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

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

Here's the abstract:

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

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

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

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

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

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

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

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

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

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

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

And it sounds like a heckuva game to play.

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

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

As has been reported all over the legal media,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But the final analysis is a practical one:

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

Id.

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

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

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

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

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

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

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

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

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

So how did that happen?

Different facts.

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

At the Third Circuit, the Layshock panel noted:

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

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

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

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

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

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

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

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

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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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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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Last spring, in How To Write Your Brief So That The Judge Will Hate You, I profiled a sarcastic and dismissive brief — filed by attorneys for West Publishing no less, in a case against a law professor — and concluded:

An opening brief filled with sarcasm will perturb a judge doing his or her best to reserve judgment until they've heard both sides just as much as an opening statement filled with indignity will repulse a jury doing their best to be fair and impartial until they've heard all of the evidence.

As Bruce Merenstein posted on The Legal Intelligencer Blog yesterday:

... I was curious when I read numerous reports not long ago of a brief filed by Sidley Austin lawyers in a case in Illinois state court involving claims of innocence by convicted murderer Anthony McKinney. Working on McKinney's behalf are students at Northwestern University's Medill Innocence Project. State prosecutors served subpoenas on the students, seeking to obtain, among other things, video footage of a witness statement and the students' notes. Sidley Austin filed a motion to quash the subpoenas on behalf of the students. Following the state's response to the motion, Sidley submitted a reply brief. It was this reply brief that received so much attention.

... The judge then referred to the brief as "reprehensible," an "editorial" not fit for court, and "dripping with sarcasm." She also compared the brief unfavorably to one she had received earlier that day from a pro se prisoner.

Merenstein didn't think much was wrong with the brief:

My primary conclusion after reading the brief a number of times is that the Sidley brief is well-written, to the point, devoid of irrelevant ad hominem attacks and quite persuasive. While I've seen sarcasm in many briefs (and cringed every time I read it), I looked high and low through the Sidley Austin brief and was unable to find anything remotely sarcastic in the brief. I'm also at a loss as to what is "reprehensible" about it.

I agree that the brief wasn't "reprehensible," but it certainly wasn't a model of courteous advocacy.

 Let's start with the first sentence:

The State's response brief evinces a surprising lack of comprehension of the requirements of the Illinois Reporter's Privilege Act (the ''Act'') and an equally surprising lack of affinity for the important First Amendment νalues that underlie the Act and the role of investigative reporting in promoting those values.

(Emphasis added.) Was it really necessary to accuse the flesh and blood representative of the State of Illinois of being too stupid to understand the state's laws? To accuse them of disliking free speech?

The Sidley Austin lawyers could have just as easily written:

The State's argument, if accepted by this Court, would void the requirements of the Illinois Reporter's Privilege Act (the ''Act'') and would undermine important First Amendment νalues that underlie the Act and the role of investigative reporting in promoting those values.

Same ideas, but without insulting opposing counsel's ability to "comprehend" the law.

Elsewhere in the brief, "The State must not understand the respective roles of government and the media in our society." The remark was simply gratuitous; it did nothing to enhance the argument that followed:

When the State discharges its prosecutorial powers, it does have strict disclosure obligations rooted in fundamental concepts of due process. Respondents have no such obligations. And while the maxim that ουr judicial system is entitled to "everyman's evidence" has currency, ουr society has also long recognized that the fundamental role newsgathering provides in our society places special restrictions on access to unpublished newsgathering materials. "The reporter's privilege has evolved from a common law recognition that the compelled disclosure of a reporter's sources could compromise the news media's first amendment right to freely gather and disseminate
information." In re Special Grand Jury Investigation, 104 Ill. 2d 419, 424 (1984).

A perfectly persuasive and cogent analysis marred by a gratuitous insult. Tisk, tisk.

We've all been there. We've all read briefs and heard oral arguments that were (at least to us) irrelevant, unfounded, or directly contradicted by controlling precedent or the plain meaning of the statute. The Innocence Project's attorneys had every reason to be infuriated by the State's subpoena: there's no question the State demonstrated a surprising amount of contempt for Illinois' Shield Law and for the fundamental free speech values embodied by that law.

But a brief is no place to question the intellect or motives of opposing counsel. Get mad, then get over it.

As James Fallows puts it: Always write angry letters to your enemies. Never mail them.

Always draft angry briefs. Never file them.

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There's a myth — promoted by vested interests — that the United States is a free market economy.

Don't believe it. Even in the smallest of transactions, monopoly power still rules, dutifully skimming its unearned share.

"How Visa, Using Card Fees, Dominates a Market":

Competition, of course, usually forces prices lower. But for payment networks like Visa and MasterCard, competition in the card business is more about winning over banks that actually issue the cards than consumers who use them. Visa and MasterCard set the fees that merchants must pay the cardholder’s bank. And higher fees mean higher profits for banks, even if it means that merchants shift the cost to consumers.

Seizing on this odd twist, Visa enticed banks to embrace signature debit — the higher-priced method of handling debit cards — and turned over the fees to banks as an incentive to issue more Visa cards. At least initially, MasterCard and other rivals promoted PIN debit instead.

As debit cards became the preferred plastic in American wallets, Visa has turned its attention to PIN debit too and increased its market share even more. And it has succeeded — not by lowering the fees that merchants pay, but often by pushing them up, making its bank customers happier.

In an effort to catch up, MasterCard and other rivals eventually raised fees on debit cards too, sometimes higher than Visa, to try to woo bank customers back.

“What we witnessed was truly a perverse form of competition,” said Ronald Congemi, the former chief executive of Star Systems, one of the regional PIN-based networks that has struggled to compete with Visa. “They competed on the basis of raising prices. What other industry do you know that gets away with that?” 

As an old friend of mine wrote,

The present conditions of business cannot be accepted as satisfactory. There are too many who do not prosper enough, and of the few who prosper greatly there are certainly some whose prosperity does not mean well for the country. ... [W]e heartily approve the prosperity, no matter how great, of any man, if it comes as an incident to rendering service to the community; but we wish to shape conditions so that a greater number of the small men who are decent, industrious and energetic shall be able to succeed, and so that the big man who is dishonest shall not be allowed to succeed at all. ...

Wherever in any business the prosperity of the business man is obtained by lowering the wages of his workmen and charging an excessive price to the consumers we wish to interfere and stop such practices. We will not submit to that kind of prosperity any more than we will submit to prosperity obtained by swindling investors or getting unfair advantages over business rivals. ...

It is utterly hopeless to attempt to control the trusts merely by Antitrust Law, or by any law the same in principle, no matter what the modifications may be in detail. In the first place, these great corporations cannot possibly be controlled merely by a succession of lawsuits. The administrative branch of the Government must exercise such control.

Theodore Roosevelt said those words ninety-eight years ago. He was right then and is right today.

But these are different times; we can't rely on the administrative branch of the Government to exercise control, even when it claims it will. 

The process had only just started in Teddy Roosevelt's day:

The first federal regulatory agency, the Interstate Commerce Commission, was set up to regulate railroad freight rates in the 1880s. Soon thereafter, Richard Olney, a prominent railroad lawyer, came to Washington to serve as Grover Cleveland's attorney general. Olney's former boss asked him if he would help kill off the hated ICC. Olney's reply, handed down at the very dawn of Big Government, should be regarded as an urtext of the regulatory state:

"The Commission . . . is, or can be made, of great use to the railroads. It satisfies the popular clamor for a government supervision of the railroads, at the same time that that supervision is almost entirely nominal. Further, the older such a commission gets to be, the more inclined it will be found to take the business and railroad view of things. . . . The part of wisdom is not to destroy the Commission, but to utilize it."

Today, regulatory capture infects — literally infects — every aspect of our lives.

"Safety of Beef Processing Method Is Questioned":

 Officials at the United States Department of Agriculture endorsed the company’s ammonia treatment, and have said it destroys E. coli “to an undetectable level.” They decided it was so effective that in 2007, when the department began routine testing of meat used in hamburger sold to the general public, they exempted Beef Products.

With the U.S.D.A.’s stamp of approval, the company’s processed beef has become a mainstay in America’s hamburgers. McDonald’s, Burger King and other fast-food giants use it as a component in ground beef, as do grocery chains. The federal school lunch program used an estimated 5.5 million pounds of the processed beef last year alone.

But government and industry records obtained by The New York Times show that in testing for the school lunch program, E. coli and salmonella pathogens have been found dozens of times in Beef Products meat, challenging claims by the company and the U.S.D.A. about the effectiveness of the treatment. Since 2005, E. coli has been found 3 times and salmonella 48 times, including back-to-back incidents in August in which two 27,000-pound batches were found to be contaminated. The meat was caught before reaching lunch-rooms trays.

The last election has changed matters somewhat, including in terms of Antitrust. But make no mistake: the administrative branch of the Government is loathe to exercise control over the great corporations, and will just as often empower the great corporations against competitors and consumers as it will restrain them.

Thus, the primary method we have to control great corporations — whether to ensure a level playing field for competition or to protect ourselves from personal or financial injury — is "merely a succession of lawsuits."

Yet, a succession of lawsuits barely works to restrain corporate abuse and malfeasance. Consider Visa/Mastercard, which already paid $2 billion for manipulating merchants' processing fees, yet keep doing it. Jack-in-the-Box was nearly bankrupted by lawsuits following a multi-fatality outbreak of O157:H7 E. coli, yet it's still around, and E. coli still runs rampant in our food, particularly ground beef.

Today, however, we're forgotten what Teddy Roosevelt knew a century ago. Today, many of those same vested interests argue that the feeble option of the "mere succession of lawsuits" is too much. That even the involvement of the owners of corporations in corporate affairs is too much. That corporations are people, too, entitled to "speak" in elections just like you or me.

Don't believe it.

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Overlawyered passes along a misleading description of the "tort reform" provisions in the Senate health care bill from an anonymous Capitol Hill source:

The “tort reform” section of Senator Reid’s substitute amendment is not merely meaningless, but is actually a significant giveaway to the trial lawyers. It is essentially a 5-year, 50-million dollar grant program to encourage states to develop more plaintiff-friendly alternatives to the current medical liability system.

Section 10607 (p.344 of the Manager’s) establishes a 5-year grant program. The program is administered by the HHS Secretary (Sebelius), in consultation with a review panel. The review panel is structured to ensure that trial lawyers are amply represented, with seats specifically reserved for “patient advocates,” “attorneys with expertise in representing patients,” and “patient safety experts.”

Of course, the unnamed source fails to note that health care companies, defense lawyers and insurance companies are "amply represented," too. Read the bill yourself: alongside the patient advocates on those panels are "Health care providers and health care organizations,” “Attorneys with expertise in representing patients and health care providers,” and “Medical malpractice insurers.”

The source also says:

Nothing about this language requires that the “alternative to litigation” decreases litigation costs.

Nonsense. In order to receive a grant, states have to show how their plan “improves access to liability insurance." After they receive a grant, states' plans will be evaluated by factors such as “the disposition of disputes and claims, including the length of time and estimated costs to all parties” and “the medical liability environment.”

The Pop Tort has a more reasonable view:

Here is some of what we like about it: it proposes to give money to states to consider litigation alternatives, but only programs that are shown to improve patient safety, are voluntary and allow patients to opt, and do not limit a patient’s legal rights.  Clearly, if this passes (the House bill currently has something similar), we will have our battles at the state level as certain well-funded forces try to impose anti-patient measures like “Health Courts.”  But we’ll cross that bridge, as they say….

Whatever is done, we hope it works to reduce errors, but not just in hospitals, (here, here, here, for example) but also those of incompetent individual doctors, who by the way already have more liability protections for their negligence than any other profession in the country. 

Frankly, the biggest problem in the debate over medical malpractice liability in this country is the absence of concrete data. There's no agreement on how much medical malpractice occurs or how much damage it causes, nor any agreement on the effect of health care providers' insurance premiums on access to medical care. There's also only one major study on the reliability of the medical malpractice system, which tort reformers and trial lawyers both read to say whatever they want it to say.

Much like with the Comparative Effectiveness Research proposals, the biggest benefit of these "demonstration programs" will likely not be the discovery of a perfect recipe for the medical malpractice system, but rather the accumulation of data that will inform future debates.

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

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

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

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

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

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

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

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

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

(emphasis in original)

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

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

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As Patently-O reports this morning, 

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

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

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

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

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

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

As Judge Savage recounts,

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

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

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

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

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

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

whichever occurs last.

31 U.S.C.A. § 3731(b) (2003).

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

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

There's no obvious right answer:

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

Id. at *51–52.

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

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

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

Id. at *55–56.

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

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

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

The facts:

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

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

* * *

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

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

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

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

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

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

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

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

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

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

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

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

Id. at 13–16.

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

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

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

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As Justice Oliver Wendell Holmes wrote,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

...

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

...

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

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

(Emphasis added.)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And what does Ethington say?

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

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

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

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

Told you so.

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Ashby Jones at the Wall Street Journal reports on absolute judicial immunity:

In January, federal prosecutors filed fraud charges against Mark A. Ciavarella and Michael T. Conahan, judges on the Luzerne County, Pa., Court of Common Pleas. Prosecutors alleged that the judges sent numerous juveniles to detention centers over several years in exchange for more than $2.6 million in kickbacks from the former co-owner of two centers.

After the criminal charges, several lawyers filed civil suits seeking monetary damages on behalf of dozens of children and their families against the judges and other defendants. They alleged, among other things, that the judges violated their civil rights.

...

In filings, the judges argued that judicial immunity insulated them from suits. A ruling on the motions is pending. Both judges declined to comment.

Legal experts say the plaintiffs face an uphill battle in piercing the immunity shield. Dating to 1872, the U.S. Supreme Court has repeatedly supported the notion that judges should express their legal convictions without having to worry about personal consequences. In perhaps the most widely cited Supreme Court case on judicial immunity, the court in 1978 rejected a suit filed by a woman against an Indiana judge who had years earlier ordered the woman -- who was then 15 and allegedly mentally impaired -- sterilized without her knowledge.

According to Arthur Hellman, a law professor at the University of Pittsburgh, judicial immunity doesn't protect judges from suits stemming from administrative decisions made while off the bench, like hiring and firing decisions. But immunity generally does extend to all judicial decisions in which the judge has proper jurisdiction, he says, even if a decision is made with "corrupt or malicious intent."

In Mr. Hellman's mind, the rule makes sense. Without it, the courts might be stacked with baseless lawsuits filed against judges. "On one level, it seems outrageous to ban someone from suing a corrupt judge," he says. "But if you allow plaintiffs to pierce the immunity by alleging bad motive, it opens the floodgates."

There is good reason for judicial immunity. Judges, more than any other government officials, determine who wins and who loses in our legal system. They do not pass general laws applicable to everyone like the legislature. They do not enforce the laws in general through multiple levels of supervision, collaboration, and procedures like the executive.

They spend weeks, months and years right in front of citizens with a lot to lose and then tell those citizens to their faces if they win or lose. It is very easy to blame a judge for a citizen's loss in a civil or criminal trial: the judge was the one who made it happen.

We thus cannot have judges hesitating in their good faith decisions about who loses because they fear litigation. The system just will not work; it's the judge's job to determine the loser.

That said, the Luzerne County case is different. We don't need to dive into the bigger questions of when and how immunity should be denied, because it's quite clear it should be denied here, for the two reasons raised by a group of former judges who filed an amicus brief in the case:

Application of immunity to judges who admitted under oath to engaging in a criminal scheme that lasted for years would indeed be "monstrous." [Quoting Judge Learned Hand in Gregorie v. Biddle, 177 F.2d 579 (2d Cir. 1949)] To find immunity would denigrate the respect of the public for the judiciary, which is dependent upon judges making decisions based on the law and the facts, rather than personal, corrupt motives. Moreover, denying Conahan and Ciavarella the privilege ofjudicial immunity in this case would not risk a flood of civil claims against other judges.

...

There is simply no way that Conahan's and Ciavarella's admittedly criminal arrangements with the detention facilities or their predetermination to detain juvenile offenders before any judicial proceeding even existed, can be considered judicial acts. Conahan's and Ciavarella's arguments to the contrary are disingenuous. They necessarily conceded that they acted non-judicially when they admitted to criminal conduct in violation of their judicial oath. Those admissions cannot be reconciled with their present assertion that they acted in a judicial capacity.

Exactly. Wherever it may be that judicial immunity should lie, we know it should not lie where a judge (1) admitted (or were convicted of) corruption or (2) acted wrongfully outside their judicial function.

The "immunity" underlying judicial immunity is — like qualified immunity for executive officials — an "immunity" from being sued. It is a deliberate policy choice to deny some worthy cases even a shot at proving entitlement to relief in exchange for ensuring unworthy cases do not waste judicial time or cause hesitation in the judicial process.

Here, there is no doubt as to the worthiness of plaintiffs' claims: the judges admitted corruption. There is also no doubt that the problem at here was not solely judicial, for there is nothing "judicial" about receiving payments under the table from a private party.

