereof), (b) the Facebook Platform and (c) other media, devices or networks now existing or later developed.

That doesn't really help -- what does it mean for content to be used "in connection with" Facebook?

Would that include, say, Facebook leveraging the "25 Things" meme and publishing its own book of other people's "25 Things" posts? Or could Facebook, as the founder of Rocketboom worried, use Rocketboom's videos 30 years down the road?

Under the literal meaning of the new Terms, both would appear possible, and there would be nothing users could do about it. Zuckerberg's reference to "email" is a dodge -- email services don't arrogate to themselves any publishing rights beyond your initial sending, certainly no rights to use your emails to promote the email service.

But Zuckerberg's dodgy, soothing email has much more legal meaning than he and his team probably realized. The Terms themselves note that "We reserve the right, at our sole discretion, to change or delete portions of these Terms at any time without further notice."

Did they just do that? That is, does Zuckerberg, the CEO and a Board Member, have the authority to bind Facebook to changes in their Terms?

Recall that disputes under the new Facebook Terms are governed by California law, under which "a corporate officer may have express authority to enter into an agreement on behalf of the corporation." Snukal v. Flightways Mfg., 23 Cal. 4th 754, 779, 3 P.3d 286, 305, 98 Cal. Rptr. 2d 1, 22 (2000).

Even if Zuckerberg doesn't have the express authority to change the Terms, he may have the implied authority given his preeminent role in the company and, perhaps most importantly, he has the apparent authority to bind the company to contractual terms.***

Users thus have every reason to incorporate Zuckerberg's blog post into their interpretation of the terms. Zuckerberg specifically said that "control" over sharing "has remained constant" across the new and old Terms and that "we wouldn't share your information in a way you wouldn't want." 

That is to say, Zuckerberg just clarified what's meant by "in connection with the Facebook Service:" the "Facebook Service" has a philosophy of ensuring user "control" over content sharing, and does not share information in a way users don't want.

Would that fly in front of the JAMS-appointed arbitrators in Santa Clara county?**** Facebook doesn't know the answer to that any better than I do, but I bet it would work. Companies are cross-examined with the words of their CEOs and officers every day in trials and arbitrations across the country.

It's a legal risk I'm personally willing to take.

Until they modify the Terms again, that is.

 

Footnotes:

* Did you catch the typo at the beginning of (b)? They split the infinitive "to use" at subsection (a) but repeated "to" a section (b). Reading the terms literally says you grant Facebook "... worldwide license (with the right to sublicense) to to use your name, likeness ..."

** Facebook has replied that they don't "own" your content, and that's partly true, the Terms don't claim any exclusive license or ownership right to your content, but they do claim a transferrable, non-exclusive license, which is all they could really want from you anyway.

*** Indeed, under the Snukal case it's quite possible that Zuckerberg would be considered as having both "operational" and "recordkeeping or financial duties," making his words irrefutably binding on the company, just as they were for the defendant in that case. 

**** Also a new provision, which I'll discuss tomorrow.

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[Update -- I've posted followups, What Do Facebook's New Terms of Use Mean for Your Content? and Facebook Rescinds Its New, Unfriendly Terms of Use in Favor of Its Old, Unfriendly Terms of Use. Finally, 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here.]

Yesterday we talked about Facebook's new "Terms of Use," delivered to users by stealth, and how users who wanted to leave could likely enforce the old terms, which didn't include the new controversial licensing provisions.

Right now we'll talk about whether the new terms are enforceable, and later we'll talk about what they mean for your content.

There are two general types of website Terms of Use (or Service): "click wrap" and "browse wrap." Both unfortunately named after "shrink wrap" terms, i.e. the terms of software programs that purported to apply to the buyer the moment they tore off the plastic shrink-wrap around the box the software came in.

And that's about as concrete as the law gets here. As noted by a recent law review article, depressingly not available online, "amazingly few appellate opinions on point exist, and generally, the opinions are unrefined in their analyses." Cyber-Surfing on the High Seas of Legalese, 18 Alb. L.J. Sci. & Tech. 79 (2008).

As noted previously, Facebook's new Terms state that California's laws govern any dispute, so that's where we should look for guidance, but California law isn't much help. The California Supreme Court, which would decide the issue, hasn't spoken on click wrap or browse wrap terms at all.

The most recent case I found was an unpublished California state appellate court opinion upholding a browsewrap agreement, noting that “there was nothing inherently unfair in requiring [the consumer] access contractual terms via hyperlink." Cohn v. Truebeginnings, 2007 Cal. App. Unpub. LEXIS 6232.

But an unpublished state court appellate opinion is among the weakest authorities you can have -- California's own courts frown on even mentioning them in legal briefs.

The most persuasive authority available seems to be Specht v. Netscape Communs. Corp., 306 F.3d 17 (2d Cir. 2002), a ruling on California law by a Federal appellate court that doesn't even serve California (it serves Connecticut, New York, and Vermont):

It is true that ‘[a] party cannot avoid the terms of a contract on the ground that he or she failed to read it before signing.’ Marin Storage & Trucking, 107 Cal. Rptr. 2d at 651. But courts are quick to add: ‘An exception to this general rule exists when the writing does not appear to be a contract and the terms are not called to the attention of the recipient. In such a case, no contract is formed with respect to the undisclosed term.’ Id.; cf. Cory v. Golden State Bank, 95 Cal. App. 3d 360, 157 Cal. Rptr. 538, 541 (Cal. Ct. App. 1979)

...

We conclude that in circumstances such as these, where consumers are urged to download free software at the immediate click of a button, a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms.

Specht, 306 F.3d at 32.

Hmmm. Do we go with the unpublished California state appellate court or the published Federal appellate court opinion that has no authority in California?

Neither. The law is simply too unsettled to give a "right" answer one way or the other.

Which means common sense, tempered with caution, prevails: if you were a judge asked to decide whether a user in your shoes was bound to Facebook's new Terms, how would you decide?

If you're reading this post, you're obviously aware of the new terms, so your continued use would appear to demonstrate an acceptance of the Terms.

But what if, as the Facebook Group "People Against the new Terms of Service (TOS)" has recommended, you email or otherwise notify Facebook of the following:

Notice to Facebook: Notwithstanding FB's new Terms of Use, any use of my content is always subject to my privacy settings and FB's use terminates upon my termination of my account or removal of my content, whichever is the earlier, unless longer to display my shared content on the accounts of my friends.

Truth is, no one knows. Keep in mind that, if it comes down to a lawsuit, if you want to enforce those terms you're going to simultaneously argue that your use didn't constitute acceptance of Facebook's Terms while Facebook's providing service to you constituted acceptance of your Terms.

What does your common sense tell you about that argument?

Next up we'll look at the terms themselves and what they mean for your content.

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[Update -- I've posted a few followups: Are Facebook's New Terms of Use Enforceable?, What Do Facebook's New Terms of Use Mean for Your Content? and Facebook Rescinds Its New, Unfriendly Terms of Use in Favor of Its Old, Unfriendly Terms of Use. Finally, 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here.]

Facebook earned itself the wrath of Twitter by revising its Terms of Use (a/k/a Terms of Service) to grant itself a perpetual license to use all of your content (which is typical of social media sites), even if you leave the site (which is not typical).

We'll get to the substance of the change later. For now, a simple question: can Facebook unilaterally change terms of use without notifying users?

We get hints at the answer by comparing Facebook's old Terms, dated May 24, 2007, to the current Terms, dated February 4, 2009.

Here's what's really the most important change:

The old Terms:

By visiting or using the Site and/or the Service, you agree that the laws of the State of Delaware, without regard to principles of conflict of laws, will govern these Terms of Use and any dispute of any sort that might arise between you and the Company or any of our affiliates.

The new Terms:

You agree that all claims and disputes between you and Facebook that arise out of or relate in any way to the Terms or your use of the Facebook Service will be governed by the laws of the State of California (and United States federal laws applicable therein), without regard to principles of conflict of laws.

That's much better for Facebook users: California has some of the most pro-consumer laws in the nation.

Let's get back to Facebook's unilateral, stealth change.