The United States Supreme Court is already considering a related issue, the extent of immunity for prosecutors who fabricate evidence, in Pottawattamie County v. McGhee. They will see this case coming down the pipeline; let's hope they understand the robes cloak only those decisions made for the right reasons.

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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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Two days ago, Ashby Jones at the WSJ Law Blog approvingly cited these remarks in Legal Week by Alex Novarese:

[W]hat surprised me was that there appeared to be a consistent anxiety regarding the pressures or expectations of winning business. On one hand, associates want early access to clients; indeed, they resent law firms that don't give them that access. But the idea of bringing in clients doesn't seem to be one that drives young lawyers, at least those at large commercial law firms. In some cases an ambivalence about partnership appears to be strongly connected with the belief that the role comes with an expectation of rainmaking prowess. A considerable number of aspiring lawyers fear they'll hit five years' PQE, bump up to senior associate and then find themselves unequipped for a world in which they must hunt what they eat.

Viewed from outside of the legal industry, this mindset is odd. In many commercial walks of life, especially service industries, aspiring professionals are benchmarked on their ability to bring in new work or relationships. It's one of the primary factors that marks people out for promotion and those entering such careers tend to seek out opportunities to prove themselves in this respect.

Except in law, apparently. I guess this is part of the institutionalism of young lawyers. At the best firms, they are the top performers in academic institutions, before moving on to well-established providers of vocational education and then into corporate law firms - which are themselves highly structured institutions. Little wonder these young workers are not programmed for a world of risk. Such sentiments are also a reminder that - for all the talk of law firms becoming businesses, the mindset of lawyers remains, to a considerable extent, that of a profession.

First, most associates at BigLaw don't care much for their work or for making partner. They want money to pay loans and to live well in a major city, and then they want to use the big firm's name to help them land a job they actually want.

Second, for those who want to be partners, the firm traps them in a Catch-22 by imposing absurdly high minimum billable hour targets at premium rates.

Clients, however, are not saps. They will pay premium rates only for experienced counsel.

Allow the great thespian Bruce Campbell to explain the dilemma:

So how does an associate build a book of business? Like Campbell said: "it." 

Experience.

Experience drives word of mouth, drives referrals, builds ability, builds confidence, and enables your practice to grow.

So how do associates get "it?"

Novarese mentions other industries. Let's talk about other industries. Like marketing, where Seth Godin recommends "consistent, persistent generosity." Or music, where Trent Reznor tells upcoming bands they need to make their music cheaply and "GIVE IT AWAY." Or venture capital, where Fred Wilson's favorite business model is to "give your service away for free."

That's how to get "it." Get clients in the door. You can't compete on experience, so compete on price, on selectivity, on service, on anything you can.

Maybe that means cutting rates. Maybe that means billing fewer hours. Maybe that means taking difficult, frustrating, unprofitable cases. Maybe that means jumping into other fields and wasting dozens of unbillable hours just making sure you've got the basics right. Maybe that means spending some time, off the clock, figuring out how potential clients in your field find lawyers, and figuring out how to make their name the first that a potential client hears.

That is to say, associates need to use the methods other entrepreneurs use to build business.

Yet, few of those methods are available to associates at BigLaw firms, because the business model — which generates most of its profits by creating unnecessary work for recent law graduates — is designed for the short-term compensation of the partners, not the long-term career of the associates. Experienced rainmakers can squeeze every last penny of profit out of a case by having you spend all weekend reviewing documents. You don't even have a case at all.

Which is why so many associates give up on rainmaking. After a few failed attempts (which likely got them reprimanded for falling below target billable hours, for interfering with client relations, or for setting rates or taking cases without approval), learned helplessness kicks in and they give up building outside business. Instead, they focus, like the firm encourages them to do, on pleasing partners and existing clients.

I.e., someone else's rainmaking.

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Really, you should:

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

...

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

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

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

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

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

Want to guess where bankruptcy trustees start first?

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Yesterday, after posting a link to a productivity guide recommending email be checked twice daily, I saw this leaked email from a big name at a litigation powerhouse:

Now more than ever there are many talented lawyers and law firms competing for our business. Doing really good legal work is not enough. Clients expect that and well they should given what we charge for our services You must all realize that we are in a service business. In this day and age of faxes, emails, internet, etc. clients expect you to be accessible 24\7. Of course, that is something of an exaggeration—but not much.

LESSON NUMBER ONE: You should check your emails early and often. That not only means when you are in the office, it also means after you leave the office as well. Unless you have very good reason not to (for example when you are asleep, in court or in a tunnel), you should be checking your emails every hour. One of the last things you should do before you retire for the night is to check your email. That is why we give you blackberries. I can assure you that all of our clients expect you to be checking your emails often. I am not asking you to do something we do not do ourselves. I can assure you that [other big names at the firm], etc. all check their emails often.

I check my email frequently except when I don't.

There's two reasons for those times that I don't.

First, to follow the advice of Seneca, himself a great trial lawyer, on keeping a law practice in perspective:

Look at those whose prosperity men flock to behold; they are smothered by their blessings. To how many are riches a burden! From how many do eloquence and the daily straining to display their powers draw forth blood! How many are pale from constant pleasures! To how many does the throng of clients that crowd about them leave no freedom! In short, run through the list of all these men from the lowest to the highest—this man desires an advocate, this one answers the call, that one is on trial, that one defends him, that one gives sentence; no one asserts his claim to himself, everyone is wasted for the sake of another.

But there are also less lofty reasons to avoid the siren song of the crackberry.

The second reason I take time off from email — both scheduled time and time as needed — is to follow Sun Tzu's command: "Ponder and deliberate before you make a move."

Cognitive science agrees:

After a 30-minute study period, the students were separated into three groups to test their understanding of the larger "big picture" relationship between the individual patterns: Group One was tested after a period of 20 minutes; Group Two was tested after a 12-hour period; and Group Three was tested after a 24-hour time span. In addition, approximately half of the students in Group Two slept during the 12-hour period, while the other half remained awake. All of the students in Group Three had a full night's sleep.

The test results showed striking differences among the three groups, especially between the students who had a period of sleep and those who remained awake.

"Group One, the students who were tested soon after their initial learning period, performed the worst," says Walker. "While they were able to learn and recall the component pieces [for example, Shape A is greater than Shape B, Shape B is greater than Shape C] they could not discern the hierarchical relationships between the pieces [Shape A is greater than Shape C] -- they couldn't yet see 'the big picture.'"

Groups Two and Three, on the other hand, demonstrated a clear understanding of the interrelationship between the pairs of shapes.

"These individuals were able to make leaps of inferential judgment just by letting the brain have time to unconsciously mull things over," he says. But, perhaps most notable, he adds, when the inferences were particularly difficult, the students who had had periods of sleep in between learning and testing significantly outperformed the other groups.

Strategic planning and tactical maneuvering in litigation requires a lot of thought, including the serious application of inferential judgment and relational memory, the types of cognitive work that demand contemplation and downtime.

Make room for that cognitive work. The crackberry can wait.

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In a comment on Overlawyered, Ted Frank points to his draft paper (with Marie Gryphon), Negotiating in the Shadow of 'Bad Faith' Refusal to Settle: A Game Theory Model of Medical Malpractice Pre-Trial Settlements and Insurance Limits:

Recent empirical studies of Texas data by Hyman et al, Zeiler et al, and Silver et al suggest that insurance limits affect settlements of medical malpractice cases. Writing separately, Silver argues that insurance limits act as a de facto cap on malpractice payouts, that plaintiffs are being underpaid as a result, and that therefore legislative caps on damages are unnecessary. But this hypothesis is inconsistent with the data, which indicates that forty-seven percent of cases in which plaintiffs obtain verdicts above policy limits are subsequently settled above policy limits. We propose to reconcile the data by accounting for the effects that third-party causes of action for alleged bad-faith refusal to settle — known in Texas as a Stowers action — have on pretrial settlement negotiations. If an insurer in Texas is presented with a settlement offer within insurance limits, refuses to settle, and the plaintiff wins an award greater than insurance limits, the plaintiff is entitled to sue the insurer for the full damages amount, plus punitive damages, for refusal to settle. In this paper, we explore the game theory of medical malpractice settlement negotiations in the shadow of Stowers.

Based on their (admittedly, and necessarily, simplistic) model of malpractice settlements, they run a Monte Carlo simulation.

It's not a bad idea, but they've missed one of the most important factors in settlement — the willingness and ability of the plaintiff to fight through years of risky litigation, trials, appeals and bankruptcy, where they must succeed 100% of the time to recover — and haven't shown why the existence of third-party bad faith lawsuits (i.e., those brought by the plaintiff against the defendant's insurer) contribute more towards settlement than the existence of first-party bad faith lawsuits (i.e., those brought by the defendant against their insurer).

Let's start with the biggest missing element from their model:

Silver, et al. suggests that there are polite reasons not to seek more than [the insurance policy limits]. But this hypothesis contradicts both what we know about the incentives of attorneys and the empirical data. Are we to believe that trial lawyers, out of the goodness of their heart, refuse to seek more than [insurance policy limits]? This seems improbable: the insured doctor is likely to have substantial assets, trusts provide limited protection, and the plaintiff attorney’s fiduciary duty to her client requires her to zealously pursue the doctor’s assets.

There are indeed "goodness of heart" considerations: it's psychologically easier to take an insurance company's reserves — which have been collected and maintained for the purpose of compensating injured plaintiffs — than to take an individual's personal assets.

But let's put that aside and focus on the money. Keep in mind that, in most circumstances, the insurer can't just pay their policy limits and wave goodbye to the defendant while the plaintiff goes after the defendant's assets. If the defendant doesn't want to pay any of their own money, then the insurance company will keep defending them to a full and final conclusion, without paying the plaintiff a dime in the meantime.

Most often, the settlement of an above-policy-limits claim at policy-limits is not due to the goodness of anyone's heart: it's the rational choice between either settling at insurance policy limits and walking away with the money now, or refusing the insurance money and then chasing the doctor's assets for years (with five-or-six figure additional costs) through trial, appeals, re-trials, bankruptcy, bankruptcy appeals, and bankruptcy discharge, which often pays unsecured creditors a fraction of their claim's value. And don't forget: the plaintiff has to be successful in each and every one of those proceedings.

If the insurer actually tenders their full policy limits, then my "fiduciary duty" to the client typically compels me to recommend the client take the policy limits now, rather than starve themselves for years and endure the substantial risks of running the entire civil legal gauntlet — where they must succeed 100% of the time to recover anything — for a theoretical shot at more.

To their credit, the authors admit at the end that they haven't included these factors:

This is still a relatively simple model: it assumes instantaneous and frictionless rulings, rather than an expensive process that may take several years with substantial fees for attorneys and medical expert witnesses. We assume that the trial court’s judgment is 100% accurate, and that there will be no appeal. We therefore do not consider the issue of post-trial settlement. In real life, the risk that a favorable judgment will be struck on appeal one reason why so many large judgments are settled so seemingly favorably, but it is impossible to estimate the size of this effect without qualitative data that the Hyman “haircut” study does not have.

Trials take years. We make no effort to compare the value of a settlement in the hand with a judgment several years in the future that is stayed by appeal. On the other hand, Texas has relatively generous post-judgment interest rates with a floor of 5%. Expanding the model to consider the time-value of money from early settlement would be useful in adjudging the merits and effects of the so-called “early offers” reform. As Zeiler notes, such time-value can also result in settlements below policy limits by virtue of aggressive negotiating by insurers.

Those two economic issues — the risk of losing on appeal (and/or retrial) and the time value of money — create a massive disincentive against attempting to pursue assets beyond the insurance policy limits. Post-judgment interest is generally irrelevant in the context of cases with damages/judgments larger than insurance proceeds: unless the plaintiff wants to go all the way through appeals, retrials, judgment execution, and bankruptcy, then, regardless of any post-judgment interest, the plaintiff's recovery is still effectively capped at the insurance policy limits.

That's the first problem: the failure to consider the effect of the willingness and ability of the plaintiff to fight through years of risky litigation on settlement.

Here's the second problem: the authors "add a Stowers factor S, which is equal to expected Stowers recovery given a victory at the underlying medical malpractice trial" but don't say how they calculate S. More importantly, though, they don't explain why a third-party bad faith recovery would be expected to be any larger than the first-party bad faith claim available to the doctor if she believes the insurer did not handle the case properly.

When an insurer worries about a potential bad faith claim, they're not just worried about the plaintiff suing them. Indeed, they're usually more worried about the defendant suing them.

Like Dr. Woo:

Robert C. Woo is a Seattle-area dentist. An online guide praises his "first-class service" and "painless procedures." It is likely that Tina Alberts, his former assistant, disagrees.

Alberts cared for pot-bellied pigs, a frequent topic for office banter. Dr. Woo enjoyed taunting her with accounts of his boar-hunting trips, and a picture of a skinned pig hanging from a hook. He predicted a similar fate for Walter, her beloved pet pig. Dr. Woo informs us that this was all part of a "friendly working environment."

When Alberts required surgery to replace two teeth, Dr. Woo saw an opportunity to cement this self-impression of bonhomie. Once she was completely sedated, he halted the agreed procedure, and began a new one. Replacing her teeth required the temporary installation of standard false teeth. Dr. Woo had secretly ordered a second set of temporary teeth, shaped like boar tusks. Removing her oxygen mask, he inserted the tusks and - we must assume this was part of the friendly working environment - took photographs of her with her eyes and mouth pried open. Returning at last to his professional duties, he removed the tusks and inserted the correct temporary teeth.

A month later, Dr. Woo's staff presented Alberts with the pictures at her birthday party. The fun-loving Woo described them as a "trophy" to take home. Home she went, never to return. Instead, she sued Dr. Woo for battery, invasion of privacy, medical malpractice, and a host of related claims.

Dr. Woo's insurance company refused to defend him in Alberts' lawsuit. Dr. Woo settled the case on his own for $250,000, then sued his insurance company.

And won:

Because his insurer should have defended him, Dr. Woo recovered the $250,000 he had paid Alberts. But he also claimed emotional distress due to his insurer's abandonment. Despite "the absence of any medical, psychiatric or expert testimony" attesting these injuries, a jury awarded him $750,000, which suggests the rather even quality of justice throughout the judicial system of Washington State. And naturally, Fireman's had to pay for Dr. Woo's legal costs.

The end result was exactly what Ted Frank and Marie Gryphon's paper is supposed to focus on: a situation in which an insurance company was forced to pay more than the policy limits for a malpractice claim. Yet, in Dr. Woo's case, the third-party Stowers action had nothing to do with it — it was a purely first-party claim brought by the doctor. 

I hope there's more study down this field; the world of litigation and defense & indemnity insurance is ripe for rigorous game theory analysis. But it needs to be as thorough and rigorous as the study of any other economic situation.

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

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

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

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

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

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

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

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

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

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

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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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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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Walter Olson at Point of Law refers us to a proposal by a Democratic legislator in Maryland:

Primary-care providers who practice at federally qualified health centers do not need to purchase medical malpractice insurance. Why? The government promises to cover any claims against them under the Federal Tort Claims Act. If a patient has a successful malpractice case against the health center provider, the government becomes the insurer and agrees to pay the claim.

The national health reform debate should include a proposal to expand Federal Tort Claims Act coverage to all primary care providers, regardless of where they practice, and to certain specialists (such as obstetricians) where access to care is threatened. Doing so would have multiple benefits: Doctors, nurse practitioners and other primary care providers would be freed from the burdens of finding and paying for costly malpractice insurance; future medical students would have an incentive to choose primary care, addressing a critical shortage; and we would finally begin to bend the "cost curve" in health care.

A number of states, including Pennsylvania, already have state-administered medical malpractice insurance. In Pennsylvania,

32. What is Mcare?

“Mcare” stands for the Medical Care Availability and Reduction of Error Fund. It was created under Act 13 of 2002 and is the successor to the Medical Professional Liability Catastrophe Loss Fund, better known as the “CAT Fund.”

33. How does Mcare work?

Currently, Pennsylvania law requires physicians to carry a minimum of $1 million of medical malpractice coverage per incident, and physicians must have this coverage in order to be licensed. The first $500,000 of medical professional liability coverage per incident, which is called the basic or primary insurance layer, is obtained through the private insurance market. The second $500,000 of coverage per incident is provided by the state-administered Mcare Fund. Hospitals must also maintain medical malpractice coverage and their required amounts are higher -- $1 million worth of coverage for each incident and $4 million total coverage per year.

The fund is paid for primarily by a $.25 tax on every pack of cigarettes sold in Pennsylvania. Right now, the fund has a whopping $414 million surplus. All though the fund says that the surplus was caused by "the improvement in the medical malpractice climate in Pennsylvania," that's not the whole story.

Government-administered casualty insurance programs run the gambit from fair and equitable, like the September 11 fund administered by Kenneth Feinberg, to hostile and vexatious, like the Pennsylvania Property and Casualty Insurance Guaranty Association (intended to cover insurance claims against insurers that have become insolvent), which has been reprimanded by the Pennsylvania Supreme Court for its "slash and burn approach to protecting PPCIGA’s assets."

Pennsylvania's MCARE fund sits somewhere in the middle, and is not without its faults. Let me give you an example.

Not too long ago, I attended a court-ordered settlement conference in a medical malpractice action brought against two physicians and a hospital. The case was quite serious, with seven-figure damages, the absence of any good explanation for why the defendants did what they did, and highly damaging testimony by another physician at the hospital who had recognized the problem in a timely manner and yet had their recommendations for emergency treatment overruled.

The federal judge hearing the case (we were in federal court because the plaintiffs did not live in Pennsylvania) ordered the parties come to the conference with authority from the insurance carriers to settle. Such naturally included MCARE, which often ends up matching the contributions of the physicians and/or hospitals in a suit.

At the settlement conference one physician showed up ready to tender policy limits. The other physician and the hospital showed up with substantial authority and a willingness to negotiate.

MCARE sent a representative with little knowledge of the case and no authority to even begin negotiations, much less offer money. Such was, of course, a blatant violation of the court's order requiring the insurance carriers appear with authorization.

The judge was not amused, and so requested the MCARE representative phone home until they reached someone who could authorize a settlement.

The representative's efforts failed; not only did the representative not have any authority, but they couldn't find anyone who did. Such would have been a typical example of settlement-conference rope-a-dope but for the authorization phrase in the court's order. After the representative couldn't find anyone, the judge started making the calls, until they found the highest-ranking officer who was available, who they calmly informed was in violation of a federal court order, and as such should prepare for a visit by U.S. Marshals.

After that, MCARE changed its tune, and we settled the case by the end of the day. Like I said: MCARE is somewhere in the middle. Had it been PP&CIGA, I wouldn't have been surprised if they just dared the judge to send the Marshals out.

All of which is to say, it's not crazy to think that the government can run a liability insurance company, but the devil is in the details (Feinberg wrote a book about the difficulties of evaluating damages in 9/11 Fund), because government-administered casualty insurance programs have the same institutional incentives to thwart claimants, but don't have the same disincentives (such as the potential for bad faith lawsuits) against dilatory and obdurate conduct.

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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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The AmLaw Daily reports:

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

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

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

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

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

Each party shall bear its own costs and attorney fees.

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

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

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

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The Philadelphia Inquirer reports:

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

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

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

...

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

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

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

...

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

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

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

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

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

Section 1304. Court costs and attorney fees.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Slip op., p 13.

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

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

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

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The print edition of September's Emergency Physicians Monthly features a debate between yours truly and WhiteCoat, EPM's in-house blogger on the subject, "Does Medical Malpractice Liability Impact Access To Emergency Care?"

I've posted the debate below, with footnotes added to show my sources. I believe WhiteCoat will update his with sources when he gets a chance; you can find his post here.

Opening Argument - Max Kennerly

 A 2006 American College of Surgeons report[1] concluded, "the single most important factor shaping the [emergency] surgical workforce today is declining reimbursement," a euphemism for cutthroat health insurer tactics. Last month, Bayonne Hospital sued Horizon Blue Cross Blue Shield for a parade of horribles, such as calling patients, lying about their coverage, and instructing them to leave the ED prior to screening or stabilization.[2]

Against this backdrop, malpractice premiums are at a per-physician thirty-year low. Unbiased analysis of their effect, however, is in short supply. A.M. Best, which rates insurers' creditworthiness for banks, says premiums represent 0.45% of national health care expenditures[3; see also *]; Towers Perrin, an insurance consulting firm, says 1.5%.[4] Least credible is the American Hospital Association, which relies on the Lewin Group[5], part of Ingenix, a UnitedHealth subsidiary that recently agreed to a $400 million settlement for manufacturing phony fees data to short-change physicians.[6]

After a decade of declining premiums and claims payments in the 1990s, the stock market collapsed, prompting insurers to raise premiums rapidly. In 2003, the peak of the increases, the General Accounting Office surveyed five states with "reported malpractice-related problems" (including Nevada and Mississippi) and four without for the impact of liability on access to care[7]. The GAO found no impact in the latter and "scattered" reductions in the former by providers of ER surgical coverage and obstetricians, most of whom also faulted other "long-standing factors" like reimbursement.  The GAO concluded most reports were "unsubstantiated" and that malpractice liability "did not widely affect access to health care."

The same report found little evidence of "defensive medicine," criticizing a widely-cited Health & Human Services report (the source of that "$300 billion" figure) for its transparently flawed generalization from two narrow examples of elderly heart disease treatment. In 2004, the Congressional Budget Office followed up on the H&HS report[8], even using the same methods, yet "found no evidence that restrictions on tort liability reduce medical spending," deeming the evidence for defensive medicine "weak or inconclusive" and noting "some so-called defensive medicine may be motivated less by liability concerns than by the income it generates for physicians or by the positive (albeit small) benefits to patients."

Such did little to stop a wave of "tort reform" in many states, like capping noneconomic damages and eliminating joint and several liability. Several years later, we have control and experimental groups in our laboratory of democracy.

The 2009 American College of Emergency Physicians' Report Card on the State of Emergency Medicine[9] is a revelation: of the ten states with an "A" or "B" grade for their "medical liability environment" (the most hostile to patients), six had an "F" for "access to emergency care," one had a "D-," two had a "C-," and one had a "B-," together averaging below a "D-."  Mississippi and Nevada, too, took WhiteCoat's "tort reform" advice: years later, they have, respectively, a "C" and "C+" for liability and a "C-" and an "F" for access to care. Conversely, the nine states with an "F" for liability earned the only "A," had only one "F," and averaged a "C" for access to care, better than the national average of "D-."

But, tort reformers say, there are other factors. That's my point: the impact of malpractice liability on access to care is so small it appears positive because it is dwarfed by other factors such as Aetna, Cigna and WellPoint, all of whom the AMA recently sued[10] for also using the bogus Ingenix database, and the increase in uninsured or underinsured patients. The big change in the past generation has not been an increase in malpractice premiums or claims (both are at historic lows in inflation-adjusted dollars [see 1]) but an extraordinary decrease in reimbursement.

A 2003 AMA report[11] found physicians lost $4.2 billion in annual revenue providing unreimbursed emergency care; compare that loss in a single field to the $4.7 billion paid in 2008 to resolve all malpractice claims nationwide[see 1]. The same study said emergency physicians incurred an annual average of $138,300 in uncollectable fees, double the average insurance premium for specialists and nine times the average premium for primary care physicians. It seems an ounce of reimbursement is worth a pound of tort reform.

Counter Argument - WhiteCoat

Doctors fear malpractice liability. And why shouldn’t they? Last month a woman was awarded $60 million dollars after a cosmetic surgeon allegedly botched her thigh lift. Medical malpractice law firms proudly display news releases about their multimillion dollar malpractice verdicts against physicians.

Does malpractice liability affect access to medical care, though? Access to medical care is limited by two factors: Available providers and willing providers. The best vascular surgery program in the world can’t help you if there’s no surgeon available or if you’re 150 miles away when your aortic aneurysm ruptures. Similarly, an abundance of nearby neurosurgeons helps no one with a brain hemorrhage if none of those neurosurgeons is willing to perform brain surgery.

What factors affect whether a provider is available or willing to provide services? Money undoubtedly affects access to care. Even though patients with Medicaid ostensibly have a means to pay for their care, they often have difficulty finding a physician to treat them because payments do not cover the costs of providing care. In this case, physicians may be available, but they are unwilling to provide care for the proposed payment. Conversely, patients with commercial insurance don’t seem to have such problems.

Liability also affects access to care. At first glance, it is easy to discount that effect. How could something that amounts to only 1.5% of total healthcare expenditures affect a physician’s willingness to provide care? The answer is that direct liability costs are only a small piece of the puzzle. Fear of liability creates a tremendous ripple effect. No physician wants to be at the receiving end of the next $60 million verdict. Residents in high-risk fields cite malpractice costs as by far the largest reason for leaving one state in favor of another. More than half of hospitals in medical liability crisis states have difficulty recruiting physicians, resulting in less physician coverage for their EDs. A survey of some Nevada Ob/Gyns showed that 60% planned to drop obstetrical coverage due to malpractice premium increases. Similarly, many Mississippi Ob/Gyns have dropped obstetrical care due to malpractice liability, leaving some counties with no obstetrical care at all. Trauma centers in several states have temporarily closed due to malpractice issues.

Texas tort reform shows that liability reduction can increase access to healthcare. Since tort reform was passed in Texas six years ago, the number of applications for physician licenses has increased dramatically. The number of emergency physicians has increased in 76 Texas counties – many of which were considered “underserved” for emergency care before tort reform. The number of malpractice insurers in Texas increased from 4 to more than 30 and insurance premiums dropped more than 40%. One Texas health system was able to spend $100 million extra dollars helping poor patients. That money had previously been held in reserves for legal defense fees and insurance premiums.

Some might try to draw conclusions by comparing metrics on ACEP’s Report Card. Doing so does not take into account multiple other factors affecting each metric. We cannot directly compare better access to higher liability any more than we can directly compare better access to colder climate. After all, states that scored worst in “access to care” were exclusively in the South and West United States – which generally have warmer climates.

Finally, defensive medicine costs our system up to $300 billion each year. Eliminating defensive medicine could provide each one of the 46 million uninsured patients in the US with $6500 in health care. Unfortunately, there is little tolerance for errors or misdiagnosis in medicine. While no lawyer will ever admit an expectation that medical care should be perfect, I still haven’t found a lawyer who will give me an example of a heart attack, a ruptured appendix, or a leaking cerebral aneurysm that it is OK to misdiagnose. Instead, doctors perform one low-yield test after another to “prove” that every haystack really doesn’t have a needle in it.

I respect Max and I respect his opinions. It just seems ironic that some of the strongest supporters of the notion that we can “sue our way to better health care” are those who stand to benefit the most from trying to do so.

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

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

Last week the Third Circuit reversed that trend:

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

...

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

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

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

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

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

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On Tuesday, The New York Times reported:

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

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

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

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

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

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

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

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

Judge Rakoff, however, beat me to it:

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

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

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

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

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

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

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

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I don't update the "productivity" topic you see to the right as often as I thought I would. As I wrote three months ago, in my most recent "productivity" post (about "batch processing"):

[L]ike Merlin Mann, after an extensive time following the productivity genre/industry in details, I have generally soured on the relentless gadgetry, listmaking, fickleness and obsessiveness of most productivity websites and communities ...

That's not to say studying productivity is a waste of time. Far from it; Benjamin Franklin did it, and look how productive he was.

Maira Kalman, who authors a whimsical biography blog at the New York Times, had a recent piece on Ben, including this fascinating scan from his Almanac:

But how does one arrange that "work" to enhance productivity?

I'm fond of establishing for each day at least one "Most Important Task," a task (or tasks) you absolutely must get done today. Like Zen Habits says, you should probably do your MIT first thing in the morning.

But not all MITs are the same. Some MITs involve mindless, repetitive tasks. Some involve casual conversations or status updates. Some involve reviewing materials to get a sense of them.

Some MITs, however, require real clarity, precision and concentration, like drafting briefs or preparing for depositions. For those, an important observation:

Professional writers spend most days of their adult lives writing. For those among them who specialize on long form non-fiction, their writing is not that different from the types of research papers that plague college students. Assuming that these writers do not want to spend most of the days of their adult lives hating what they are doing, it stands to reason that, over time, they have figured the least painful possible way to schedule a large amount of writing.

With this in mind, I dug up interviews with [ten] masters of long form non-fiction ...

I went through each interview extracting any discussions about the writer’s habits. ...

Nine out of ten writers discussed when during the day they write. All nine worked in the morning. Four also worked during the afternoon. Three worked during night. Only one worked in all three times. Several writers described the afternoon as a mental dead time useful only for exercising and, maybe, editing. ...

Five out of the ten writers provided a specific start time. The latest was 8:30 am. Four other writers who didn’t give a specific time said, in so many words, “in the morning.” No writer described starting their work in the afternoon or evening.

And it's as simple as that: divide up your work by doing the tasks that require the most thought in the morning. Save the calls, meetings and document review for the afternoon.

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The Inquirer reports on a hearing I attended on Tuesday in The Inquirer's bankruptcy:

In a scathing rebuke, the judge overseeing the bankruptcy of Philadelphia Newspapers L.L.C. yesterday described the investigation of an unauthorized taping of a meeting between the company and its senior lenders as a "fine mess."

The investigation of the taping, done by one of the officers of the largest creditor, was directed by a committee of the unsecured lenders, or second-tier creditors. By failing to take sworn depositions and seek key e-mails, the committee left its interim report on the taping open to questions and criticism, Superior [ed - I don't know what they mean by "Superior," though he is the Chief] Bankruptcy Court Judge Stephen Raslavich said.

* * *

[The investigation] stems from a meeting between the company's senior lenders and its top managers at Philadelphia Newspapers' offices at 400 N. Broad St. on Nov. 17, 2008. Vincent DeVito, a managing director of CIT Group Inc., was found taping the meeting without the knowledge or permission of everyone in the room, a violation of Pennsylvania law.

Philadelphia Newspapers, in court filings, contends that its relationship with its senior lenders deteriorated dramatically after its officials made an issue of the taping. The company has asked the court for permission to hire the firm of Elliott, Greenleaf & Siedzikowski P.C. to investigate the incident to see if its interests had suffered.

That request was initially rebuffed by the court, which appointed the committee of unsecured creditors to conduct the investigation. The company asked the court to reconsider, given what it contended were inadequacies in the investigation directed by former Pennsylvania Superior Court Judge Robert A. Graci, who now works for the firm that represents the unsecured creditors' committee.

Yesterday, Raslavich made it clear that he shared those concerns, dressing down Graci for failing to take sworn depositions and issuing his interim report before seeing key e-mail files requested from DeVito.

An important piece of background that Graci himself brought up, albeit fairly late in his colloquy with Judge Raslavich: Graci's background is in criminal work, specifically in representing the Commonwealth of Pennsylvania in appeals.

Civil litigators wouldn't dream of conducting an investigation through unsworn interviews, and most litigators start with requests for important documents, like emails, then follow up with depositions. Typically, only one deposition is permitted for each witness, so you need to make it count. From that perspective, Graci's investigation looks like a joke.

Yet, most criminal investigations are performed exactly the opposite way, through informal interviews followed by document requests and possibly more interviews. Typically, prosecutors don't even get to talk to the defendant at all, given the defendant's right to remain silent, much less depose them.

That's what Graci's used to. As he said at the hearing, he initially contemplated using depositions or sworn statements, then figured that would have added another layer to the proceedings (such as endless objections by the attorneys representing the witnesses) and would have delayed everything without providing any clear benefit. So he switched gears and conducted it like a criminal investigation.

That is to say, his technique was in no way evidence that the investigation was a sham, in bad faith, or the result of incompetence. Judge Raslavich told him as much.

But there's a problem: Graci wasn't there just to get to the bottom of what happened, but to ensure the appearance of propriety. As it stands now, Judge Raslavich has to grapple with the Inquirer's legitimate complaint that, whatever the merits of the investigation, there's no record for them and their lawyers to review, just the conclusions.

The odds of there being an inadequacy or impropriety in the investigation are slim, but they're not zero, which may render the whole thing a nullity.

A good lesson and question for all lawyers -- what does your paper trail look like?

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

The Legal Intelligencer reports:

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

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

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

And it worked.

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

...

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

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

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

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

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

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

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

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

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

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

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

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

Law, once made, cannot be unmade.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Which is what Merck suggests.

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

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

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

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

It's not easy being green.

But I'm no longer alone.

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

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

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

Like Judge Frank Easterbrook:

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

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

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

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

And Judge Richard Posner:

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

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

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

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

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

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

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You might recall last week's post Hospital Sues Health Insurance Company For Cheating Patients Out of Emergency Care. The allegations were depressing and outrageous, nothing less than an insurance company intimidating patients into risking their own health and safety so that the insurer could cheat a hospital out of reimbursements.

This week it's time to look at the practice of "rescission," whereby the insurance company digs deep into ambiguous policy questionnaires to find any excuse to deny coverage after a large claim has been made.

Taunter Media has a detailed analysis everyone needs to understand when health insurers and their enablers say rescission is "rare," that it affects only one-half of one-percent of insureds:

Half of the insured population uses virtually no health care at all.  The 80th percentile uses only $3,000 (2002 dollars, adjust a bit up for today).  You have to hit the 95th percentile to get anywhere interesting, and even there you have only $11,487 in costs.  It’s the 99th percentile, the people with over $35,000 of medical costs, who represent fully 22% of the entire nation’s medical costs.  These people have chronic, expensive conditions.  They are, to use a technical term, sick.

* * *

If the top 5% is the absolute largest population for whom rescission would make sense [because the cost of care over time might substantially exceed premiums], the probability of having your policy canceled given that you have filed a claim is fully 10% (0.5% rescission/5.0% of the population).  If you take the LA Times estimate that $300mm was saved by abrogating 20,000 policies in California ($15,000/policy), you are somewhere in the 15% zone, depending on the convexity of the top section of population.  If, as I suspect, rescission is targeted toward the truly bankrupting cases – the top 1%, the folks with over $35,000 of annual claims who could never be profitable for the carrier – then the probability of having your policy torn up given a massively expensive condition is pushing 50%. One in two.  You have three times better odds playing Russian Roulette.