Old Terms:

We reserve the right, at our sole discretion, to change, modify, add, or delete portions of these Terms of Use at any time without further notice. If we do this, we will post the changes to these Terms of Use on this page and will indicate at the top of this page the date these terms were last revised. Your continued use of the Service or the Site after any such changes constitutes your acceptance of the new Terms of Use. If you do not agree to abide by these or any future Terms of Use, do not use or access (or continue to use or access) the Service or the Site. It is your responsibility to regularly check the Site to determine if there have been changes to these Terms of Use and to review such changes.

New Terms:

We reserve the right, at our sole discretion, to change or delete portions of these Terms at any time without further notice. Your continued use of the Facebook Service after any such changes constitutes your acceptance of the new Terms.

Streamlined? Nope. The difference was probably Douglas v. United States Dist. Court, 495 F.3d 1062, 1066 (9th Cir. 2007), decided a month after Facebook's old Terms, which held:

Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side. Fn 1 Indeed, a party can't unilaterally change the terms of a contract; it must obtain the other party's consent before doing so. Union Pac. R.R. v. Chi., Milwaukee, St. Paul & Pac. R.R., 549 F.2d 114, 118 (9th Cir. 1976). This is because a revised contract is merely an offer and does not bind the parties until it is accepted." 

Fn 1: Nor would a party know when to check the website for possible changes to the contract terms without being notified that the contract has been changed and how. Douglas would have had to check the contract every day for possible changes. Without notice, an examination would be fairly cumbersome, as Douglas would have had to compare every word of the posted contract with his existing contract in order to detect whether it had changed.

That is to say, a month after Facebook claimed a unilateral right to modify its Terms without any notice to users of the change, the 9th Circuit (the Federal appellate court for California) ruled that companies were required to give notice. (Tech bloggers, like Ars Technica, picked this ruling up at the time, so I'm sure Facebook did, too.)

Arguably, Douglas does not directly apply to this circumstance, where Facebook and its users nominally agreed to permit such secret changes through the old contract, but it's unlikely such an argument would fly under California law, which often throws out unfair mass contract provisions like these for "unconscionability." See, e.g., Shroyer v. New Cingular Wireless Servs., 498 F.3d 976, 986 (9th Cir. 2007)(throwing out class arbitration waiver as "unconscionable and unenforceable under California law.")

Did I just mention a class arbitration waiver? Note that Facebook changed that part of their Terms, too.

Old:

To the fullest extent permitted by applicable law, NO ARBITRATION OR CLAIM UNDER THESE TERMS OF USE SHALL BE JOINED TO ANY OTHER ARBITRATION OR CLAIM, INCLUDING ANY ARBITRATION OR CLAIM INVOLVING ANY OTHER CURRENT OR FORMER USER OF THE SERVICE, AND NO CLASS ARBITRATION PROCEEDINGS SHALL BE PERMITTED.

New:

With respect to any claims or disputes you intend to bring on behalf of a class, you agree to arbitrate whether a class could be certified before bringing such action in a court of law. If the arbitrator refuses to certify the class, you will continue to resolve your individual claims or disputes through binding arbitration. If the arbitrator finds that a class should be certified, you may file the class action in a court of law provided you waive any right to a trial by jury. Claims for injunctive or other equitable relief may also be brought in a court of law.

Another changed required by law, particularly California law.

So, are these changes valid or not? The plaintiff in Douglas kept using the services for years without noticing the changes, and even so they weren't applied to him. The same may not be true to users, like you, who are aware of these changes and keep using Facebook.

But what about your old content? If you leave now, does Facebook still have an non-exclusive license to use your content?

Likely not, given Douglas above, which holds, in essence, that Facebook's new Terms don't apply to you until you have actually assented to them. Facebook knows that, which is why their new Terms don't have that " It is your responsibility to regularly check the Site" garbage anymore.

But you're going to need to make some choices soon, since your continued use might be considered "assent" to the new Terms. We'll talk about that more tomorrow, as well as the deeper meaning of the Terms, particularly in light of Facebook's response to the controversy.

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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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My log shows someone making their way to the blog via an interesting google search: ethical for a plaintiff to inflate the amount of damages requested in order to obtain federal diversity jurisdiction?

Good question! 

Short answer is: though it's unethical to "inflate" anything in a complaint, in establishing federal diversity jurisdiction the plaintiff may claim any amount of damages unless is it "legally certain" they cannot obtain them.

That said, it's unusual for a plaintiff to deceive their way into federal court, since federal court is generally perceived as more friendly to defendants.

The background:

The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between—
(1) citizens of different States;
(2) citizens of a State and citizens or subjects of a foreign state;
(3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and
(4) a foreign state, defined in section 1603 (a) of this title, as plaintiff and citizens of a State or of different States.

28 U.S.C. § 1332(a).

The rule for determining "amount in controversy" when the plaintiff requests federal court is well-settled:

The intent of Congress drastically to restrict federal jurisdiction in controversies between citizens of different states has always been rigorously enforced by the courts. The rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal. The inability of plaintiff to recover an amount adequate to give the court jurisdiction does not show his bad faith or oust the jurisdiction. Nor does the fact that the complaint discloses the existence of a valid defense to the claim. But if, from the face of the pleadings, it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit will be dismissed. Events occurring subsequent to the institution of suit which reduce the amount recoverable below the statutory limit do not oust jurisdiction.

St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89, 82 L. Ed. 845, 58 S. Ct. 586 (1938). The standard is more stringent if the defendant is the one trying to get into federal court through removal.

The rule lines up with ordinary principles of professional ethics and wrongful use of civil proceedings: a lawyer has a duty to zealously advocate for their client, but can't make claims for damages the law "certainly" does not allow.

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After my post yesterday, "Differential Diagnosis, Defensive Medicine and Medical Malpractice: Coumadin Edition," the original physician responded on WhiteCoat's Call Room at length:

Max Kennerly is another lawyer that posted a response on his blog “Litigation & Trial.” He accused me of being afraid to use the “basic principle of clinical medicine known as differential diagnosis” - which he defines as “a process of elimination by which physicians reach a diagnosis by eliminating the most serious and unlikely diagnoses first before continuing their basic evaluation.”

What Mr. Kennerly is apparently suggesting is that, rather than use medical education and heuristics, physicians “shoot the moon” and order “million dollar workups” on every patient complaint. Forget that a runny nose and cough in a child are highly likely to be a viral upper respiratory infection. According to Mr. Kennerly, physicians have to “eliminat[e] the most serious and unlikely diagnoses first … before continuing their basic evaluation.” Because runny nose and cough could also be signs of serious and unlikely diagnoses like bronchopulmonary dysplasia, pandemic bird flu, and inhaled foreign bodies, Mr. Kennerly is apparently asserting that every child with a runny nose and a cough requires a NICU admission, full isolation precautions, viral cultures for H5N1 influenza virus, a call to the CDC (just to be sure), and bronchoscopy before physicians can breathe a sigh of relief and recommend nasal suction and honey (cold syrup is much too dangerous - just ask all the pediatricians). Did I miss anything in my “differential,” sir?

Mr. Kennerly then takes issue that I would consider discharging a woman with a mild head injury who developed a headache 5 days later and who was also taking coumadin. Bleeding in the brain must be ruled out “even after minor accidents,” according to an article he cited from the NIH. But Mr. Kennerly does not stick to his own script. Many “serious and unlikely diagnoses” can cause a headache. Using Mr. Kennerly’s logic, it is likely that “differential diagnosis” algorithm he proposes would require me to get an MRI and MRA to rule out vascular causes of headache and to perform a lumbar puncture to rule out pseudotumor cerebrii. While he may have some success getting a jury to believe that “his” is the way medicine should be practiced, it just isn’t so.

...

I removed the second half; I'll have to answer that later.

I responded in his comments section:

Thanks for the link! It’s great to get a dialogue going.

Just to be clear, I didn’t use the phrases “shoot the moon” or “million dollar workups,” but I did suggest that physicians should rule out severe and life-threatening conditions first.

I’m surprised you’d disagree. Truth is, you don’t. Think back to all of the examples you provided in your prior post — why did you order all those x-rays and CT scans? To avoid a lawsuit?

Nope — no physician has ever been held liable for not performing an x-ray or a CT scan. There’s no harm from simply not performing a test.

Physicians are liable for not ordering tests when they should have and when harm was caused by that failure. You ordered all those tests because, in your judgment, there was a reasonable chance that the ‘unlikely’ scenario was the actual diagnosis.

Let’s take the 60yo woman on coumadin with the head injury. You tried to dodge those initial facts by recasting it as “a headache” and then listing all the potential but unlikely causes.

Well, she didn’t have “a headache.” She was on coumadin, had a fall, and then had a headache serious enough to bring her to the hostpial, which is why you ordered a CT scan looking for brain bleeding, and not a lumbar puncture looking for pseudotumor cerebrii.

You applied your judgment, saw an unlikely by possible serious complication, and ruled it out. That wasn’t “defensive,” it was “appropriate” — if you didn’t think there was a reasonable chance of her having a brain bleed, then you’d have absolutely no reason to fear a lawsuit.

Moving on to your child with the runny nose and the cough, it’s hard to take your example seriously when you first propose the “child” go to a unit reserved for neonates. If a neonate has an obvious infection, that is a very serious issue that will be treated accordingly, likely with multiple antibiotics and multiple x-rays to repeatedly check pulmonary function.

If by “child” you mean the typical toddler going to a pediatrician, then, yes, I submit to you that if the pediatrician has reason to suspect something more serious than a typical cold then they should rule out that serious possibility. You gave no other facts than “every child with a runny nose and a cough.” I have kids. They’ve had runny noses and coughs. My pediatrician ordered no tests. That’s fine; it was a typical kid with a cold.

But let’s mix it up, the way it happens in real life: my child has had a severe cough for over a week now, has shown trace blood in her mouth, can’t sleep, and won’t eat.

Now what? Go home?

Or should you look for something more?

“Defensive medicine” doesn’t exist — the concept requires a doctor somehow see enough of a risk to fear litigation but not enough of a risk to warrant testing. What sense does that make? Either the doctor fears the serious outcome or they don’t.

But the ball is in your court — what would you have us do different? Set up a, say, 5% rule? As in, if something has a less than 5% likelihood, physicians as a matter of law need not look for it?

You tell me. I hold doctors to the standard of keeping people safe by making sure patients don’t have any serious or life-threatening complications that are reasonably foreseeable. You want something less than that.

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The magazine Emergency Physicians Monthly hosts a blog called WhiteCoat’s Call Room, which recently posted a complaint about “defensive medicine:”

Why was I ordering all of these things when my clinical judgment led me to believe that they would “probably” not lead to any changes in the patient’s management?

The answer is because in our culture, “probably” doesn’t cut the mustard any more. Clinical medical judgment has been supplanted by the demand that physicians disprove the improbable. Society has made it so that physicians are more concerned with proving that unlikely diagnoses with the possibility of a “bad outcome” don’t exist and with maintaining good Press Ganey scores. Many physicians are afraid to practice rational medicine based upon clinical judgment and physical examination skills. No one wants to face the liability.

The author is complaining about a basic principle of clinical medicine known as “differential diagnosis,” a process of elimination by which physicians reach a diagnosis by eliminating the most serious and unlikely diagnoses first before continuing their basic evaluation.

Using a “differential diagnosis” compels physicians to evaluate patients in a systematic, rational and logical fashion, free of any distractions or other biases that might cloud their judgment. One example is the well-known psychological effect of “confirmation bias,” through which people who hold a particular belief tend to review the available evidence in a way that confirms that belief.

The failure to diagnose -- the failure to use the differential diagnosis -- may be the most common form of medical malpractice.

The author lists a number of situations where they thought they were practicing “defensive medicine” instead of being “rational” (the bulk of which were x-rays that confirmed the absence of bone fractures), including this situation:

A patient in her 60s fell and hit her head 5 days ago. She was having a headache. I couldn’t find a mark on her and was inclined to send her home with pain medications. But she was on Coumadin which put her at risk of bleeding. So I did a CT scan of her head to “make sure” that she didn’t have a bleed. She didn’t.

I’ve lost count of the number of people I’ve seen killed because their physician or hospital ignored the dangers of Coumadin. Here's what the NIH says about Coumadin (PDF):

Because Coumadin reduces the ability of the body to form blood clots, a patient on Coumadin will bleed longer after an injury than a patient not on Coumadin. ...

Bleeding inside the brain, even after minor accidents, can also be deadly.

If a patient in her 60s on Coumadin falls and then has a headache of sufficient severity to bring her to the hospital, then warning bells should be going off.

The fact that this physician would not have ordered the appropriate test -- a CT scan -- but for fears of medical malpractice liability suggests to me we need more liability, not less, since the physician obviously didn't recognize the standard of care dictated that a brain bleed be ruled out before sending her home.

[UPDATE: WhiteCoat replied to me, so I replied to him.]

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H.R. 11, the Lilly Ledbetter Fair Pay Act of 2009, has passed the House and looks set to roll through the Senate and the post-January 20th Executive. So what was so wrong with the Supreme Court's decision in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007)?

First, the facts, as retold by Justice Ginsburg's dissent:

Lilly Ledbetter was a supervisor at Goodyear Tire and Rubber’s plant in Gadsden, Alabama, from 1979 until her retirement in 1998. For most of those years, she worked as an area manager, a position largely occupied by men. Initially, Ledbetter’s salary was in line with the salaries of men performing substantially similar work. Over time, however, her pay slipped in comparison to the pay of male area managers with equal or less seniority. By the end of 1997, Ledbetter was the only woman working as an area manager and the pay discrepancy between Ledbetter and her 15 male counterparts was stark: Ledbetter was paid $3,727 per month; the lowest paid male area manager received $4,286 per month, the highest paid, $5,236.

Title VII requires that a charge of discrimination “shall be filed within [180] days after the alleged unlawful employment practice occurred.” 42 U. S. C. §2000e–5(e)(1).

Ledbetter filed her claim while still receiving unequal pay, but after the initial decision to pay her less.

Justice Alito wrote for the majority,

The EEOC charging period is triggered when a discrete unlawful practice takes place. A new violation does not occur, and a new charging period does not commence, upon the occurrence of subsequent nondiscriminatory acts that entail adverse effects resulting from the past discrimination. But of course, if an employer engages in a series of acts each of which is intentionally discriminatory, then a fresh violation takes place when each act is committed.

The core component of a Title VII discrimination claim, Alito wrote, is the intent to discriminate, which had occurred far more than 180 days prior to Ledbetter's filling, and thus her claim was not timely filed.

On the law, it's important to note that, prior to the Ledbetter decisions most Courts of Appeal, and the Equal Employment Opportunity Commission itself, had interpreted an employer's decision to continue paying at discriminatory rates to be a continuing discriminatory employment practice.

On the facts, Ginsburg summed it up well:

Ledbetter’s evidence demonstrated that her current pay was discriminatorily low due to a long series of decisions reflecting Goodyear’s pervasive discrimination against women managers in general and Ledbetter in particular. Ledbetter’s former supervisor, for example, admitted to the jury that Ledbetter’s pay, during a particular one-year period, fell below Goodyear’s minimum threshold for her position. Although Goodyear claimed the pay disparity was due to poor performance, the supervisor acknowledged that Ledbetter received a “Top Performance Award” in 1996. The jury also heard testimony that another supervisor—who evaluated Ledbetter in 1997 and whose evaluation led to her most recent raise denial—was openly biased against women. And two women who had previously worked as managers at the plant told the jury they had been subject to pervasive discrimination and were paid less than their male counterparts. One was paid less than the men she supervised. Ledbetter herself testified about the discriminatory animus conveyed to her by plant officials. Toward the end of her career, for instance, the plant manager told Ledbetter that the “plant did not need women, that [women] didn’t help it, [and] caused problems.” After weighing all the evidence, the jury found for Ledbetter, concluding that the pay disparity was due to intentional discrimination.     