Of course rescission is targeted towards the most expensive claims; there's no point rescinding potentially profitable insureds, the point is to minimize payouts by the insurance company.

Every patient can be assured that, upon filing a major claim for chemotherapy or neurosurgery or the like, the insurance company will scour their medical records and application to find for any excuse to deny coverage.

The outrageous part is that half of these investigations of expensive claims result in rescission. Does anyone believe half of these people lied on their insurance forms? The insurance companies certainly don't, which is why the insurance companies refused Congress' suggestion they limit recission to cases of intentional fraud.

If you have health insurance, you have a 99% chance of never needing to worry about rescission because you won't end up costing the company much more than you pay in premiums.

But if you find yourself at any point in that 1% -- as hundreds of thousands of people in America will each year -- then your odds of actually having insurance when you need it are no better than a coin toss.

Patients on government-run Medicare or Medicaid need not worry about rescission.

Like I wrote before: keep these facts in mind next time someone tells you health care reform might involve "rationing." We've already got rationing, but right now it's done for profit, and done without any regard for your health or safety.

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All's fair in love, war and litigation:

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

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

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

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

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

The Third Circuit agreed in a single paragraph of analysis:

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

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

Why didn't Naythons allege defamation? 

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

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

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

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

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

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

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In today's Wall Street Journal:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By way of background, as The Legal notes,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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As The Philadelphia Inquirer reported on Friday:

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

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

...

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

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

...

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

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

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

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

...

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

WHYY has a copy of the complaint, available here.

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

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

Let's go back to 1866.

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

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

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

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

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

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

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

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

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

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

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

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

McGovern at 121.

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

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

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

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

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

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

As Popehat notes,

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

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

An interesting case to follow.

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

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

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

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

Why?

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

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

Let me tell you: the lesson is wrong.

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

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

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

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

Pay heed your elders, but shepardize your cases.

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

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

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

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

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

The Legal Procedure:

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

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

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

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

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

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

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

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

The Facts That Will Be Disputed:

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

The Valley Club has replaced its entire website with:

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

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

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

Plausible, but disputed:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So how do we show denial because of their race?

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

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

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

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

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

And it gets worse:

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

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

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

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

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

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

NBC Philadelphia says:

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

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

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

Bad enough. Then comes the kicker:

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

Wow.

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

§ 955.  Unlawful Discriminatory Practices

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

* * *

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

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

The Human Relations Act defines "public accommodation" as:

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

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

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

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

...

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

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

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

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

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

See you in court, guys.

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

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

Second, the Inquirer notes:

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

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

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

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

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

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

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

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

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Following up on their own post a month ago, the dynamic defense duo at Drug & Device Law posted:

A couple of weeks ago, Herrmann noted in passing that, although many big firms now sponsor blogs, none of the ten firms with the highest profits per partner (that much-despised, but oft-cited metric) do. ...

Many folks contacted us, on or off-line, to suggest why lawyers at the most profitable firms don't blog.

Those ten most profitable large corporate firms -- Wachtell, Quinn Emanuel, Boies Schiller, Sullivan & Cromwell, Paul Weiss, Cravath, Simpson Thacher, Cleary, and Schulte Roth -- "have no apparent affiliation with any blogs at all."

D&D Law summarize the opinions offered to them as:

1. Lawyers at the most profitable firms are stupid.

2. Lawyers at the most profitable firms are too busy.

3. Lawyers at those firms won't stoop to blog.

4. Lawyers at those firms don't want to give away their product for free.

5. Lawyers at those firms lack the necessary skill set.

6. Lawyers at those firms believe that blogging is unlikely to yield a decent return on investment.

A little more detail at their site; sadly, they keep their conclusions to themselves. Maybe next time. Legal Blog Watch links to a few other arguments on the subject.

Let me take a page from another arena: content publishers. There's been a big hoopla in the blogosphere lately over Malcolm Gladwell's highly critical review in The New Yorker of Free, the new book by Wired Magazine's editor-in-chief Chris Anderson, whose blog ("The Long Tail") is here. If you're interested in that debate, Anderson's response is here, Seth Godin's take is here ("Malcolm is wrong"), and Clay Shirky's ruminations on the inevitable end of the newspaper is here.

More useful for our purposes is Michael Nielsen's thoughtful examination of the scientific publishing industry, in which he argues that "even smart and good organizations can fail in the face of disruptive change, and that there are common underlying structural reasons why that’s the case:"

[S]ome of the forces preventing change are strongest in the best run organizations. The reason is that those organizations are large, complex structures, and to survive and prosper they must contain a sort of organizational immune system dedicated to preserving that structure. If they didn’t have such an immune system, they’d fall apart in the ordinary course of events. Most of the time the immune system is a good thing, a way of preserving what’s good about an organization, and at the same time allowing healthy gradual change. But when an organization needs catastrophic gut-wrenching change to stay alive, the immune system becomes a liability.

Elite law firms' hostility to the concept of "blogging" is a function of those law firms' highly effective immune systems. The most profitable firms on those lists earned their way to the top by building effective, reputable practices that can command top fees for unique talent and experience. They are diversified, in demand, and have remained at the top of the field through multiple changes in leadership and in the marketplace. They have proven themselves.

Consequently, elite corporate law firms have built over time strong organizational immune systems, systems that, for example, quite literally reject foreign bodies from entering by way of resistance to lateral partners.

Mention blogging, social media, or the like and watch the immune system kick in. Why waste time messing with success? AmLawDaily picked up the phone, called the firms, and got exactly that answer:

[W]e put out calls to managing partners and spokesman at nine of the ten firms (we excluded Kirkland & Ellis, because, as Beck and Herrmann note, a Kirkland associate played a role in creating the popular Sports Law Blog) to ask them about their stance on blogging. The conversations we had centered on a general theme: The firms just don't see the point. They are already successful, so they don't feel the need to market themselves or prove their grasp of a particular subject matter in the limited spare time they have. 

We'll let Jonathan Schiller of Boies, Schiller & Flexner sum it up: "I think the lawyers here are just too busy," he says. "I'm too old to blog. I'd rather play golf if I have a bit of free time."

The real question is not why big firms don't "blog;" the answer is "because they don't want to blog." The immune system rejects blogging, much as it rejects changes to alternative fee arrangements and compensation structures.

The real question is if elite corporate law firms should blog and the answer is yes.

How do I presume to know that? Because, as the AmLawDaily further points out, most elite firms effectively blog and have blogged for some time:

We wonder, though, whether there is much difference between blogging and putting out so-called client memos and (often) displaying those memos on a firm's Web site. Wachtell, Lipton, Rosen & Katz, for instance, has about as austere a Web site as exists online anymore, and thus seems perhaps the least likely candidate in the Am Law 100 to produce an opinionated or less formal blog. But the firm regularly releases memos that are quite opinionated, including one in the fall that implored the SEC to reinstate the Uptick Rule to limit short-selling. That could just as easily have appeared on any high-brow economic law blog. (A firm spokeswoman and name partner David Katz did not respond to our messages seeking comment.)

You can read many of these Wachtell memos, along with memos from heavyweights at Cravath, Sullivan Cromwell, Latham Watkins, Gibson Dunn, et al, at The Harvard Law School Corporate Governance Forum, which refers to itself as a "blog." Skim down the list of "guest contributors" (not "guest bloggers") on the left side of the "Forum's" website -- might as well be a Wall Street Christmas party.

But they don't call it "blogging." They call it "updates" and "newsletters" and "forums" and "panels" and "discussions." 

The wording doesn't matter. They're out there every day showing off their expertise for free. Welcome to blogging, you blogging bloggers.

One more issue before we go. As Nielsen also noted:

The problem is that your newspaper has an organizational architecture which is, to use the physicists’ phrase, a local optimum. Relatively small changes to that architecture - like firing your photographers - don’t make your situation better, they make it worse. ... Unfortunately for you, there’s no way you can get to that new optimum without attempting passage through a deep and unfriendly valley. The incremental actions needed to get there would be hell on the newspaper. [Ed by MSK - more on this concept's application to business here]

Thus, the real real question is if this blogging or crypto-blogging is the major shift itself or merely a small experiment as part of a much larger "disruption" in the legal industry comprised of, inter alia, blogging, social media, transparency, alternative fee agreements, telecommuting, virtual workers, outsourcing, and collaborative / cooperative practice?

Put another way, are elite corporate law firms sitting in a "local optimum" that works now but keeps them from getting to where they want to be in the future? Elite firms are certainly considering the possibility, hence finding their "client memos," for free, alongside competitors' free "client memos," on a law school blog. They're also upending the structure of their compensation and associate training, even if clients don't believe them.

We may have to wait and see what the answer is. As described in Clay Shirky's piece linked above, in which he summarizes the turbulent transition following Gutenberg's invention of the printing press as "chaotic:"

When the Bible was translated into local languages some people saw it as an educational boon, others as the work of the devil. Erotic novels appeared, prompting the same sort of response. Copies of Aristotle and Galen circulated widely, but direct encounter with the relevant texts revealed that the two sources clashed, tarnishing faith in the Ancients. As novelty spread, old institutions seemed exhausted while new ones seemed untrustworthy; as a result, people almost literally didn’t know what to think. If you can’t trust Aristotle, who can you trust?

Only in retrospect were experiments undertaken during the wrenching transition to print revealed to be turning points. Aldus Manutius, a Venetian printer and publisher, invented the smaller octavo volume. What seemed like a minor change—take a book and shrink it—was in retrospect a key innovation in the democratization of the printed word. As books became cheaper, more portable, and therefore more desirable, they expanded the market for all publishers, heightening the value of literacy still further.

That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place. The importance of any given experiment isn’t apparent at the moment it appears; big changes stall, small changes spread. Ancient social bargains, once disrupted, can be neither mended nor quickly replaced, since any such bargain takes decades to solidify.

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

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

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

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

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

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

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

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

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

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

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

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

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The AmLawDaily reports Study: Law Firms Have "Little or No Interest in Change," CLOs Say:

Altman Weil's 2009 Chief Legal Officer Survey received responses from 183 CLOs--about 15 percent of the 1,222 corporate law departments invited to participate. Sixty-two percent of respondents worked for companies with over $2 billion in revenues. ...

The study revealed that 25 percent of CLOs surveyed said they were putting a 'high' amount of pressure on their outside panel firms to change "the value proposition in legal service delivery," as opposed to simply cutting costs. Another 37 percent rated the pressure as medium, while 38 percent said there was a low degree of pressure on outside law firms to change.

When asked how serious firms are in changing their service models, only five percent of CLOs surveyed said firms are serious about changing their structure. Another 20 percent gave firms some credit for implementing efforts towards change, but an overwhelming 75 percent rated firms as having "little or no interest in change."

Simultaneously, Legal Blog Watch reports on the many firms in fact 'changing their structure' by moving to an apprenticeship model:

With the economy down, law firms have less work. That means they've got more time -- or at least, slightly more appetite -- for training new associates. As the National Law Journal reports, a number of firms -- most recently, 659-lawyer firm Howrey -- are moving toward an apprenticeship model, with new associates spending time attending classes and shadowing partners on client matters. Associates participating in the Howrey program are still expected to generate billable hours, though the requirements are reduced to 700 hours in their first year. And to help subsidize the costs of the $3 million training program, the firm is cutting first-year salaries from $160,000 to $100,000, with a $25,000 bonus that can be applied to repay student loans.

Several other firms have launched similar efforts, including Drinker Biddle & Reath, Dallas-based Strasberger and Price, which recently introduced apprenticeship-type programs, and Atlanta-based Ford & Harrison, whose "Year One" training program was rolled out last year.

Law Marketing Portal goes into the details of the CLO survey:

“This combination of inside and outside reductions means not only that in-house lawyers will assume greater workloads, but also that Chief Legal Officers will need to become more strategic about triaging work, allocating resources, and, in some cases, tolerating higher levels of risk,” says DiLucchio.  “And when they do hire outside counsel, you can bet that they will be shopping for value.”

 

The importance of price when hiring outside counsel declines as the importance of the work being done increases, according to the survey.  In addition, there is a direct correlation between the importance of a firm’s capabilities and the importance of the matter to the corporation.

In normal industries, increasing value is often a matter of increasing productivity, and Law21 has a thorough post on the many new approaches for measuring lawyer productivity. On the whole, the legal industry is furiously searching for ways to provide better value to the client through new billing and compensation models -- they're even exploring a novel approach to training new hires.

Of course, I never miss an opportunity to criticize corporate law firm culture or the billable hour, but it sure looks like the big firms are trying to change. As noted by this insightful piece about the news and scientific publishing industries, it is extraordinarily hard even for a smart, adaptive, and willing organization to radically change and survive disruptions.

As also reported today, a number of corporate firms around here in Philadelphia are reducing associate and partner salaries; as I've discussed before, given the BigLaw business model, cutting salaries is a dangerous and desperate move. BigLaw is worried and trying to change.

Thus, I'm going to blame businesses for their unhappiness. Moreover, if you're still unhappy with BigLaw, stop using it. Are you defending a national antitrust case? Multi-district mass torts litigation? Are you acquiring a billion-dollar public company and taking it private?

No?

Perhaps you don't need a whole team of lawyers working day and night. Think about it.

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UPDATE III: The most thorough critique I've read of Iqbal is Professor Burbank's Senate testimony, available here (PDF). As an empirical matter, Iqbal has had a significant effect, particularly on constitutional rights plaintiffs:

The statistical analysis of 1,039 cases shows that 49% of 12(b)(6) motions were granted (with or without leave to amend) in the cases selected (from May 2005 to August 2009). Further, the rate of granting such motions increased from 46% of motions decided under Conley, to 48% of motions decided under Twombly, to 56% of motions decided under Iqbal. A multinomial logistic regression indicates that under Twombly/Iqbal, the odds of a 12(b)(6) motion being granted rather than denied are 1.5 times greater than under Conley, holding all other variables constant.

Moreover, the largest category of cases in which 12(b)(6) motions are filed was constitutional civil rights. Motions to dismiss in constitutional civil rights cases were granted at a higher rate (53%) than in cases overall (49%), and the rate of granting 12(b)(6) motions in constitutional civil rights cases increased in the cases selected from Conley (50%) to Twombly (55%) to Iqbal (60%).

Personally, I think the powers that be understated the degree to which cases were dismissed before, and now overstate the degree to which Iqbal will increase their likelihood of being dismissed. The odds are indeed worse now, but they're still generally 50/50.

UPDATE II: Judge Posner weighs in, wondering if Twombly and Iqbal are limited to complex cases or those with other compelling interests, such as ensuring high-level officials are not distracted from their duties by suits of doubtful merit. I have a new post referencing Posner's opinion and a separate opinion by Judge Easterbrook that throw cold water on those who believe Iqbal has doomed all but the sharpest of complaints.

UPDATE: The NYTimes has an article on the case as well, also believing it to be a death-knell for plaintiffs, noting that federal judges "have cited it more than 500 times in just the last two months." As I wrote below, citation is not the same thing as impact. The standard is not any different from what courts have been practically applying for years, except to add the word "plausible."

Indeed, you don't have to go far to see the limits of Iqbal; just last month the District Court in Padilla v. Yoo, a similar suit against a high-ranking government official, denied defendants' motion to dismiss, quoting Iqbal as follows:

“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. “Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.’” Id. (citing Twombly, 550 U.S. at 557 (brackets omitted))

To reiterate: the sky is not falling on plaintiffs. They need only plead "more than a sheer possibility that a defendant has acted unlawfully," something lawyers have been doing for centuries.]

Drug and Device Law points us to an article in Saturday's Wall Street Journal:

Ashcroft v. Iqbal, released in May, will make it harder to bring a lawsuit without specific factual evidence, raising the threshold for moving a case into expensive litigation and possibly saving companies millions of dollars in legal fees. The case was overshadowed by other business rulings on consumer lawsuits, environmental and employment law and other matters in a term set to end Monday, but legal experts said it may be the most important.

"It's the case that will be cited more than any other by a factor of 100," said Tom Goldstein, partner at Akin Gump Strauss Hauer & Feld LLP and founder of the Scotusblog Web site. He called the ruling "an unexpected gift for the business community."

In the case, a Pakistani named Javaid Iqbal sued government officials over his detainment after Sept. 11, 2001. The Supreme Court ruled that Mr. Iqbal didn't have sufficient factual evidence to proceed with his discrimination claims.

"While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations," Justice Anthony Kennedy wrote in the 5-4 opinion. He cited the 2007 decision in Bell Atlantic Corp. v. Twombly, an antitrust case that outlined what plaintiffs must assert to make it through initial court proceedings.

As a result of the Iqbal ruling, businesses may find it easier to fend off lawsuits by persuading courts to dismiss complaints early in litigation.