Yet, under the Court’s decision, the discrimination Ledbetter proved is not redressable under Title VII. Each and every pay decision she did not immediately challenge wiped the slate clean. Consideration may not be given to the cumulative effect of a series of decisions that, together, set her pay well below that of every male area manager. Knowingly carrying past pay discrimination forward must be treated as lawful conduct. Ledbetter may not be compensated for the lower pay she was in fact receiving when she complained to the EEOC. Nor, were she still employed by Goodyear, could she gain, on the proof she presented at trial, injunctive relief requiring, prospectively, her receipt of the same compensation men receive for substantially similar work. The Court’s approbation of these consequences is totally at odds with the robust protection against workplace discrimination Congress intended Title VII to secure.

(citations omitted). H.R. 11 will fix that, amending Title VII to hold:

an unlawful employment practice occurs when:
(1) a discriminatory compensation decision or other practice is adopted;
(2) an individual becomes subject to the decision or practice; or
(3) an individual is affected by application of the decision or practice, including each time compensation is paid.

 

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In the NYTimes:

It was the middle of the night, and Laura Silverthorn, a nurse at a hospital in Washington, knew her patient was in danger.

The boy had a shunt in his brain to drain fluid, but he was vomiting and had an extreme headache, two signs that the shunt was blocked and fluid was building up. When she paged the on-call resident, who was asleep in the hospital, he told her not to worry.

After a second page, Ms. Silverthorn said, “he became arrogant and said, ‘You don’t know what to look for — you’re not a doctor.’ ”

He ignored her third page, and after another harrowing hour she called the attending physician at home. The child was rushed into surgery.

The article continues with a profile of the steps medical schools and hospitals are taking to encourage non-attending physicians to speak up, thereby reducing the frequency of commonplace, preventable malpractice like medication errors and wrong-site surgery. 

PalMD at the denialism blog thinks that's barking up the wrong tree:

Quality medical care depends on many things (not the least of which is access, but that's a topic for another time). It should be made to depend on individual personalities as little as possible. Let's look at two areas where we can improve medical care.

...

Electronic health records (EHRs) would go a long way to helping reduce errors and make continuity of care more, well, continuous. At this point, however, there are no national standards for EHRs, nothing that requires them to be able to understand each other, nothing that subsidizes the huge costs to physicians and institutions for installing and implementing them.

...

Quality care isn't about mistakes made by and to individuals. It's about creating a health care system based on evidence. It's about making data available and using it correctly. It's something we can choose to do. Or not.

Problem is, the more automated a system becomes, the harder and less likely it is to be overseen properly, and the greater the damage that can be caused by a single malfunctioning actor.

Like a recent trial I had where a resident, after consultation with the pharmacist (and not the attending), verbally ordered a preoperative antibiotic with a high likelihood of cross-reactivity instead of an alternative preoperative antibiotic with no likelihood of cross-reactivity. (Adding insult to injury, the attending surgeon actually preferred the latter, non-reactive antibiotic)

None of that occurred on paper, despite hospital protocols requiring all orders be documented and all resident orders by co-signed by the attending. Not at all surprising -- every week I review cases where a nurse or doctor just plain didn't follow protocol, despite all kinds of checklists and automatic warnings.

Don't get me wrong: I'm a big fan of using appropriate checklists like the Keystone program and using electronic health records. But increased automation is not a solution by itself -- you still need to encourage the same type of regimented-but-open discourse that, e.g., military units and athletic teams use to control and to react to dynamic situations.

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FYI:

Cozen complains that Treasury has not supplied it with documents relating to entities that were listed on its request but were not designated until after the request was made. Treasury has no obligation to produce documents that were not responsive at the time the request was made. See Bonner v. U.S. Dep't of State, 289 U.S. App. D.C. 56, 928 F.2d 1148, 1152 (D.C. Cir. 1991).

An agency does not have a continuing duty to update its previous response to a FOIA request. McGehee v. CIA, 225 U.S. App. D.C. 205, 697 F.2d 1095, 1103 (D.C. Cir. 1983). A document's status is determined at the cut-off date. Bonner, 928 F.2d at 1153. A subsequent decision that changes the status of the document does not render it improperly withheld. Id. This is consistent with the notion that an agency is not required to produce documents that were exempt at the cut-off date but subsequently became nonexempt after the agency fully responded to the FOIA request. See Ashfar v. Dep't of State, 226 U.S. App. D.C. 388, 702 F.2d 1125, 1137 n.18 (D.C. Cir. 1983) (noting that although the government declassified requested documents after the cut-off date, remanding the case to take into account that change would be contrary to FOIA's goal of speedy and final resolution of FOIA requests); McGehee, 697 F.2d at 1103. In these circumstances, the requester may submit another FOIA request. Bonner, 928 F. 2d at 1153.

An agency is expected, however, to update the FOIA request when it has improperly withheld information in its prior responses or has not responded fully to the FOIA request. See id. An inadequate search renders the initial cut-off date as suspect. Dayton Newspaper Inc. v. Dep't of Veterans Affairs, 510 F. Supp. 2d 441, 452 (S.D. Ohio 2007). Therefore, when a search has been found to be inadequate and another search must be conducted, the date of the supplemental search can serve as the cut-off date. Id. at 451; Wilderness Soc'y v. U.S. Bureau of Land Mgmt, No. 01-2210, 2003 WL 255971, at *7 n. 18 (D.D.C. 2003).

Cozen O'Connor v. United States Dep't of Treasury, 2008 U.S. Dist. LEXIS 97941 (December 3, 2008, Savage, J.)(emphases supplied).

 

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Slashdot led me to this erroneous article at The Industry Standard:

According to a recent legal filing (see page 7) in the Psystar vs Apple antitrust case, Apple employees are responsible for maintaining their own documents such as emails, memos, and voicemails. In other words, there is no company-wide policy for archiving, saving, or deleting these documents.

...

An e-discovery lawyer, who asked not to be named because his employer (a firm you probably have heard of) doesn't want him speaking to the press, explained the basic legal requirements surrounding email and document retention to The Standard. "If litigation is anticipated, the party has a duty to preserve potentially relevant documents," he said.

"An employee retention program with no organization or coordination is effectively incapable of compliance," he continued, "barring an act of God, or luck akin to picking every game right in an NCAA pool. Apple's retention policy is negligent."

(Emphasis added). I dissent. Apple did have a policy once the litigation was anticipated:

... Apple claims in the Psystar document that its policy is fine because once the company anticipated litigation:

[Apple] identified a group of employees who could potentially have documents relevant to the issues reasonably evident in this action. Apple then provided those individuals with a document retention notice which included a request for the retention of any relevant documents.

I think the problem here is that the lawyer and/or reporter presumed that, in the absence of a company-enforced "litigation hold" on documents, the employees would not or could not comply fully with that hold.

But that's because they presume Apple works like most companies, destroying documents and files as quickly as they can so as not to leave evidence of anything, thereby (they hope) frustrating plaintiffs' cases.

Yet, as noted by the article itself, Apple also had no deletion policy. As such, relevant documents are likely scattered all over their systems in multiple places, many easily accessible, and, "As a general rule, then, a party need not preserve all backup tapes even when it reasonably anticipates litigation." Zubulake, see below.

Apple would likely be able to preserve most of the relevant and unique information by duplicating their internal servers and instructing the key officers and employees to duplicate and produce any documents that could be relevant.

If carried out honestly, such an ad hoc policy would probably work better than most corporate litigation hold "policies," in which the company deliberately retains a pile of useless garbage to dump on the plaintiff's lawyers while also failing to instruct those unaware of the litigation to take reasonable preservation steps.

The duty to preserve is for most companies not that complicated: once a company is aware of litigation, the company should put automatic destruction policies on hold and instruct relevant employees not to destroy anything until the company can find a way to preserve everything that might be relevant to the litigation. Here's how Zubulake, the Tale of Genji for electronic discovery, described it:

anyone who anticipates being a party or is a party to a lawsuit must not destroy unique, relevant evidence that might be useful to an adversary. While a litigant is under no duty to keep or retain every document in its possession . . . it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.

Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003).

Aside from case law, there's no explicit rule or statute on preservation; one could do worse than following this modified Federal criminal obstruction of justice statute, 18 U.S.C. § 1519:

Whoever knowingly, reckless or negligently alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to, or which has the effect to, impede, obstruct, or influence [civil litigation of which they are aware] shall be subject to sanctions, fines, adverse inference, and humiliation by trial lawyers.

That's a good rule unless, of course, the company was doing something wrong and intends to hide it, in which case they will start coming up with sneaky ways to pretend to comply with the rules while destroying everything detrimental to their defense.

But beware: even without evidence of intentional destruction, if a plaintiff's lawyer catches a company fooling around with document retention and failing to keep important documents, the plaintiff's lawyer will use it as an excuse to argue the missing documents say whatever the plaintiff's lawyer wants them to say.

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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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California, intent on proving it has too much democracy, has bought itself some tricky legal questions.

First, did the voters just revise or amend their constitution (and does that matter)? LATimes reports:

Lawyers for same-sex couples argued that the anti-gay-marriage measure was an illegal constitutional revision -- not a more limited amendment, as backers maintained -- because it fundamentally altered the guarantee of equal protection. A constitutional revision, unlike an amendment, must be approved by the Legislature before going to voters.

The state high court has twice before struck down ballot measures as illegal constitutional revisions, but those initiatives involved "a broader scope of changes," said former California Supreme Court Justice Joseph Grodin, who publicly opposed Proposition 8 and was part of an earlier legal challenge to it. The court has suggested that a revision may be distinguished from an amendment by the breadth and the nature of the change, Grodin said

Still, Grodin said, he believes that the challenge has legal merit, though he declined to make any predictions. Santa Clara University law professor Gerald Uelmen called the case "a stretch."

Second, was it (and could it) be retroactive? As  WSJ Law Blog reports:

 Voters in California seem to have spoken clearly: under the state’s constitution, marriage shall exist only between a man and a woman. One result that’s far from clear, however: what happens to all those same-sex couples who rushed to wed prior to the election?

It’s hard to say, reports the LA Times — but a “legal chaos” could follow. Seven legal scholars recently interviewed by the Times were largely divided over which side the law favors. “There is no clear answer,” said Erwin Chemerinsky, dean of UC Irvine Law School. “This is ultimately going to have to be litigated by the courts.”

“Until it is litigated, every same-sex couple with a marriage license is going to be hanging in limbo,” added Glen Lavy, senior counsel to the Alliance Defense Fund, which opposes gay marriage.

...

Still, other scholars cite a long tradition of courts making constitutional amendments retroactive only if the authors clearly intended them to be so. “I would think both under federal and state constitutional principles you can’t have a retroactive application that would result in a removal of what had been recognized and protected as a fundamental right,” said UC Berkeley family law professor Joan Holloway.

Maybe. Fact is, there's no consensus at all about how to interpret these referenda. Here's an example discussion from "Taking State Constitutions Seriously," by Marvin Krislov and Daniel M. Katz, published in the Spring 2008 Cornell Journal of Law and Public Policy (17 Cornell J. L. & Pub. Pol'y 295):

What role should the courts play in interpreting ballot measures? Legal scholars have debated the question of differential treatment - whether courts should take a "hard look" at direct democratic initiatives that they would not employ for legislation passed by a deliberative body. The late Professor Julian Eule argued that courts should look more closely when the voters enact a law without a complementary legislative action, particularly where minority interests are implicated. His famous "hard judicial look theory" suggests a more aggressive approach to judicial review for this set of direct democratic measures. Professor Eule asserts that it is unlikely that state courts will rule that popular enactments, either statutory or amendatory, violate existing state constitutions. Professor Eule finds it especially unlikely that searching review will occur in the sixteen states that are the focus of this article - where constitutions can be amended directly without legislative review or  veto. According to Eule, in these sixteen states, "sovereignty truly vests in an electoral majority." Since state courts, particularly in those sixteen states, will likely defer to the voters, federal courts step into the role of actively arbitrating democratically-enacted laws.

Other scholars have attempted to create rules for interpreting democratically enacted measures. In her study of state court decisions from 1984 and 1994 concerning the interpretation of legislative initiatives, Professor Schacter focuses on the difficulty of courts determining popular "intent." Ultimately, she argues for a different method - a set of "metademocratic" rules. These rules guard against two distinct problems of popular democracy - lack of information by the voters, and inequity or lack of clarity in the initiative process. To address the information gap, she proposes liberal rules for amicus participation and intervention. When the process appears biased or the language confusing, she proposes construing the language narrowly.

Professor Frickey contends that one should combine Professor Eule's focus on federal constitutionality and Professor Schacter's focus on statutory interpretation by relying on a quasi-constitutional interpretive approach. In balancing both popular sovereignty and constitutional values, Professor Frickey imports interpretive canons - 1) avoiding constitutional invalidation, 2) narrowly construing propositions when there is a conflict with existing law, and 3) paying more attention to established canons of law (such as the rule of lenity) where direct democracy is involved.

By contrast, Professor Tushnet rejects the notion of "differential standards of review." He argues that the three reasons proffered for reviewing direct democracy differently than legislative action - lack of deliberation, the bifurcated decision (and lack of logrolling), and structural  or political concerns - do not support more aggressive judicial review.

Simple, huh? Of course, keep in mind there's no legislative history upon which the courts can rely, as they would for a normal legislative statute or constitutional convention. At best, the courts can dive right into the politics and campaigning to ascertain the meaning, which is the very last thing any court wants to do.

The great irony: the question of interpretation falls to the California Supreme Court, which issued the ruling later apparently rejected by the voters.

If I may be so bold, perhaps "constitutional rights" should not be left up to simple majority ballot referenda. Can you imagine if Loving v. Virginia had been on the ballot in 1968 when Nixon was swept in by the South?

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To all clients out there, you don't have to tolerate abuse like this:

I injured myself on the job 2 yrs ago and obtained an atty to represent me on a consignment basis. I have rebuffed his sexual innuendos and in most recent months he has treated me horribly. This whole process has torn my marriage apart and my husband wants a divorce. I am the injured party here and feel betrayed by the one that should represent me. He curses at me, calls me stupid and quotes things that my doctors have never said. We now are at a stage with the case that the company being sued says their doctors say there is nothing wrong with me, which is just not true. I have been put on SSI as a direct result of the damage. My atty is encouraging me to settle for some ridiculous $500/mo payment for 25 yrs, because he doesn't think  we'll win in a court of law. He just wants his money and run.  My doctors have submitted their findings and assured me of the proper diagnosis. This condition is not going away and will progress over time. No contract was signed with the atty and at first it was a 33% fee, then he threatened with 45% and now I don't know what to do. If I am not satisfied with the offer, can I go to another atty without financial liability to this one. Please I need help....

 My response:

If what you write is true, it's shameful, wrongful and actionable. Your attorney should not be making sexual advances towards you, nor misrepresenting the status of the evidence, nor treating you with disrespect, nor "threatening" you to increase his fee. Such represents a breach of your contract, a breach of his fiduciary duties, and a breach of professional ethics.

You should promptly contact another attorney before further damage is done to your underlying case.

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A Pennsylvania insurance coverage / bad faith question:

I bought my home 5 years ago from estate.  Now, I'm selling my home, the buyer's title insurance company found 3 problems, including a tax lein of 55.00 plus penalties.  My title insurance company offered ademity letter to new title insurance company.  They don't want that, they want problems resolved.  My title insurance company says too bad.  Not worth the money to find my file.  They don't know whether claims are valid or not.  Will not resolve them or see if they need to be resolved.  Won't even look at file!  This seems wrong.  What should I do?  We had a closing date of Sept.29 that will probably have to be moved.  May lose sale.  Do I need a lawyer?

And my response:

You should speak with a plaintiff's attorney experienced in bringing bad faith claims against insurance company.

When an insurance company breaches the terms of the insurance policy the insured can bring a claim for breach of contract and recover the damages resulting from the insurance company's breach. A number of title insurance policies include a requirement that the title insurance company actively work to resolve title issues, and every one I've seen requires the title insurance company at least pay for all damages resulting from such title issues, up to the policy limits. It sure seems like your title insurance company is refusing to do that, which is a breach.