I disagree. Maybe a handful of cases at the fringes with no factual allegations will be dismissed (most of these cases were already dismissed even prior to Twombly), but that's it. Iqbal's casual reference to pleading standards does not change the narrow focus of the actual opinion, which relates to the very specific issue of how "qualified immunity" applies to high-ranking officials in suits against the federal government for deprivations of constitutional rights.

Tom Goldstein is right that the Ashcroft v. Iqbal opinion will be cited all of the time by defendants' motions to dismiss, and will be cited by court opinions evaluating motions to dismiss, but that doesn't mean defendants will get much mileage out of it.

Rather than argue the details why, let me show you what will probably become my standard draft response to such motions:

Defendant's heavy reliance on Iqbal is misplaced. Iqbal was a Bivens action brought by a Pakistani national who alleged ethnically and racially discriminatory treatment in the post-September 11, 2001, period by numerous federal officials while he was detained for charges of defrauding the United States with regard to identification documents, charges to which he plead guilty, prompting his deportation. Iqbal, 556 U.S. ___; Slip op. 1. There was no dispute that the facts alleged by Iqbal stated a Bivens claim against all individuals directly and indirectly involved in his treatment. Id.

The narrow question in Iqbal was whether Bivens liability -- which indisputably does not extend to supervisors through respondeat superior (see Monell) -- attached where the complaint alleged "a supervisor’s mere knowledge of his subordinate’s discriminatory purpose." Slip op., 13. The Supreme Court reiterated that Bivens creates a unique, disfavored and limited cause of action disconnected from normal tort doctrines and reaffirmed that, "[a]bsent vicarious liability, each Government official, his or her title notwithstanding, is only liable for his or her own misconduct." Id.

Such a Bivens-specific holding bears no relationship to the business lawsuit sub judice. Importantly, though, and contra defendant's arguments, the Supreme Court reiterated in Iqbal that "a court must accept as true all of the allegations contained in a complaint" and that a plaintiff need only "state[] a plausible claim for relief [to] survive[] a motion to dismiss." Slip op. 14-15. Plaintiff has clearly done that here; defendants' heavy reliance on an irrelevant Bivens opinion reveals the lack of any support in existing case law for their request to throw plaintiff out of court entirely. The Supreme Court has always instructed, and continues to instruct, District Courts to assume the facts in the complaint to be true, to make reasonable inferences on behalf of plaintiff's allegations, and to deny dismissal where plaintiff has a "plausible" claim.

Finally, again contra defendants, Iqbal was specifically remanded to the Circuit Court to consider whether the plaintiff there should be permitted to amend his complaint to cure the deficiencies. Such is consistent with this Circuit's precedent, in which leave to amend is to be freely granted prior to dismissal unless such amendment is clearly futile or inequitable.

So there you go. Iqbal soundly rejects Bivens liability for high-ranking government officials merely potentially aware of misdeeds much further down the chain of command (and it reiterates the appealability of an order on qualified immunity), but that's it.

The sky has not fallen on business plaintiffs.

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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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When the going gets weird, the weird turn pro.

Here's how it starts:

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

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

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

Then things got ugly:

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

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

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

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

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

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

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

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

Defendants appealed that, too.

In the Pennsylvania Superior Court, things got even uglier:

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

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

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

So defendants sued their appellate lawyers.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The weird have definitely gone pro.

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

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

...

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

Business Insider worries about the unintended consequences:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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After four days of trial, and a few hours of deliberations, the AP reports:

A federal jury ruled Thursday that Jammie Thomas-Rasset willfully violated the copyrights on 24 songs, and awarded recording companies $1.92 million, or $80,000 per song.

Thomas-Rasset's second trial actually turned out worse for her. When a different federal jury heard her case in 2007, it hit Thomas-Rasset with a $222,000 judgment.

Under our absurd (and possibly unconstitutional) copyright laws, the award per violation can range from $750 to $150,000, and the jury here roughly split the difference at $80,000 per song, about the same amount as a Manhatten jury will give you for losing the end of your pinky. The jury must have felt these particular duplicate copies of the songs were very dear to the poor record companies.

Why would twelve ordinary citizens do that?

A vigorous defense from Kiwi Camara and Joe Sibley was not enough to sway the jury, which had only to find that a preponderance of the evidence pointed to Thomas-Rasset. The evidence clearly pointed to her machine, even correctly identifying the MAC address of both her cable modem and her computer's Ethernet port. When combined with the facts about her hard drive replacement (and her failure to disclose those facts to the investigators), her "tereastarr" username, and the new theories that she offered yesterday for the first time in more than three years, jurors clearly remained unconvinced by her protestations of innocence.

Camara suspects that the jury thought Thomas-Rasset was a liar and were "angry about it," thus leading to the $80,000 per-song damages.

And there you go. Camara has it right; pity he couldn't get his client to stop lying at trial.

For comparison, not too long ago a jury awarded just $1 million in pain and suffering to this man:

After 63 days in the hospital (57 of them in a coma), 11 surgeries and 65 more days in a rehabilitation hospital, Robert Doviak was left totally and permanently blind, with a sense of touch that was seriously compromised, partial loss of hearing and no sense of smell or taste. Additionally, he had substantial orthopedic injuries including fractures of his left femur, several cervical vertebrae, both zygomatic arches and other bones in and about his face and eyes, his left hand and his right wrist.

The difference?

[D]uring summation, Doviak's attorney asked the jury to award Doviak $60,000,000 for pain and suffering, an amount Doviak's new attorneys say is preposterous and evidence of awful advocacy and which defense counsel says revealed the greed that served as the foundation of plaintiff's case[.]

Credibility matters. Who you are, what you do, and what you say matters. Don't treat the jury like they're stupid; don't try to get anything by them, and don't ask them to do or to believe something ridiculous. It will never work. If your case has a problem, concede it, deal with it, and move on.

And above all, never lie to the jury.

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At The Legal Intelligencer:

Moving beyond all the talk of alternative fee arrangements, Saul Ewing has put its fixed-fee programs in writing -- on its Web site at least.

 The firm launched this week its "cost certainty commitment" with two different programs in which either a fixed fee or a cost per-attorney, per-day will be used on specific types of matters the firm identified as lending themselves to such arrangements. ...

To start, Saul Ewing is offering a fixed, daily blended rate per attorney for due diligence work for investors, companies looking for capital and venture capital or private equity firms looking to have their portfolios evaluated.

The second program offers a fixed fee for representation at administrative hearings before the Pennsylvania Insurance Department. There are two packages under this plan, with the second having a higher cost to include some post-hearing work.

Antzis said the arrangements could be offered for certain types of labor and employment, intellectual property and litigation matters as well. ...

Law firms have been offering fixed fees for things like patent filings and the drafting of wills for years, Antzis said. But the firm's first significant foray beyond those areas came this year before the "cost containment commitment" had even been thought up.

Saul Ewing stole away work for a large grocery chain from a larger, national firm. Antzis said the chain brought its business to Saul Ewing because the firm agreed to a fixed cost for handling all of the chain's single-plaintiff employment discrimination claims in the region.

In other industries, they call this "meeting customer demand."

It has long been ridiculous to bill by the tenth of the hour for representation across hundreds of substantially similar matters which all follow the same procedures and all apply roughly the same law, like insurance regulator hearings. Large corporate law firms have inexplicably been able to resist billing and pricing reform for decades, but no longer, as revealed by that last quoted paragraph above.

Modern mid-size and large businesses are kept profitable in part by compartmentalizing costs and making them consistent over time. Just like how few businesses these days accept the risk of self-insurance or vertical integration, fewer and fewer will tolerate endless swings in legal costs they barely understand and can barely audit for performance.

The challenge for firms, then, is no longer figuring out the precise amount by which they can increase their hourly rate each year without driving off the client, but rather figuring out how to meet their clients' demand for bills that are regular and predictable.

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Via Overlawyered, the NYTimes says:

In closed-door talks, Mr. Obama has been making the case that reducing malpractice lawsuits — a goal of many doctors and Republicans — can help drive down health care costs, and should be considered as part of any health care overhaul, according to lawmakers of both parties, as well as A.M.A. officials.

It is a position that could hurt Mr. Obama with the left wing of his party and with trial lawyers who are major donors to Democratic campaigns. But one Democrat close to the president said Mr. Obama, who wants health legislation to have broad support, views addressing medical liability issues as a “credibility builder” — in effect, a bargaining chip that might keep doctors and, more important, Republicans, at the negotiating table.

The story (and apparently Obama) is exceedingly light on details, but suggests:

Mr. Obama has not endorsed capping malpractice jury awards, as did his predecessor, President George W. Bush. But as a senator, he advanced legislation aimed at reducing malpractice suits. And Dr. J. James Rohack, the incoming president of the medical association, said Mr. Obama told him at a meeting last month that he was open to offering some liability protection to doctors who follow standard guidelines for medical practice.

...

And any effort to restrict patients’ legal rights to sue will face tough opposition from the American Association for Justice, which represents trial lawyers and has met with Nancy-Ann DeParle, Mr. Obama’s point person for health reform, to express its concerns. Linda Lipsen, the association’s chief lobbyist, said practice guidelines were established by unregulated medical societies and “should not be conclusive” in a court of law.

What's that mean? I don't really know -- I suppose they want to make guidelines from the American College of Obstetricians and Gynecologists and the American College of Emergency Physicians have the force of law, or they want to incorporate them as a presumption of meeting the standard of care.

Without more detail, it's hard to comment on the effects of it. Yet, incorporating these guidelines could make the medical malpractice process even more litigious, since lawyers will argue over whether the guidelines applied and whether the doctor followed them.

With regard to the idea of incorporating them, as I wrote before discussing Comparative Effectiveness Research ("CER"), also pushed by Obama:

Put simply, CER will cut both ways. A doctor who does not utilize a CER-approved treatment will have a lot of explaining to do down the road if that treatment would have helped. Conversely, a plaintiff alleging a doctor should have used a CER-disapproved treatment will have a hard time convincing a jury that the doctor should have overridden the billion-dollar research.

From a liability / malpractice standpoint, doctors who abide by the standard of care should welcome the CER with open arms, as it will give them a powerful tool to wield when a plaintiff's lawyer later asks "why didn't you do _____?" They can quite honestly answer "because the CER says it's not effective."

That may apply the same to "College" guidelines. One problem, as mentioned above, is that the guidelines aren't necessarily set based on empirical data, and they're not reviewed by outside sources prior to publication. 

We'll have to wait and see for more information.

[UPDATE: Obama's speech to the American Medical Association included:

I recognize that it will be hard to make some of these changes if doctors feel like they are constantly looking over their shoulder for fear of lawsuits. Some doctors may feel the need to order more tests and treatments to avoid being legally vulnerable. That's a real issue. And while I'm not advocating caps on malpractice awards -- which I believe can be unfair to people who've been wrongfully harmed -- I do think we need to explore a range of ideas about how to put patient safety first, let doctors focus on practicing medicine, and encourage broader use of evidence-based guidelines. That's how we can scale back the excessive defensive medicine reinforcing our current system of more treatment rather than better care.

So he might be talking about CER after all. If so, I think that's a good thing for everyone. One problem for both physicians and plaintiffs is that, in many areas, the "standard of care" is frustratingly unclear. If CER can be used to create those standards, all the better.]

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

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

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

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

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

Plaintiff probably should have left it alone:

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

Uh oh. Among other allegations:

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

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

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

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

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

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

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

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

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

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

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

A trade secret under the PUTSA is defined as:

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

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

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

PUTSA, 12 P.S. § 5302.

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

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Two posts on the same day. Sarah Randag at ABA Journal Law News Now:

Jordan Furlong wonders in a recent post at Law 21 if "we’ll soon be closing the book on one of the legal profession’s most-used and least-understood phrases of the last decade: 'work-life balance.' "

With 10,000 law firm jobs lost in 2009, not to mention waves of announcements of pay cuts and associate deferrals, work-life balance has become a touchy subject.

"Even the most active WLB boosters have toned down talk that might earn them the dreaded 'entitlement' label," Furlong writes. "Realist observers like Dan Hull and Scott Greenfield have gained the upper hand in the WLB discussion," perhaps referring to a InsideCounsel SuperConference panel at which those two lawyers took on Millennials.

...

"If WLB stood for anything, it was for the fact that we all have the right and the obligation to make that tradeoff on the terms we want."

But Furlong agrees with work-life balance proponents that in their first few years of practice, saddled with increasingly high debt, lawyers understandably feel compelled to seek jobs with heavy workloads. And "billable-hour targets for associates at more than a few firms simply can’t be achieved without damage to one’s health or ethics, or both," he writes.

Furlong worries, that now that the moment has passed, "WLB will be relegated to the status of a mere generational quarrel during a freak economy."

Denise Howell at The American Lawyer (at law.com):

It's thus tempting to view balance as a fair-weather topic, brought up only when lawyers feel secure about their jobs and alternatives. ...

It's nothing short of depressing, and things seem likely to get worse before they get better. But even in a recession it's important not to shelve these policies completely.

It may seem counterintuitive, but flexibility and balance-oriented policies are tools that can help firms survive the conflagration. "Eat what you kill" is traditionally associated with the most cutthroat, internally competitive firms. A compensation system where one's career survival depends directly and constantly on the dollars one brings in the door has been seen -- historically, anyway -- as inflexible. But "eat what you kill" and "work/life balance" (with its "work less, make less" compensation system) share one goal: to pay lawyers only for work that enhances the bottom line.

As a result, the two systems can live together very well. Layoffs cost firms, both financially (the lost investment in laid-off lawyers, and the premium often paid in ramping back up) and in terms of reputation (from "They're going under" to "Remember what they did to associates back in '09?"). When those costs are taken into account, scaling back lawyer hours starts to look better and better.

Deborah Epstein Henry, founder and president of consulting firm Flex-Time Lawyers, urges firms to open their eyes to the reality that, unlike layoffs, promoting reduced hours cuts costs now, prevents future recruiting and training expenses, engenders loyalty, improves morale and quells the burnout and lack of productivity that may otherwise plague those left in a fragmented workplace.

If there's one lesson from the latest disruption in the legal world, it's there is no one way to run a law firm. Whether that disruption is from technology, demographics, or economics, there comes a time when you have to start finding 1,000 ways not to build a light bulb.

The NYTimes is overstating the change -- "Big, as a business model (let alone as an expression of the national mood), seems bound for obsolescence." -- but so are critics of "WLB" suggesting that efficiency or value-based lawyer employment is gone.

Indeed, a clear lesson from the "risky, transient" nature of big firms I discussed yesterday, is the danger of expanding too quickly, particularly expanding high fixed costs or becoming too reliant on unstable practice areas. 

"Work-life balance" has never been about being lazy or overpaid -- it was about matching what workers had to offer with what the market needed. Right, it seems a lot of firms "need" a lot less than they thought, something which many employees are more than happy to offer.

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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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I've written before about Contingent Fee Business Lawyers As Venture Capitalists and Lawyers Who "Don't Take Possible Losers," so I was thrilled to read the NYTimes yesterday:

Richard W. Fields says he has come up with a win-win financial strategy for the downturn. He is investing in lawsuits.

Not in trip-and-fall cases, mind you, but in disputes that are far larger, more costly and potentially more lucrative, often pitting major corporations against each other.

Mr. Fields is chief executive of Juridica Capital Management. which runs a fund that invests in one side of a lawsuit in exchange for a share of any winnings.

Larry Ribstein has the most thorough commentary on it:

Litigation financing can be viewed as simply another way for the capital markets to help firms exploit productive assets. Of course there are special problems relating to outsiders stirring up claims by simply funding actions by others (maintenance), particularly where the investor gets some of the proceeds (champerty) or the claims are groundless (barratry).  Also, confidentiality and privilege rules may forbid disclosure of litigation information to outside funders, making these particularly difficult investments. The basic problem, as discussed in my earlier blog post, is that "it turns litigation into a business rather than the search for corrective justice."

With respect to the excessive litigation point, it's worth noting that the hedge funds aren't financing the most abusive types of strike suits. These aren’t consumer class actions, but b2b litigation. ...

I asked Larry in comments for some support for that latter point, to no avail, and I stick by my point that "There's no shortage of patent, copyright, antitrust and securities regulation defense attorneys willing to opine that those 'b2b' areas are as ripe with abuse as any other legal field."

In any event, we 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.

Why?

To roll the dice: spending a couple thousand dollars litigating the issue could save them the cost of the entire judgment, or at least cause the plaintiff and their lawyer to worry and accept a smaller settlement.

So count me as deeply unimpressed by fears that these hedge funds will spur frivolous plaintiff's litigation: we've already got plenty of frivolous defense litigation and no one raises a peep.

Moreover, as I've mentioned time and again, investing in lawsuits is a risky business. The potential downside is 100%. Look at Juridica's cautious business model:

The investing companies say that because they do not take control of the lawsuit from the company and lawyers waging it, their most important task is identifying cases likely to produce a substantial return. That means, for example, rejecting claims that raise novel legal questions or that will probably end up before a jury, Mr. Fields said.

“Juries are a coin toss,” and that is too much uncertainty, he said. The company also avoids cases where the outcomes are difficult to predict because they could draw political attention or could be reversed on appeal, and cases in which the other side lacks deep pockets.

Let me reiterate that: these litigation investment hedge funds only take non-jury cases with simple issues and low odds of appeal.

That's a small fraction of the litigation and trial market, one with no "frivolous" cases at all. The funds are investing solely in the cases they believe are very likely to win.

The "danger" of frivolous cases is thus non-existent: the real "danger" is when plaintiffs with meritorous cases can't afford to pursue them.

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

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

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

No, it doesn't.

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

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

What's a "tort?"

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

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

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

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

What's an LLC?

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

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

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

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

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

Here's what you probably don't know:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No trickery needed, just some money and foresight.

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

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

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

Unsurprisingly,

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

Nothing new about that.

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

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

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

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

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

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

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

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

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

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

Simple enough.

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

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

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

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

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

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

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

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

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

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

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There is no shortage of productivity advice on the internet. Notable examples include Getting Things Done, 43 Folders (inventor of The Hipster PDA) and Zen Habits, and David Seah (inventor of  The Printable CEO).

Truth is, most of these systems are notoriously difficult to fully implement and, like Merlin Mann, after an extensive time following the productivity genre/industry in details, I have generally soured on the relentless gadgetry, listmaking, fickleness and obsessiveness of most productivity websites and communities, and so don't closely follow many of those blogs anymore. (Let me craft a specific exception for Lifehacker, which never claimed to offer readers a “system” but rather a digest of tools and possibilities.)

That said, the productivity industry has a lot to offer, and the odds are good that most readers will find something on these websites which they can integrate into their life for increased efficiency and decreased stress. One idea I’ve found useful is clustering similar tasks together, a.k.a. "batch processing."

Research has confirmed that multitasking does not work, and that the time it takes to shift mental gears between tasks causes multitasking workers to be less productive on the whole. It is easy to verify this finding empirically in the legal world: next time you are deep into a brief, jump over to discovery requests in another case, and note how long it takes for that stunned and confused feeling to go away.

The “mental gears” analogy can be extended to other circumstances, too, and most office workers feel a need to “warm up” when they begin work before they can be the most productive, hence the ubiquity of caffeine and the idealized Dunkin' Donuts world referenced in the video above, which is not too far from the truth.

Thus, many productivity gurus have recommended clustering tasks together and doing them in succession, as well as breaking up large tasks into multiple chunks each of which can be completed without interruption by another task.

The problem for lawyers is that the reality of law practice strongly encourages living by the calendar. The impulse is to adopt “first in, first out” system of completing tasks, with exceptions made for urgent matters.

For example, if in the past week four motions, six discovery requests, and ten phone calls came in, and in the next week a complaint and two dispositive motions are due, then the natural inclination for the lawyer is to arrange these tasks in the order they are due, making an effort to fit in other matters that should, but do not need, be done within that same time frame.

The end result is thus an assault from all directions, leading to the managed chaos present at most law firms and the much-lamented feeling of constantly “putting out fires.”

Nothing will ever make that feeling go away (you knew what the job entailed when you signed up), but it can be reduced through better practice management.

Don’t let the calendar determine how you schedule your work. Instead, take the little bit of time to schedule tasks so that you perform similar tasks at the same time, thereby reducing the loss of productivity due to switching mental gears.

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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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New to the site? Haven't been here in a while? Here are some of the most popular posts over the past few weeks.

Litigations and Trials:

• Three Ways To Lose Your Business Lawsuit - Wachtell and The Failed Hexion / Huntsman Merger
• Does The Fumo Juror's Twittering Warrant A Mistrial?
• Harvard Law Professor Bungles Rules of Civil Procedure for Deposing Third Parties
• American College of Trial Lawyers Report Encourages Frivolous Civil Discovery Objections
• Another Preventable Small Business Lawsuit Horror Story

Law Practice:

• How To Write Your Brief So That The Judge Will Hate You
• "How Low Could Associate Salaries Go?" Depends On How Desperate Firms Want To Appear
• Contingent Fee Business Lawyers As Venture Capitalists
• A Great Trial Lawyer, Lucius Seneca, On Keeping Your Law Practice In Perspective
• How To Deal With A "Non-Ruling" By A Trial Judge

Current Events:

• Another Mangled Prescription for Health Courts to Evaluate Medical Malpractice Claims
  
• How AIG Shareholders (Like the US Gov't) Can Sue to Get Back The Bonuses
• "The 'Hot News' Tort and the New Media" -- It's Too Late For Copyright To Sink Blogs
• LinkedIn's Terms of Use: We Own All Content, Ex-Users Agree To Update Our Database Forever 

Recent Court Opinions: 

• Third Circuit Predicts Pennsylvania Supreme Court Would Require Independently Actionable Conduct To Prove Tortious Interference With Contractual Relationships
• Third Circuit Upholds Philadelphia Police's Ban On Headscarves Without A Word On The First Amendment
• E.D.Pa. Threads The Needle On "Gist of the Action" and "Parol Evidence Rule" In Mixed Fraud / Breach of Contract Cases
• Ricci v. DeStefano: The Problem of Granting Certiorari After Summary Judgment

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

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

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

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

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

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

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

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

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

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

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Following up on yesterday’s discussion of an emergency physician’s critique of medical malpractice reform in Pennsylvania, in which the physician claimed, without any evidence, that the number of defendants in malpractice cases has risen recently, negating many of the benefits of malpractice reform.

Put simply, he missed the boat. The number of defendants does not have much to do with the premiums by healthcare providers. It is just not an issue.

Three of the primary reforms of the Medical Care Availability and Reduction of Error (MCARE) Act of March 20, 2002, however, did have a substantial impact on medical malpractice in Pennsylvania.

Before we get to those though, let me reference another post of mine about contingent fee lawyers as venture capitalists. Medical malpractice plaintiffs are almost exclusively represented on a contingent fee basis, with the plaintiff’s law firm advancing all costs in the matter and not collecting any fee unless the injured patient recovers through a settlement or verdict. If the injured patient does recover, the firm will have its costs reimbursed from that recovery and will take a portion of the recovery as its attorneys fees.

All of which is to say that plaintiffs' attorneys already have a big financial incentive to bring only meritorious cases, since they don’t get paid and don’t get their expenses reimbursed if they lose.

Three of the major changes by the MCARE Act were:

1. tightening of requirements for qualifying expert physician witnesses,
2. requiring plaintiffs file a “certificate of merit” signed by a qualified physician prior to filing suit, and
3. requiring plaintiffs bring suit in the venue in which the malpractice occurred.

The expert witness qualifications and certificate of merit both have the same effect on medical malpractice cases: they make it a lot more expensive to file, litigate and try cases.

Expert fees are by far the largest cost in medical malpractice cases. An initial review by a non-specialist physician for purposes of obtaining a certificate of merit will cost a thousand dollars at least, often more, while a full review and expert report (not including trial testimony) will cost at least $10,000, usually much more. In complicated cases involving specialist physicians or multiple experts, expert fees alone will easily exceed $50,000 and can, in a single malpractice case, exceed $200,000.

The certificate of merit thus operates as a tax: if you want to file a medical malpractice suit, you will have to spend several thousand dollars before you can even start the process. The expert qualifications, in turn, removes from the potential pool a number of less qualified – and thus less expensive – experts.

For a well capitalized firm like The Beasley Firm with multiple established medical malpractice attorneys and a focus on trial, the effect of these two provisions is minor. Even without MCARE, all of our cases are reviewed extensively prior to agreeing to representation and filing suit, including through the use of outside expert physicians as consultants. Moreover, as a matter of pure trial advocacy, we seek out highly qualified experts, more than qualified under MCARE’s guidelines, because they are more effective in litigation and more credible at trial.

But that’s not the case for everyone, and the effect of the two expert provisions was to consolidate the medical malpractice market, with most solo and generalized personal injury attorneys leaving it altogether and referring their cases to more established and specialized attorneys and law firms.

The two expert provisions are probably the biggest reason for the drop in number of filings: now the bulk of cases are referred to and reviewed by firms better equipped to assess the viability of the claims, resulting in more rejections of weaker cases pre-suit.

Although I believe the MCARE expert requirements can be a bit tight in very specialized areas where the number of "qualified" experts across the country is in the double digits, it’s hard for me to complain about a procedural change that shuttles business to my firm while not substantially increasing costs (for the same reasons, you should probably take what I say with a grain of salt, as I am not unbiased here).

With regard to the venue restriction, normally a plaintiff (in any case) files in the county in which the “transaction or occurrence” happened. There are, however, numerous exceptions to this rule, leading to a concern about plaintiffs “gaming” the system by, for example, adding physicians located in plaintiff-friendly counties (like Philadelphia and Allegheny counties) for purposes of establishing venue then later dismissing them.

With the institution of the certificate of merit rules, the possibility of “gaming” was significantly, but not entirely, reduced, as it became much harder to simply add a defendant-physician to a lawsuit.

Although the venue provision likely only had a moderate effect on the number of filings, it likely had a substantial effect on the size of payouts made for settlements or verdicts. The reason for that is simple: by and large, suburban and rural juries award less to plaintiffs than urban juries. Moreover, regardless of the extent of such a phenomena, defense and plaintiffs' lawyers believe it to be the case, and so respectively offer and accept lower settlements.

If you are of the “tort reform” mindset, that is a good thing, since you presume that juries in general award too much.

I do not think I will change anyone’s mind on this subject, but I do want to raise the point that suburban and rural juries view medical malpractice liability in a different context from urban juries. The former are generally subjected to far more propaganda from the insurance lobby, a relentless assault of horror stories about hospitals closing and doctors leaving and greedy trial lawyers playing the jury slot machine on the road to jackpot justice. Suburban and rural jurors also typically have access to one, and only one, hospital, and are prohibited by law from knowing the amount of their verdict which will be covered by insurance rather than the hospital itself.

As such, I submit to you that plaintiffs in suburban and rural venues are not given a fair chance, as suburban and rural jurors are led to believe that they are in essence entering awards against themselves, rather than an insurance company.

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WhiteCoat (and later Walter Olson) directed me to this op-ed in the Pittsburgh Post Gazette by Gerald F. O’Malley, a Philadelphia-based emergency physician:

... Governor Rendell recently declared that Pennsylvania's malpractice lawsuit abuse crisis is over. Nothing could be further from the truth.

Rendell's announcement comes on the heels of the Pennsylvania Supreme Court's annual Malpractice Filings Report, but the court's numbers tell only a part of the story.

The Court reports only the number of cases filed -- not the number of litigants within those cases.

Most cases of alleged medical malpractice include multiple defendants as personal injury lawyers typically sue everyone whose name appears anywhere on the patients' chart.

...

The Court reports a statewide decrease of 41 percent in malpractice filings in 2008 -- but that is comparing the 2008 case filings against a "baseline" of cases filed in 2000-02. The meaningful statistics show 2008's numbers are only a 3 percent decrease from cases filed in 2007. The 3 percent number becomes irrelevant when the multiple litigants within each case are factored in.

You can read the Pennsylvania Supreme Court’s Annual Malpractice Report (PDF) and Governor Rendell’s press release.

Dr. O'Malley's argument is a complete mess.

First, his column references no numbers, figures or data at all, not even to support his primary argument that the number of defendants in medical malpractice cases has increased. I do not even know where he could find such data, as the number of defendants is not recorded by the Supreme Court's medical malpractice statistics.

Second, the number of defendants in a case has little to do with the decisions of the plaintiff’s attorney or the plaintiff. By law, before a patient in Pennsylvania can sue any healthcare provider, their attorney must obtain a certificate of merit from a duly licensed and qualified physician with regard to each defendant; doctors and hospitals can't just be added willy-nilly. 

Just as importantly, as a practical matter, plaintiff's lawyers must add every health care provider who could be responsible -- if they do not, then the defense lawyer for the health care provider most responsible for the harm will inevitably start pointing their fingers at everyone else. In such a situation, the "additional defendant" is in the case by name only, and is dismissed as soon as the "real" defendant is willing to stipulate that they will not point the finger at them.

Third, the number of defendants in Pennsylvania malpractice cases does not play a significant role in increasing or decreasing the insurance premiums paid by doctors and hospitals. Adding a defendant does nothing to increase plaintiff's damages (and thus the size of the settlement or verdict), and it generally makes it harder to prove liability and win the case, because it makes the whole trial more complicated. 

In short, Dr. O’Malley is making an issue out of nothing. Indeed, Dr. O’Malley practically admits as much in his article by not recommending anything that could be done to fix this “problem.” His argument is thus as meaningless as it is baseless.

But let’s talk about some of the facts here.

First, the most comprehensive study done on medical malpractice verdicts by a team of researchers at Harvard Medical School found that three-quarters of all plaintiffs who won had indeed suffered injury to due medical malpractice, and that one-quarter of those plaintiffs who lost had also suffered medical malpractice.

Second, the malpractice filings report shows that more than 80% of plaintiffs in Pennsylvania lose at trial.

Keep those two facts in mind: more than 4 out of 5 plaintiffs lose, and those that do win should win.

Yet, Dr. O’Malley notes:

Since May 2002, when Act 13 was passed requiring physicians to self report when sued for malpractice, more than half of the state's 25,000 doctors have been sued. The Pennsylvania Medical Board, an agency of state government, found that only a fraction of all malpractice cases merit any action which is an indication that rampant medical liability lawsuit abuse exists in Pennsylvania.

I don’t know the polite way to say this: Dr. O’Malley has no idea what he is talking about.

You can read the Pennsylvania Medical Board’s mission statement yourself. The Board “regulates the practice of medical through the licensure, registration and certification of members of the medical profession in the Commonwealth of Pennsylvania.” It has no interest in, and makes no findings with regard to, medical malpractice.

Indeed, the only time the board and medical malpractice liability intersect is when, by way of malpractice, a doctor shows himself to be “an immediate danger to the public health and safety.” You can read some of the recent disciplinary actions here. Other than "immediate danger," the board generally only takes "action" when a doctor, for example, is “convicted of a felony in a federal court” or “failed to report information regarding disciplinary action by a healthcare licensing authority of another state.”

But maybe the Board of Medicine should become more involved in medical malpractice. Here's a critical finding from the most recent National Practitioner Data Bank report:

Physicians with at least two Malpractice Payment Reports were responsible for the majority of Malpractice Payment Reports for physicians: Approximately 33.2 percent of the 146,309 physicians with Malpractice Payment Reports had 2 or more such reports. These 48,566 physicians had a total of 138,199 Malpractice Payment Reports. This was 58.6 percent of the 235,942 Malpractice Payment Reports in the NPDB for physicians.

A few physicians were responsible for a large proportion of malpractice payment dollars paid: The 1 percent of physicians with the largest total payments in the NPDB were responsible for about 11.7 percent of all the money paid for physicians in malpractice judgments or settlements reported to the NPDB. The 5 percent of physicians with the largest total payments in the NPDB were responsible for just under a third (31.4 percent) of the total dollars paid for physicians. Eleven percent (11.6 percent) of physicians with at least one malpractice payment were responsible for half of all malpractice dollars paid from September 1, 1990 through December 31, 2006.

In Pennsylvania, generally half of the payments from the CAT / MCARE fund (which uses taxpayer funds to provide additional malpractice insurance) are made to settle claims against just 2% of doctors.

Fact is, there is a small minority of doctors who are simply terrible at their jobs, just as there are a small number of incompetent lawyers, bank tellers, teachers, cops, engineers, office managers, and every other occupation. In most occupations, though, these people are weeded out over time, but in the distorted marketplace of medical malpractice insurance, the taxpayer foots the bill to keep these bad doctors in practice. That's why physician insurance premiums are so high: to pay for the claims brought against a tiny minority of incompetent doctors who repeatedly injured patients.

Truth is, filings and payouts in medical malpractice in Pennsylvania have declined dramatically, and you have to go back 10 years to find out the last time so little was paid to resolve claims. Malpractice reform is "working" even under the health care providers' and insurance companies' definition: far less is being paid to injured patients than was in the past, even as the population grows.

So how did that happen? We will talk about that in the next post, going into the three major changes made by MCARE: tightening the rules for qualifying experts, restricting the venue in which plaintiffs can file suit and requiring certificates of merit prior to filing suit.

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

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

...

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

...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Elliott Wilcox at the Winning Trial Advocacy Techniques blog has a great post on “non-rulings” by trial judges:

Using a combination of body language, tone, and other non-verbal behaviors, judges subtly encourage lawyers to rephrase questions or move on to new topics. When you’re caught up in the heat of battle, it feels like the judge has issued a ruling, so you rephrase your question or move onto another topic. In reality, no ruling has been issued, because the judge hasn’t ordered you or your opponent to do anything. A common term for describing this type of action is called a “non-ruling.”

The most effective “non-ruling” judges you’ll encounter are often the friendliest judges you’ll encounter in your practice. These judges succeed at “non-ruling” by drawing upon your inner desire to be a consummate professional, while also creating a congenial courtroom attitude. By encouraging both litigators to just “go along and get along,” they can avoid issuing stern rulings (and also avoid a reversal from the appellate bench). Usually, “non-rulings” will be disguised as kindly suggestions, such as, “Why don’t you go ahead and rephrase your question, ok?” Since you don’t want to stir up the pot, you’re usually inclined to go along with the judge’s suggestion.