Moreover, in Pennsylvania, every insurance company has a legal duty to promptly and reasonably evaluate and adjust claims in good faith. If they don't, there is a specific legal claim available against them which can include the award of attorneys fees, interest and punitive damages. It does not seem like your claim has been evaluated fairly.
 

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Sometimes I read Kevin, M.D. out of what I can only assume is a hidden desire to gnash my teeth thinking about medical malpractice:

Massachusetts is allowing a new form of malpractice lawsuit to go forward:

A woman wrecked her car, killing an innocent bystander. Now the bystander’s widow is suing the woman’s doctors, arguing that they should have warned her not to drive while taking the pain medicines they prescribed.

The problem is, a majority of medications can lead to lightheadedness and dizziness, which in theory, can impair the ability to drive. Blood pressure and diabetes drugs for instance. Should patients taking these medications be warned not to drive?

At the very least, I would be very wary of prescribing any form of narcotic medications if these types lawsuits were to succeed. Patients lose again.

I'll put aside the assertion that "a majority of medications" are at issue; I imagine he wrote that as a throw-away line.

On to the merits, it's interesting that Kevin does not attack the nominal "problem" with the ruling, in that it creates the right of third parties to sue physicians where the physician was negligent in their treatment of a patient and that negligence injured the third party. That's what all the doctors in Massachusetts were freaking out about. So we'll leave that to another day.

Instead, he apparently frets that physicians should not be held liable where they failed to warn patients about the risks of the medications they are prescribing.

Why not? Is it really so hard to hand a patient a brochure or to talk over the risks on the package with them? Is it really so terrible if the standard of care requires a physician listen to their patient and, upon hearing an elderly woman say she feels faint while driving, suggest she stop driving?

The practical answer most physicians would give is that of course they want to take the time to discuss every detail of the medication they are prescribing to their patients, but they simply can't. If they did that, they wouldn't make nearly enough money to support their practice.

That's not a complaint about medical malpractice, trial lawyers, or torts. It's a complaint about insurance reimbursements, which encourage doctors to treat patient visits like speed dating.

So stop blaming us.

* gnashes teeth *

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Morales v. Sun Constructors, Inc., 2008 U.S. App. LEXIS 18513 (3d Cir., August 28, 2008) reiterated an important point for non-lawyers to know:

The Supreme Court has observed: “It will not do for a man to enter into a contract, and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained.” Upton v. Tribilcock, 91 U.S. 45, 50, 23 L. Ed. 203 (1875). The “integrity of contracts demands” that this principle “be rigidly enforced by the courts.” 1 Richard A. Lord, Williston on Contracts § 4:19 (4th ed. 2008). As one noted treatise explains:

According to the objective theory of contract formation, what is essential is not assent, but rather what the person to whom a manifestation is made is justified as regarding as assent. Thus, if an offeree, in ignorance of the terms of an offer, so acts or expresses itself as to justify the other party in inferring assent, and this action or expression was of such a character that a reasonable person in the position of the offeree should have known it was calculated to lead the offeror to believe that the offer had been accepted, a contract will be formed in spite of the offeree's ignorance of the terms of the offer. The most common illustration of this principle is the situation when one who is ignorant of the language in which a document is written, or who is illiterate, executes a writing proposed as a contract under a mistake as to its contents. Such a person is bound, in the absence of fraud, if the person does not require the document to be read to him … .

Id. See New York Life Ins. Co. v. Kwetkauskas, 63 F.2d 890, 891 (3d Cir. 1933) (recognizing that “[i]t is true that an illiterate man may bind himself by contract by negligently failing to learn the contents of an instrument which he has executed”); Hoshaw v. Cosgriff, 247 F. 22, 26 (8th Cir. 1917) (holding that every contracting party has the duty “to learn and know the contents of a contract before he signs and delivers it”). Arbitration agreements in the employment context are not exempt from this principle. ...

Morales, in essence, requests that this Court create an exception to the objective theory of contract formation where a party is ignorant of the language in which a contract is written. We decline to do so. In the absence of fraud, the fact that an offeree cannot read, write, speak, or understand the English language is immaterial to whether an English-language agreement the offeree executes is enforceable. ...

Morales is not claiming fraud, see App. 78, 95, and he is not alleging that Sun misrepresented the contents of the Agreement to him. Cf. Am. Heritage Life Ins. Co. v. Lang, 321 F.3d 533, 538 (5th Cir. 2003) (recognizing that “[i]t is a widely accepted principle of contracts that one who signs or accepts a written instrument will normally be bound in accordance with its written terms,” and that a defendant,  “illiterate or not, would be bound by the terms of the arbitration agreements,” but remanding for adjudication of a claim of fraud in the inducement); Pimpinello v. Swift & Co., 253 N.Y. 159, 163, 170 N.E. 530 (1930) (stating that “[i]f the signer is illiterate, or blind, or ignorant of the alien language of the writing, and the contents thereof are misread or misrepresented to him by the other party … unless the signer be negligent, the writing is void”) (emphasis added). Fn1 Further, there is no evidence that Sun tried to hide the arbitration clause; indeed, it comprised about one-half of the Agreement.

Here's Footnote 1:

The dissent analogizes this case to American Heritage Life Insurance Company v. Lang. Unlike Morales, however, the illiterate plaintiff in Lang asked the defendant's agent to explain each of the documents Lang signed, and he submitted evidence that the agent deliberately mislead him as to what he was signing by claiming that the papers were loan or insurance documents rather than an arbitration agreement.

It bears repeating: by and large, only explicit fraud will relieve someone from a material contract condition. If you're going to take someone's word for something, make sure you actually get their word. Silence usually won't work for fraud.

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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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Law prof and cop agree: never ever ever ever ever ever ever talk to the cops about a crime, even if you're innocent

Sad, but true.

[Have been in depositions, posting will resume tomorrow, hopefully]

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A great post by f/k/a about the wrongfulness, perhaps even unethical nature, of debt negotiation fees, most of which are excessive in light of the work performed, work that could be done by the client themselves.

If you've ever thought about hiring one of those firms, read this article.

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A Pennsylvania / Federal consumer law question on LawGuru:

My husband & I took our 1st mortgage with [lender1] and our 2nd mortgage with [lender2] and refinanced them into 1 with [lender2] on 4/21/08.  In June we started getting calls that our 2nd mortgage is past due.  We called [lender2] and they said it was a common problem, just ignore it.  We continued getting calls and a letters from an attorney.  WE have the HUD form that says it is paide, but there is an internal problem in the system that says otherwise.  No one knows how to fix it.  We have continued to call [lender2] and they don't return our calls.  WE have to call them back.  We get excuse after excuse.  My husband has lost hours at his job trying to fix them problem, and I, a teacher, have also.  Is there anything ''legally'' that we can do.  I have all calls documented with dates and times, along with several emails.  Four months have almost past. We need help!

My fair debt collection practices response:

You asked about a creditor repeatedly demanding payment of a nonexistent debt.

The Federal Fair Debt Collection Practices Act prohibits creditors from attempting to collect on debts they know are erroneous. As the Federal Trade Commission points out on their website, "A collector may not contact you if, within 30 days after you receive the written notice, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed."

In addition to your phone calls, you should send everyone who attempts to collect that debt a written demand they cease all collection activities. If that still doesn't work, you have two options (which you can use simultaneously): sue in Court, where you can receive up to $1,000 for the violation, and/or complain to the FTC at www.ftc.gov.

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The NYTimes has an article today:

Until recently, the impact of Title IX, the law forbidding sexual discrimination in education, has been limited mostly to sports. But now, under pressure from Congress, some federal agencies have quietly picked a new target: science.

The National Science Foundation, NASA and the Department of Energy have set up programs to look for sexual discrimination at universities receiving federal grants. Investigators have been taking inventories of lab space and interviewing faculty members and students in physics and engineering departments at schools like Columbia, the University of Wisconsin, M.I.T. and the University of Maryland.

So far, these Title IX compliance reviews haven’t had much visible impact on campuses beyond inspiring a few complaints from faculty members. (The journal Science quoted Amber Miller, a physicist at Columbia, as calling her interview “a complete waste of time.”) But some critics fear that the process could lead to a quota system that could seriously hurt scientific research and do more harm than good for women.