The post includes several great suggestions for how to respectfully and gracefully deal with these "non-rulings." New and experienced trial lawyers owe it to themselves to read the whole post.

Let me add a distinction. There are two main types of non-rulings: “move along” and “different question.” They warrant different responses.

“Different question” is usually an indication from the judge that they believe the subject matter of your question pertains to relevant and admissible evidence, but that the question itself is objectionable or prejudicial.

In a "different question" circumstance, you probably do not want to prompt a formal ruling from the judge, because the judge will likely sustain the objection yet give you no guidance as to how you should proceed, even if they believe the subject matter is probative and admissible.

The better course here it to stop, think, and find what is wrong with your question. Odds are, you have made a basic mistake like asking a leading or compound question, and by breaking it down and going through the issues step-by-step can avoid any further objections.

“Move along” is usually an indication that the judge believes the subject matter you are inquiring about is inadmissible or prejudicial.

In this circumstance, while you probably should initially attempt to rephrase your question (because the court might have misunderstood where you were going), you are probably going to be overruled no matter what you do.

As such, it makes more sense here to illicit a formal ruling from the judge, because you are going to need it post-trial and on appeal. My preferred response when I hear “move along” is to come up with a different question that will telegraph where I am trying to go to the judge. If the judge again tells me “move along,” then I request a sidebar on the record so that I can (1) determine the scope of what the court is trying to preclude and (2) obtain a formal ruling for purposes of appeal.

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

All he had to do was:

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

Simple, right? Apparently not:

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

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

Unfortunately, the above was in error because:

Pennsylvania, however, does not consider unjust enrichment to be either an action in tort or contract. Unjust enrichment, rather, an equitable remedy and synonym for quantum meruit, is 'a form of restitution.' Mitchell v. Moore, 1999 PA Super 77, 729 A.2d 1200, 1202 n.2 (Pa. Super. Ct. 1999); see also Ne. Fence & Iron Works, Inc. v. Murphy Quigley Co., 2007 PA Super 287, 933 A.2d 664, 667 (Pa. Super. Ct. 2007); Sack v. Feinman, 495 Pa. 100, 432 A.2d 971, 974 (Pa. 1981) (citing Restatement of Restitution § 1 (1937) as a source for the elements of an unjust enrichment claim); Meehan v. Cheltenham Twp., 410 Pa. 446, 189 A.2d 593, 595 (Pa. 1963) (same). The Restatement views restitution as an area of the law 'which is neither contract nor tort.' Restatement (Second) of Conflict of Laws § 221 introductory note (1971)."

If there is a claim under Pennsylvania law that falls within the scope of restitution under the Restatement (Second) Conflict of Laws, [Fn 3] the following factors should have been addressed in the choice-of-law examination: (1) the place where the parties' relationship was centered; (2) the state where defendants received the alleged benefit or enrichment; (3) the location where the act bestowing the enrichment or benefit was done; (4) the parties' domicile, residence, place of business, and place of incorporation; and (5) the jurisdiction "where a physical thing . . . , which was substantially related to the enrichment, was situated at the time of the enrichment." Id. § 221(2) (1971).

Id. Footnote 3 notes:

Although we have found no instance in which Pennsylvania has adopted section 221, our case law, in explaining the state's choice-of-law approach, directs courts to "use the Second Restatement of Conflict of laws as a starting point." Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 463 (3d Cir. 2006). "[T]o properly apply the Second Restatement and remain true to the spirit of Pennsylvania's 'flexible approach,' [courts] must . . . characterize the particular issue . . . in order to settle on a given section of the Restatement for guidance." Id. Because Pennsylvania considers unjust enrichment to be a form of restitution, we believe applying section 221 would be proper.

In other words, Judge Savage, having no Pennsylvania precedent at all to rely on, incorrectly predicted which way Pennsylvania would go in making the archaic distinction between claims in law and claims in equity in the choice of law context. The Third Circuit predicted that, if Pennsylvania courts had to decide if unjust enrichment was a tort or contract claim, the Pennsylvania courts would say, "neither, it's a claim in equity," and so should be evaluated under different standards in determining which state's laws should be evaluated for potential application in a class action filed in Pennsylvania.

Oh.

Nonetheless, in light of Judge Savage's lengthy opinion analyzing most of the relevant issues under the similar, but erroneous, standard he used, it's hard to see how the outcome will change by this ruling.

A model of efficiency, class actions are not.

I don't have an easy answer for how class actions should be prosecuted and evaluated. Judge Savage and the Appellate Judges (Ambro, Weis and Van Antwerpen) clearly did the best they could; fact is, class actions are complicated, time-consuming, expensive and just plain hard to litigate and to decide. It's not uncommon to bounce back and forth between the trial court and the appellate court several times prior to even beginning discovery, much less trial. Then comes the "real" post-trial appeal from a final order.

Plaintiff's complaint was filed July 10, 2006, more than two-and-a-half years ago. Plaintiff and his lawyers have gone essentially nowhere since then, and still have years of litigation ahead, all at substantial time and expense to the plaintiff's counsel, who likely represents plaintiff on a contingent fee, a fee that will depend not only on winning, but on the judge's own evaluation of whether the claimed fee is fair and reasonable. All years down the road.

Something to keep in mind when you hear about all these "unfair" counsel fees in class actions.

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Joe Ross, a contributor to Phillyist, is going to my alma mater, the Beasley School of Law at Temple University.

So I commented on his blog. I'll leave the motivational speeches to others. Here's my practical advice to him and other entering law students:

Congratulations!

Get some commercial outlines, preferably ones keyed to your casebook. Use them in addition to, but not in replacement of, your casebook, which you should at least skim prior to every class. Realize that while the cases in your casebook are selected by a law professor, the text of the cases is edited by a blind monkey with a sharpie, and do not hesitate to read the full text of the case online if you are confused.

Do not, under any circumstances, keep to yourself a bright idea you get in class. Many of your classmates will do this, and, "knowing" the answer to a question, will not say it out loud, believing that it will help them on the final exam. Their answers are likely wrong, just as your answer is likely wrong. You will do far better by having the professor correct your wrong answer.

When taking a test, if you think something, write it down. Many law students fail to realize that a "correct" answer like "schools cannot discriminate" is far less useful, and will earn far less credit, than an "incorrect" answer that correctly raises issues such as the Constitution, its application to the states, the appropriate enforcement mechanism for it, and the constitutional language purportedly being violated.

A study group is very helpful except when it's not. Do not feel you should, or should not, join one.

You will not like your legal writing class. Everyone does at every law school in the country. That's okay. Try to write what they tell you to write.

On-campus recruiting is a marketing gimmick big firms use to convince young lawyers like you that they are rich and powerful. Odds are, you will not get a job through it, so do not for a moment rely on it.

Go talk to your professors. Tell them your immature ideas about the law; most of them genuinely like to teach, and like to help you understand this stuff. You ignore that resource at your peril.

You don't need luck, you just need patience, dedication, and humility.

[UPDATE: Lest it be unclear, I mean no offense. Quite the opposite, in fact. Law students are often far too shy, and unwilling to speak their minds for fear of embarrassment. My point above it is to let law students know that their feelings of inadequacy are entirely normal and should not dissuade them from asking "dumb" questions in class and asking their professors for further explanation, even where it appears everyone "knows" the answer.]

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A recent post at a prominent club / venue in San Francisco, DNA Lounge:

Several years ago, there was some kind of scuffle and one of our customers who was dancing on the stage fell off and hurt her ankle. She sued us. I'm not sure what exactly her reasoning was, but she did, because this is America, and you can sue anybody for anything. She claimed she had spent $4,000 on medical bills (chiropractors!) and asked for $500,000 in pain and suffering.

We learned in the discovery phase that this woman had also been in three automobile accidents in the previous two years, for which she had been going to chiropractors already. How about that.

We submitted this claim to our insurance company, like you do, and their lawyers handled it. They ended up settling the case by paying her around $11,000. And here's where it gets fun:

Our deductible was $10,000. So the lawyer, who was working for the insurance company, did right by the insurance company. It only cost them $1,000! But he didn't try to negotiate anything lower, because that would have been a waste of his time, since he wasn't working for us, and that was the part we would have to pay. Oh, but it gets better.

It turns out that the fine print on our insurance said, in longwinded, 4-point, incomprehensible legalese, that the rates we had been paying for years were merely "estimates". So after our claim, the insurance company "audited" us, and retroactively raised our rates for the last four years by $20,000 per year. So the fact that we filed a claim at all caused the insurance company to demand an additional $80,000 from us.

At that point, we hired our own lawyer who negotiated that $80,000 down to $40,000, paid out over a year instead of being due immediately. Plus several thousand more for the new lawyer, obviously.

Though the author heaps blame on the plaintiff for what happened here, the outcome would have been exactly the same if the claim had been legitimate: $10,000 out of pocket plus a retroactive bill raising the rates.

There were two causes of this expensive affair: an absurdly high deductible and an unethical, unregulated insurance company.

Every bricks and mortar business which invites customers onto its premises -- whether it's a nightclub, a coffee shop, a computer store, a hair salon, a gym, a jewelry store, a DVD shop, a law firm, whatever -- should expect paying its deductible from time to time to defend or to settle claims.

I know, you are perfectly safe, and flawless in your execution of all mundane asks like ensuring walkway cracks are repaired in a timely fashion.

Are your employees? Your customers? The building? The location? In the case above, a fight broke out; not necessarily the club's fault, but if they had inadequate security and did not react appropriately then indeed their responsibility, at least in part, which in many jurisdictions exposes them to potentially paying the whole judgment.

It's not like driving a car where you can take a handful of defensive driving steps and dramatically reduce your odds of being at fault. (Even there, you can still expect to cause an accident at some point.) Someone will get hurt, or at least claim they were hurt, at your premises. A nightclub that serves alcohol is continually exposed to liability from multiple sources, like slip and fall, premises security, and dram shop.

A $10,000 deductible sounds cheap when you pay the premium, and it is exactly that: cheap. You'll pay the deductible more than once. You might pay it every single year.

Moving on to the unethical insurance company, if the insurance company-appointed lawyer "didn't try to negotiate anything lower, because that would have been a waste of his time," call me. The policyholder's interests come first. Anything less is bad faith.

As for the "estimated" premium, perhaps this was during the Quackenbush era. That wouldn't fly in most jurisdictions these days and would form the basis of a fraud, deceptive trade practices, and consumer protection act class action lawsuit and an insurance commissioner investigation.

The post ends:

What's the lesson here, kids?

I think it's, "people are scum" and/or "never start a business."

No. A properly-insured business will find a slip and fall soft tissue case to be a minor annoyance for which they will be liable, if at all, a nominal sum.

The lesson is "don't skimp on your deductible" and/or "regulation of the insurance industry is important."

Did you choose a reasonable deductible? Have you called up your local, state and federal representatives lately to ask what they're doing to keep insurance companies honest?

And do you know who is trying to protect you right now? Trial lawyers. They're fighting every day to keep insurance companies from abusing policyholders the way DNA Lounge was abused.

You don't have to be a lawsuit horror story.

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My interest was piqued by this story in The Legal Intelligencer: 

In a federal lawsuit, professors David Rudovsky of the University of Pennsylvania and Leonard Sosnov of Widener Law School claim that the December 2008 supplement, or "pocket part," to their book, "Criminal Procedure — Law, Commentary and Forms," was so poorly researched that it will harm their reputations if allowed to remain on library shelves.

In an injunction hearing Tuesday, the professors' lawyer, Richard L. Bazelon of Bazelon Less & Feldman, argued that West should be ordered to notify all recipients of the supplement that Rudovsky and Sosnov were not the authors and that any unhappy customers may demand a refund.

...

[U.S. District Court Judge John P.] Fullam said he had just finished reading Rittinger's most recent brief in the case and said, "I'm disheartened by the tone of it — and you seem to be following in that same tone here today."

Adopting an almost somber tone himself, Fullam delivered a short lecture on manners.

"I'm much less interested in whether you have a reason to be angry with your opposing counsel and much more interested in the merits of the case. I don't take kindly to briefs which attack opposing counsel and make snide comments right and left, and yours do. And you're doing the same thing here today — you're more critical of your opponent than you are of the facts of the case," Fullam said.

So I jumped on PACER and looked at the offending brief, which I've uploaded here.

Here's part of the introduction:

In short, plaintiffs are unhappy with West's editing and publishing of the 2008-2009 pocket part - including the fact that plaintiffs' names are listed as co-authors on that pocket part along with West's "Publisher's Staff' - and plaintiffs want this Court to order West to publish to the world that the 2008-2009 pocket part cannot be relied upon for any purpose.

Plaintiffs' requested injunction should be promptly denied because, among other reasons, plaintiffs face no irreparable harm and have no likelihood of success on the merits of their claims. Putting aside for the moment the sheer over-breadth and vagueness of what plaintiffs mean when they ask the Court to enjoin West from "using" the Treatise - which in and of itself is a reason to deny the injunction - the plaintiffs' request lacks legal merit.

Emphasis added. West's argument has four sections, corresponding with the four elements of a preliminary injunction:

To justify a preliminary injunction, a district court must be convinced that the moving party has established: (i) a likelihood of success on the merits; (ii) that it will suffer irreparable harm if the injunctive relief is not granted; (iii) that the harm suffered by the moving party absent the requested injunction will outweigh the harm to the nonmoving party if the injunctive relief is granted; and (iv) that the public interest favors granting the injunctive relief. Shire U.S. Inc. v. Barr Laboratories Inc., 329 F.3d 348, 352 (3d Cir. 2003).

Here's how the respective sections end:

1. Based on the foregoing, if there ever was any harm to plaintiffs (and West disputes that there ever was any), that harm was cured by the March 2009 letter and the 2009 Cumulative Supplement, and any assertion by plaintiffs to the contrary is merely a poor attempt to feign irreparable injury.
2. For all of these reasons, plaintiffs' defamation claim is specious and not likely to succeed.
3. Because West will face great harm if the requested injunction forcing West to act is granted, and plaintiffs would suffer virtually no harm from the denial of their motion, the balance of the harms weighs heavily in favor of West.
4. Plaintiffs, nonetheless, continue to press their unmeritorious claims, resulting in the waste of much time, money, and resources by both the parties and now the Court. The public interest would be better served by denying plaintiffs' obviously unmeritorious motion for an injunction.

(Emphasis mine).

Outrage and scorn are not wholly forbidden in front of a judge or a jury but you have to earn it.

An opening brief filled with sarcasm will perturb a judge doing his or her best to reserve judgment until they've heard both sides just as much as an opening statement filled with indignity will repulse a jury doing their best to be fair and impartial until they've heard all of the evidence.

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Trial courts in Pennsylvania (particularly the United States District Court for the Eastern District of Pennsylvania) continue their organic development of the "gist of the action" doctrine in the absence of explicit guidance from the Pennsylvania Supreme Court.*

The latest comes from EDPA Judge Jan E. DuBois in Farmaceutisk Laboratorium Ferring A/S v. Shire United States, Inc., CA NO. 08-941 2009 U.S. Dist. LEXIS 30209 (April 8, 2009), who finds an interesting way to thread the needle between the gist of the action doctrine, the parol evidence rule, and the common sense acknowledgment that fraud can and does occur amongst the parties to a contract.

First, the gist of the action:

Pennsylvania's gist of the action doctrine "bars claims for allegedly tortious conduct where the gist of the alleged conduct sounds in contract rather than tort." Hospicomm, Inc. v. Fleet Bank, N.A., 338 F. Supp. 2d 578, 582 (E.D. Pa. 2004) (internal quotation marks & citations omitted). The purpose of the doctrine is to "preclude[] plaintiffs from re-casting ordinary breach of contract claims into tort claims." eToll v. Elias/Savion Adver., Inc., 811 A.2d 10, 14 (Pa. Super. Ct. 2002) (citation omitted). Although a breach of contract can give rise to an actionable tort, "to be construed as in tort, . . . the wrong ascribed to defendant must be the gist of the action, the contract being collateral." Bash v. Bell Tel. Co., 601 A.2d 825, 829 (Pa. Super. 1992) (internal quotation marks & citation omitted). "In other words, a claim should be limited to a contract claim when 'the parties' obligations are defined by the terms of the contracts, and not by the larger social policies  embodied by the law of torts.'" Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 104 (3d Cir. Pa. 2001) (citing Bash, 601 A.2d at 830).