The members of Congress and women’s groups who have pushed for science to be “Title Nined” say there is evidence that women face discrimination in certain sciences, but the quality of that evidence is disputed. Critics say there is far better research showing that on average, women’s interest in some fields isn’t the same as men’s.

...and that's where everyone should stop reading. Title IX has no quota requirements whatsoever. Per the Women's Sports Foundation (from my own experience, below is an entirely correct statement of Title IX law):

12. Does Title IX require institutions to meet “quotas”?

No. Every institution has three options to meet the participation standard of Title IX, only one of which is to provide athletic participation opportunities in substantial proportion to each gender enrollment. They only need to meet one of the following:

* Option 1: Compare the ratio of male and female athletes to male and female undergraduates; if the resulting ratios are close, the school is probably in compliance with the participation standard.
   
* Option 2: Demonstrate that the institution has a history and continuing practice of program expansion for the underrepresented gender.

* Option 3: Demonstrate that the institution has already effectively accommodated the interests and abilities of the underrepresented gender.

Coaching that quota misrepresentation in "some critics fear" language doesn't absolve the NYTimes of blame, since they don't immediately correct it. In fact, they repeat it twice later in the article.

If, as "critics" say, there's limited female interest in the sciences, then Title IX only requires the school accommodate that interest to the same extent it accommodates male interest.

Nothing more, nothing less.

Shame on the NYTimes. A simple phone call to a gender rights / Title IX attorney or the Office of Civil Rights would have corrected the mistake.

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Another Pennsylvania business law / organizational dispute question:

May an attorney director of a school for the blind, act as both director-client and attorney, control legal services, not consult with the board, and build up $250,00[?] in fees to his own firm?

And my reply:

It's not inherently wrong for a director of an organization to hire their own firm to perform work for the organization.

Such 'self-dealing,' though, must be fair and must occur in the open. What you have described sounds awfully suspicious -- no director of any organization, non-profit or for-profit, can simply hire themselves (or their firms) to do work without any oversight whatsoever.

You may first want to check into what oversight there has been of the relationship; perhaps it has been approved, but through other channels. For example, chief executives (or other officers) usually have the power to hire third-parties to perform work for the organization without consulting the directors for each and every transaction.

If, however, he's doing everything on his own, and the other directors object, then there's a problem, and you may want to speak with an attorney.

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A Pennsylvania business / partnership question:

Can I remove my property from a failing business without my partners knowledge and not face criminal charges?

My reply:

In theory, yes. In practice, no, don't remove anything without your partners' knowledge.

Generally,  partners are entitled to retrieve property that has remained in their personal ownership, but not entitled to seize, unilaterally, assets that are owned by the partnership (because such assets are owned by all the partners together).

You might think it is crystal clear that whatever you're talking about is "your" property, but if you are wrong, you may in fact end up facing criminal charges as well as a civil lawsuit.

I strongly advise you speak with an attorney who can review all of partnership material and make an assessment about the status of the property in question.

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The Conglomerate is mad at the NYT's "The Ethicist:"

Anyway, this Sunday Cohen is asked by Patrick Hebron of Brooklyn whether it is "ethical" for him to give a young artist friend $9,000 in return for a 1% share of his "lifetime earnings" no matter what time of work the artist does.  Cohen claims that this is not unethical but might be a bad deal for the investor.  Cohen likens this arrangement to three things, which should raise red flags.  First, Cohen likens the arrangement to "investing in a corporation."  Bingo!  And we call that buying a security, which are required to be registered with the SEC unless covered by an exemption.  So, Mr. Hebron, Cohen has just given you the go ahead to possibly break the law.  Cohen, who seems to focus on whether this creates an indentured servitude aspect, says the arrangement are like the Bowie bonds.  But of course, the arrangement is nothing like the Bowie Bonds, which are the mere securitization of royalties from songs already written and recorded.  The moral hazard of the artist that Mr. Hebron is worried about is not present in the Bowie Bonds.  Cohen also likens the arrangement to "French Open tennis champion Ana Ivanovic, who received the backing of a Swiss businessman when she was 14 in exchange for repayment if she hit it big one day."  The businessman actually became her business manager and covered her expenses with an interest-free loan, hiring a coach for her and setting her up in Switzerland after she had to flee from Serbia.  That's called a loan.

And, indeed, it looks like an exception would apply under Regulation D, given the size of the offering and the number of people solicited. (Moreover, the person arguably violating SEC rules is the artist, not the investor).

As for Bowie Bonds, The Conglomerate has Cohen dead to rights, there is a definitely a distinction between offering part of the royalties for finished songs and offering future royalties for the whole future.

I think the bigger issue here is one of contract drafting. The artist has art, and possibly talent, but no money. The investor has money. Surely there's a reasonable, ethical way for the two to work together? Why not, say, put an upper limit on the contract? "Such royalties not to exceed $100,000."

That's what eventually happened when this was tried before with the Yale Tuition Postponement Plan:

Yale University officials said today that they would erase the remaining debts of alumni who borrowed money in the 1970's under two programs that were meant to further altruistic careers like missionary work but instead saddled some students with years of payments.

About 3,900 alumni from the classes of 1971 to 1978 received loans under the Tuition Postponement Option or the Contingent Repayment Option. For each $1,000 borrowed from the university, the students pledged 0.04 percent of their future earnings for 35 years, or until the whole class paid off its aggregate debt, whichever came first.

'It had some of those bents of the 1970's: 'Hey, let's all take on the loan and those among us who become the wealthy industrialists will carry the burden for the rest,' '' said Juan Leon of Norcross, Ga., a 1974 graduate.

Mr. Leon, who today sells airplanes, borrowed $1,700. He has repaid roughly $7,000, yet he still owed the university money because some classmates failed to make payments.

His experience was not unusual. The programs doled out $8 million in loans, but despite paying about $25 million in principal and interest, no class has paid off its debt because about 20 percent of the students fell into default.

At some point it became silly, which is the worry of Cohen and the person who wrote in. So why not add an "in case of silliness" clause? Then you can both reach a fair and appropriate value for silliness and move on with your lives.

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43(B)log  refers us to a NYT feature on doctors who give consumers incentives to post doctor-created ads as their own contributions to YouTube:

Trouble is, most marketing videos don’t announce that patients are compensated. Take Jiffy Reed, who posed for a video tribute on YouTube about Dr. Daniel Noor, a New York-based cosmetic dentist who straightened her smile with invisible braces. “I was so happy, I would have done anything,” Ms. Reed said. What the video doesn’t mention is that her physician whitened her teeth at no charge; it usually costs about $700.

Exactly right. Although the article quotes a couple physicians who generally object to unseemly nature of such advertisements, the core problem here is not a medical issue, it's a consumer issue. Paid endorsements used for advertising that aren't identified as such are generally illegal, and there is no medical exception to that.

My own view is that this problem, like a number of problems in the medical profession, are the result of lackadaisical enforcement by most state Boards of Medicine. If even just a handful of physicians were reprimanded for using paid endorsements that were made to appear spontaneous, there likely would not be much of a problem anymore.

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A question about employment discrimination in Pennsylvania:

I have recently been terminated from my place of employment. The reason give was failure to ring up my employee meal, which I did once brought to my attention. A manager was not around to do so at the time. They have been cutting back my hours for months and switching my duties from one area to another. I feel that I have been wrongly terminated and believe it is because I am 8 months pregnant. Is this just?

My response:

It is unambiguously illegal to discriminate against employees on the basis of pregnancy, childbirth or a related medical conditions [under the Pregnancy Discrimination Act, part of Title VII of the Civil Rights Act of 1964]. From what you wrote, which describes disparate treatment of you compared to others, it sounds like you may have well been discriminated against.

You should know that employment discrimination claims often have a very narrow window to file (such as with the Equal Employment Opportunity Commission), often just 180 days after the event in question, and so you should contact an attorney promptly.

...

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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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An Eastern Pennsylvania civil litigation question:

can someone who says they are owed money win in court without proof and what kind of proof would they need

I reply:

You need just enough proof to win your case: no less, no more.

Seriously, there's only a small subset of cases -- generally those relating to real estate or long-term agreements -- where a particular type of proof, like a written contract, is required. (Those cases fall under the "statute of frauds," which really is just a list of a dozen or so particular circumstances).

For every other breach of contract, like an agreement to buy equipment, or an agreement to do some minor contracting work, there's no legal requirement the plaintiff show a writing to prove their claim.

Is a writing more persuasive than just oral testimony? Usually. But it's not a legal requirement. The only 'legal' requirement in most cases is that you show, through first-hand knowledge (e.g., your testimony or someone else's) that you're entitled to the money you claim. Then a judge or jury will consider your testimony and the defendant's and reach a factual conclusion.

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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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A question on LawGuru about attorney malpractice in eastern Pennsylvania:

I just found out a few months ago my lawyer died. I also found out he recieved money from a claim I have with workmans comp. My workmas comp went bankrupt. and is in recievership He recieved money June 20 2003 and cashed the check July 3 2003, I had no idea he recieved and cashed the check till his son ( who is also a lawyer) contacted me and said he would handle the case.
I found out about the check when reviewing the case with his son.
The son said his father didn't keep good records and that was noway they could tell if he recieved, or if he sent me my part of the check.
I called the office in charge of releasing the funds and they sent me a copy of the cashed check and my name was forged on the check.
Is there anything I can do?

I answer:

... You should contact the Pennsylvania Lawyer's Fund for Client Security. You can find their contact information at http://www.palawfund.com/

The Fund's limit is $75,000.

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On LawGuru:

what is the statute of limitations [in Pennsylvania] for filing suit for a fata[l] car accident.

I answer:

Typically two years, but you don't want to wait that long. Many plaintiffs / lawyers have been caught off guard by waiting until the end of the statute, filing suit then, and later discovering that other parties or claims should have been added. You should seek out legal representation as soon as possible.

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A question on LawGuru about filing a breach of contract lawsuit:

Hello. I hired a guy to film my wedding and produce a video. It has been a year and a half we still do not have it. We have a contract and have been attempting to contact him, but he will not return calls or anything, what legal action can I take and how do I do it?

I answer:

You can sue him in small claims court, which can award judgments up to $8,500 ($10,000 in Philadelphia). You don't need a lawyer to do that -- just go to your local municipal court (likely the same building as traffic court, possibly same building as other municipal services) and ask the clerk about filing a small claims suit.

You'll then fill out a complaint form with a brief description of your claim and everything you know about the defendant, and you'll pay a comparatively small filing and service fee. The court will schedule a hearing and call up the sheriff to serve the defendant with papers.

The hearing is a simple format designed to be easy for non-lawyers; it's the same format Judge Judy (and others) adopt on television. The court generally swears you and the defendant in and asks questions about the case before making a decision.

If you have any further questions, ask the court clerk -- they describe the process dozens of times a day.

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At Consumer Law & Policy, an detailed post about a movement by the for-profit National Arbitration Forum to make it easier for debt collectors to make up debts on the spot and collect them:

A surprisingly large number of debt collectors have a problem, though: they cannot even prove that a given consumer owes them any money (much less the often-padded sums that the debt collectors claim that they are owed). Sometimes this problem arises because the consumer actually does not owe the debt collector anything (the number of identity theft victims in the United States is high and rising rapidly), and sometimes it arises because of lousy record-keeping by credit card companies. In literally hundreds of thousands of cases, however, the debt collector cannot prove its case because it does not have (and never has had) any evidence.

How can this be true? It has come about because of the changing nature of debt collectors. It is common for credit card companies to sell the right to pursue debts allegedly owed to them on a secondary market. On this market, so-called debt buyers pay surprisingly small sums (often only a few cents on the dollar, and sometimes a fraction of a single cent) for the right to pursue debts.

In a great many (if not the vast majority) of cases, these "debt buyer" companies are actually mis-named. What they really buy from the credit card companies is a few bare-boneo lines of account information. In most cases, debt buyers pay the credit card issuers to give them a list with three items: (a) the names of consumers who supposedly owe the credit card company money; (b) the account numbers of these consumers; and (c) a total figure supposedly owed (usually with little or no specifics as to the breakdown or components of that figure). These debt buyers typically have none of the records that a normal creditor would have (and would need, in court, to prove a case), such as a copy of a signed application for a credit card or copies of the monthly statements.

I know the situation very well from my pro bono work. Typically, in small claims court, a debtor's lawyer shows up with nothing more than a printout with someone's name on it -- they never have the contract that supposedly created the debt, and they never have anything signed or otherwise verified -- and the lawyer, who inevitably knows nothing about the case except that printout, claims the debt is owed as stated.

Such "proof" would never, ever hold up in any real civil case, nor should it. If a debt collection company can't track the paperwork or even get someone to testify under oath that they have personal knowledge debt is correct, too bad. Eat the cost just like everyone else who can't prove their case.

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Bruce Schneier notes:

Aren't fax signatures the weirdest thing? It's trivial to cut and paste -- with real scissors and glue -- anyone's signature onto a document so that it'll look real when faxed. There is so little security in fax signatures that it's mind-boggling that anyone accepts them.

Yet people do, all the time. I've signed book contracts, credit card authorizations, nondisclosure agreements and all sorts of financial documents -- all by fax. I even have a scanned file of my signature on my computer, so I can virtually cut and paste it into documents and fax them directly from my computer without ever having to print them out. What in the world is going on here?

Part of it is laziness where the stakes aren't high:

In a 2003 paper, "Economics, Psychology, and Sociology of Security," Professor Andrew Odlyzko looks at fax signatures and concludes:

Although fax signatures have become widespread, their usage is restricted. They are not used for final contracts of substantial value, such as home purchases. That means that the insecurity of fax communications is not easy to exploit for large gain. Additional protection against abuse of fax insecurity is provided by the context in which faxes are used. There are records of phone calls that carry the faxes, paper trails inside enterprises and so on. Furthermore, unexpected large financial transfers trigger scrutiny. As a result, successful frauds are not easy to carry out by purely technical means.

He's right. Thinking back, there really aren't ways in which a criminal could use a forged document sent by fax to defraud me. I suppose an unscrupulous consulting client could forge my signature on an non-disclosure agreement and then sue me, but that hardly seems worth the effort. And if my broker received a fax document from me authorizing a money transfer to a Nigerian bank account, he would certainly call me before completing it.

Part of it is the law -- despite the social importance we put on handwritten signatures, there's no legal need for them. The Restatement (a distillation of rules from centuries of case law, published by the American Law Institute) of Contracts § 50 specifically recognizes "acceptance by performance:"

In, the bulk of "contracts" and the United States are probably accepted by performance. When you buy a cup of coffee, do you sign an agreement to buy it, or do you perform by handing over cash and they perform by handing you a coffee?

Truth is, most of the time a fax signature is used no signature at all would work just fine. If you negotiate a contract and then just start doing it, a court will usually enforce it, despite the absence of any signatures.

The bulk of contract disputes don't arise from a failure to formalize the contract, but rather from the happening of an unexpected event and what each side believes should happen after that event. In that case, it doesn't matter if you faxed your signature or not -- it matters if the contract was drafted well enough to cover the unexpected event.

The secret to that is to make the contact as clear as possible and to focus it on what you actually what to have happen, not on what you think the law does or should require.

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Via Consumer Law & Policy, another day, another loss for abusers of credit reporting:

The main question in the case was whether Radian had a duty to provide an adverse action notice even though it did not have a contractual relationship with the Whitfields.  Relying on both FCRA’s text and purpose, Judge Dolores Sloviter agreed with the Whitfields that FCRA requires a notice despite the absence of privity.  Judge Sloviter’s opinion indicates that prior authority on this issue was scant but consumer-favorable.

In plain english: it doesn't matter if you have a contract with that specific business or not, every business that charges you more or denies you credit because of your credit report has to let you know. Period.

Good for the Third Circuit (Delaware, New Jersey, Pennsylvania, Virgin Islands). It comes on the heels of the Ninth Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam, Northern Mariana) making quite clear a credit reporting agency can't keep mistakes on your report when they know they're wrong.

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