Fraud in the inducement claims are not barred by the gist of the action doctrine where the fraud involves representations of fact independent of promises of performance made in the contract. See eToll, 811 A.2d at 17; TruePosition, Inc. v. Sunon, Inc., No. 05-CV-3023, 2006 WL 1451496, at *3 (E.D. Pa. May 25, 2006) (DuBois, J.); Air Prods. & Chems., Inc. v. Eaton Metal Prods. Co., 256 F. Supp. 2d 329, 341 (E.D. Pa. 2003). "[F]raud to induce a person to enter into a contract is generally collateral to (i.e., not interwoven with) the terms of the contract itself." Air Prods., 256 F. Supp. 2d at 341 (citing eToll, 811 A.2d at 17) (internal quotation marks omitted). On the other hand, when fraud in the inducement is based on statements made with regard to performance of the contract, such claims are barred under that doctrine. In such circumstances a plaintiff's remedy lies in contract. See Williams v. Hilton Group PLC, 93 F. App'x 384, 386-87 (3d Cir. 2004) (finding that fraud in the inducement claim that defendant had no intention of honoring [*25] the contract was barred by gist of the action doctrine). "Moreover, promises made to induce a party to enter into a contract that eventually become part of the contract itself cannot be the basis for a fraud-in-the-inducement claim under the gist of the action doctrine." Freedom Props., L.P. v. Landsdale Warehouse Co., No. 06-CV-5469, 2007 WL 2254422, at *6 (E.D. Pa. Aug. 2, 2007) (citations omitted).

The Court notes that "caution should be exercised in determining the gist of an action at the motion to dismiss stage. Judicial caution is appropriate because often times, without further evidence presented during discovery, the court cannot determine whether the gist of the claim is in contract or tort." Interwave Tech., Inc. v. Rockwell Automation, Inc., No. 05-CV-398, 2005 WL 3605272, at *13 (E.D. Pa. Dec. 30, 2005) (internal quotation marks & citations omitted).

And now the parole evidence rule:

Pennsylvania law concerning the application of the parol evidence rule to claims of fraudulent inducement is well established. The Pennsylvania Supreme Court has explained the law as follows:

Where the alleged prior or contemporaneous oral representations or agreements concern a subject which is specifically dealt with in the written contract, and the written contract covers or purports to cover the entire agreement of the parties, the law is now clearly and well settled that in the absence of fraud, accident or mistake the alleged oral representations or agreements are merged in or superseded by the subsequent written contract, and parol evidence to vary, modify or superseded the written contract is inadmissible in evidence.

HCB Contractors v. Liberty Place Hotel Assocs., 652 A.2d 1278, 1279 (Pa. 1995) (internal quotation marks and citations omitted). The exception to the parol evidence rule for fraud covers fraud in the execution, i.e., the oral representations were fraudulently omitted from the contract, not fraud in the inducement. Dayhoff, Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1300 (3d Cir. 1996); Freedom Props., L.P. v. Landsdale Warehouse Co., No. 06-CV-5469, 2007 WL 2254422, at *3 (E.D. Pa. Aug. 2, 2007); Interwave Tech., Inc. v. Rockwell Automation, Inc., No. 05-CV-398, 2005 WL 3605272, at *16 (E.D. Pa. Dec. 30, 2005). Applying the parol evidence rule to bar claims of fraudulent inducement, as in Pennsylvania, is the minority rule. Regent Nat'l Bank v. Dealers Choice Auto. Planning, Inc., No. 96-CV-7930, 1997 WL 786468, at *6 (E.D. Pa. Nov. 26, 1997). Pennsylvania courts justify this position under the rationale that if the parties "relied on any understanding, promises, representations or agreements made prior to the execution of the written contract . . . , they should have protected themselves by incorporating into the written agreement the promises or representations upon which they now rely . . . ." 1726 Cherry St. P'ship v. Bell Atl. Props., Inc., 653 A.2d 663, 666 (Pa. Super. Ct. 1995) (internal quotation marks & citation omitted). Thus, where there is an integrated agreement and the asserted misrepresentations giving rise to fraud in the inducement are addressed by the agreement, the parol evidence rule bars extrinsic evidence of such a fraud claim.

To apply the HCB Contractors rule, courts must determine whether there is an integrated agreement and whether the asserted prior representations are specifically covered by the written agreement. Interwave Tech., 2005 WL 3605272, at *17; Quorum Health Res. v. Carbon-Schuylkill Cmty. Hosp., Inc., 49 F. Supp. 2d 430, 433 (E.D. Pa. 1999). One key factor in concluding whether an agreement is integrated is the presence or absence of an integration or merger clause in the written agreement. See HCB Contractors, 652 A.2d at 1280; Interwave Tech., 2005 WL 3605272, at *18; Quorum Health, 49 F. Supp. 2d at 433; G. Daniel Glass v. Singer Optical Group, Inc., No. 95-CV-308, 1995 WL 717411, at *3-4 (E.D. Pa. Dec. 1, 1995). To determine whether the written contract specifically addresses the subject of the oral representations, courts ask whether "they relate to the same subject matter and are so interrelated that both would be executed at the same time and in the same contract . . . ." Hershey Foods Corp. v. Ralph Chapek, Inc., 828 F.2d 989, 995 (3d Cir. 1987) [*31] (internal citation omitted).

In this case, the 2005 Settlement Agreement does not contain an integration or merger clause.  ... The only section of the 2005 Settlement Agreement that possibly covers such a representation is section 2.4 As discussed in Part III.D, supra, the language of section 2.4 is ambiguous, particularly with respect to whether it requires defendant to market all new oral 5-ASA drugs as PENTASA(R). In light of this ambiguity, the Court cannot determine at this stage whether the written agreement specifically addresses the content of the alleged oral representations such that they would be barred by the parol evidence rule. "For the Pennsylvania parol evidence rule to bar a claim for fraudulent inducement, the contract must be written, unambiguous, and fully integrated." Coram Healthcare Corp. v. Aetna U.S. Healthcare, Inc., 94 F. Supp. 2d 589, 594-95 (E.D. Pa. 1999). As the Court concludes that the 2005 Settlement Agreement is ambiguous and not fully integrated, it will not dismiss plaintiffs' fraudulent inducement claim as barred by the parol evidence rule.

Defendant's Motion for Judgment on the Pleadings was thus denied. I don't agree with the whole approach here -- I think Bell and eToll hold only that a plaintiff can't simultaneously recover under negligence and breach of contract -- but, importantly, Judge DuBois didn't throw out half of plaintiff's claims for failure to "prove" an issue that should be left to the jury. However phrased or theorized, the core ability to recover where one party may have defrauded the other in the context of a contract is preserved.

* I don't mean to imply it's necessarily wrong for the Pennsylvania Supreme Court to permit this organic development. The United States Supreme Court, for example, routinely denies cert on cases up until a general consensus has development among the Circuit Courts of Appeal.

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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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Pop quiz for law students in Pennsylvania, New Jersey and Delaware. Other than pay, what's the difference between:

Ballard Spahr Andrews & Ingersoll; Blank Rome; Buchanan Ingersoll & Rooney; Cozen O'Connor; DLA Piper; Dechert; Dilworth Paxson; Drinker Biddle & Reath; Duane Morris; Eckert Seamans Cherin & Mellott; Fox, Rothschild, O'Brien & Frankel; Hangley Aronchick Segal & Pudlin; Klehr, Harrison, Harvey, Branzburg & Ellers; Klett Lieber Rooney & Schorling; Marshall, Dennehy, Warner, Coleman & Goggin; McCarter & English; Montgomery McCracken, Walker & Rhoads; Morgan, Lewis & Bockius; Obermayer, Rebmann, Maxwell & Hippel; Pepper Hamilton; Reed Smith Shaw & McClay; Saul Ewing; Schnader Harrison Segal & Lewis; Stevens & Lee; Stradley, Ronon, Stevens & Young; Thorp, Reed & Armstrong; White and Williams; Willig, Williams & Davidson; Wolf, Block, Schorr and Solis-Cohen; Woodcock Washburn Kurtz Mackiewicz & Norris; and, Zarwin, Baum, Devito, Kaplan.

I saw a hand go up in the back. Wolf Block dissolved last week.

Oh. And what indications did you have that was going to happen? They cut associate salaries the month before.

The Legal Intelligencer has an article today about the biglaw recession hitting Philadelphia:

Managing partners have been complaining for years about increasing associate salaries, though in Philadelphia it ultimately became a good marketing tool to be the first in town to raise them.

The same rules don't apply now that the pendulum is swinging the other way. The first to take an ax to associate compensation risks falling out of favor with law schools and future recruits. However, many see a compensation cut as an otherwise smart business decision that would serve as a "market correction" rather than an unfortunate result of the bad economy.

The article is filled with anonymous quotes from managing partners:

• One firm leader said, "I could see $145,000 go to $100,000 in a nanosecond," though he wouldn't be the first to do it.

• "I don't think it is cataclysmic," he said. "It's just a market correction. It's just the way, in merit-based compensation systems, some partners' [compensation goes] down even when the firm is doing well."

• "I think it just sends a bad signal," he said. "It's a lot easier to put in a zero increase than to put in cuts."

The "nanosecond" partner doesn't get it. If his firm drops salaries contemporaneously with anyone else, it won't matter who went "first," it will be translated by associates as a warning that the firm is in financial trouble.

The "cataclysmic" partner doesn't get it either. A merit-based compensation system that only adjusts downward, and only in times of economic distress, will not be construed as rewarding "merit." It is just a cost-savings measure aimed at less-productive associates; not necessarily a bad idea, but certainly not good from a marketing standpoint, and will also be translated by associates as reflecting stingy or distressed management.

And the reason why is reflected by the third quote. First, bonuses fall. Second, raises are postponed or frozen. Third, hiring is slowed. Fourth, associates are laid off. Fifth, new hires are delayed. Sixth, the firm starts cannibalizing its own resources. Do firms really want to broadcast to their current and potential associates that the firm has already gone through five different assaults on associates to no avail?

The BigLaw "leverage" business model lives and dies on churning through associates. Associates work the hardest, followed by equity partners, followed by income and non-equity partners. Without fresh blood, a BigLaw leverage-model firm stalls and crashes as rainmakers leap elsewhere.

I do not agree with this business model. I do not practice this business model. But I do know that wishing away its complexities and complications, such as the difficulty with which you reduce the salary of non-partners (a problem in every industry), will not make them go away.

Every firm that considers jumping on this bandwagon needs to understand that associates and potential associates will not see things as the partners do. You see prudent cost-cutting to clear a path for long-term success. They see Wolf Block.

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The WSJ Law Blog points us to an Op-Ed in the NYTimes:

Restoring a foundation of trust requires a new system of medical justice. Medical cases are now decided jury by jury, without consistent application of medical standards. According to a 2006 study in the New England Journal of Medicine, around 25 percent of cases where there was no identifiable error resulted in malpractice payments. Nor is the system effective for injured patients — according to the same study, 54 cents of every dollar paid in malpractice cases goes to administrative expenses like lawyers, experts and courts.

America needs special health courts aimed not at stopping lawsuits but at delivering fair and reliable decisions. A special court would provide expedited proceedings with knowledgeable staff that would work to settle claims quickly. Trials would be conducted before a judge who is advised by a neutral expert, with written rulings on standards of care.

With a special health court, damages would consist of all lost income and medical costs, plus “pain and suffering” based on a set schedule depending on the severity of the injury. All information about each incident, including details learned in settlements, would be compiled and disseminated so that doctors and hospitals could learn from their errors. Proponents of special health courts have estimated that the total cost of such a new liability system would be about the same as the existing system — less than 2 percent of America’s total health care costs. One benefit would be that the quicker, streamlined system would compensate far more people, with drastically lower legal costs. Most important, it would restore faith in the reliability of medical justice.

The author is none other than Philip Howard, whose latest screed, Life Without Lawyers, cautioned Americans against the devastating effect warning labels have had on our quality of life.

His column is loaded with unsupported references to standard boogeymen like defensive medicine, but let's just focus on the special health courts. Though described in bombastic terms, Howard's proposed system is different in only three respects:

1. the jury is removed and medical malpractice becomes a bench trial before judges;
2. independent experts are (apparently) removed and replaced by a single "neutral" expert chosen by an unspecific procedure; and,
3. the judge is limited in the damages they can award to "lost income and medical costs, plus 'pain and suffering' based on a set schedule depending on the severity of the injury."

I do not see how the first and second part would "free[] doctors from worries about unnecessary and unreasonable malpractice claims." I have known many judges who have presided over many medical malpractice cases, but I have never heard a judge say they felt they personally had the expertise to evaluate whether the standard of care was breached or not any better than a jury. In fact, I have frequently heard the opposite.

Bearing that in mind, would such a system result in more "reliable" malpractice results than our current jury system?

Let's go back to that "2006 study in the New England Journal of Medicine" Howard references, which was unveiled to the public through a press release from the researchers titled "Study Casts Doubt on Claims That the Medical Malpractice System Is Plagued By Frivolous Lawsuits." Here's what they found:

The researchers analyzed past malpractice claims to judge the volume of meritless lawsuits and determine their outcomes. Their findings suggest that portraits of a malpractice system riddled with frivolous lawsuits are overblown. Although nearly one third of claims lacked clear-cut evidence of medical error, most of these suits did not receive compensation. In fact, the number of meritorious claims that did not get paid was actually larger than the group of meritless claims that were paid. The findings appear in the May 11, 2006 issue of The New England Journal of Medicine.

“Some critics have suggested that the malpractice system is inundated with groundless lawsuits, and that whether a plaintiff recovers money is like a random ‘lottery,’ virtually unrelated to whether the claim has merit,” said lead author David Studdert, associate professor of law and public health at HSPH. “These findings cast doubt on that view by showing that most malpractice claims involve medical error and serious injury, and that claims with merit are far more likely to be paid than claims without merit.”

...

Most claims (72%) that did not involve error did not receive compensation. When they did, the payments were lower, on average, than payments for claims that did involve error ($313,205 vs. $521,560). Among claims that involved error, 73% received compensation. “Overall, the malpractice system appears to be getting it right about three quarters of the time,” said Studdert. “That’s far from a perfect record, but it’s not bad, especially considering that questions of error and negligence can be complex.” The 27% of cases with outcomes that didn’t match their merit included claims that went unpaid even though the injury was caused by an error (16%); claims that were paid but did not involve error (10%); and claims that were paid but did not appear to involve a treatment-related injury (0.4%).

So our current system gets it right "three quarters of the time," and, when it gets it wrong, favors the doctors -- would Howard's system beat that?

Probably not; such a system is 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. The judges in Howard's proposal -- none of whom have particular expertise in medicine -- will be wholly dependent upon the "neutral expert" for their understanding of the medicine. Worse, unlike the jury in a medical malpractice action today, they will not have the benefit of seeing a cross examination or in considering the views of multiple experts. 

Ironically, Howard's process for chosing a "neutral" expert and the materials they opine on will probably make medical malpractice litigation more contentious, expensive, and uncertain because it will at best resemble the Markman process used in evaluating patent disputes. Markman hearings often involve the selection of a "neutral expert" in helping the judge determine the meaning of a patent, a process loathed by patent attorneys for adding "a whole new level of lawyering, cost, delay and, some say, uncertainty to patent litigation." So there goes parts 1 and 2.

That leaves Howard with a single proposal: limiting damages, for which he proposes a system like workers' compensation, which covers economic losses and provides a pre-set amount for particular damages. [We'll put aside for this post the fact that, as a practical matter, medical malpractice cases are already typically limited by the size of the defendant's insurance policy;  very rarely do plaintiffs ever collect or even attempt to collect amounts over that.]

The problem here is that workers' compensation is, and always has been, construed as a bargain: in exchange for reliable compensation, the workers give up their right to a jury trial on damages. But Howard doesn't propose any quid to go along with his quo -- patients are just supposed to give up their rights to damages without receiving any increased certainty in their compensation if they are injured.

If Howard really wanted to create "fair and reliable" results, he'd propose something along the lines of the National Vaccine Injury Compensation Program, which, inter alia, provides compensation for the plaintiff's attorneys even if a meritorious suit does not prevail, thereby ensuring no one is left behind by the process.

But that's not what Howard really wants.

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You can't click two links on a law practice website these days without getting a good dose of how important it is that lawyers get up to speed with social media. Kevin O'Keefe, head of LexBlog (which hosts this site), suggests focusing on the big three: blogs, Twitter, and LinkedIn.

I got my blog. I got my Twitter.

LinkedIn?

Here's how Gina Rubel, as part of her extensive "Social Media for Lawyers" series at The Legal Intelligencer's blog, described LinkedIn:

Linkedin is one of the oldest and most established professional networking sites on the Web. ... Linkedin is conservative, professional, adheres to a strict set of rules, business-oriented, highly visible in search engines and an easy point of entry for lawyers. For the most part, it serves as an online curriculum vitae (C.V.) or resume which can be linked to your firm’s Web site.

True. It's also true that LinkedIn treats users with same respect in drafting its terms of service that consumers have come to expect from used car dealers, credit card companies, and subprime lenders.

Read their User Agreement:

1.  Your Obligations — What You Must Do

License and warrant your submissions: You do not have to submit anything to us, but if you choose to submit something (including any User generated content, ideas, concepts, techniques and data), you must grant, and you actually grant by concluding this Agreement, a nonexclusive, irrevocable, worldwide, perpetual, unlimited, assignable, sublicenseable, fully paid up and royaltyfree right to us to copy, prepare derivative works of, improve, distribute, publish, remove, retain, add, and use and commercialize, in any way now known or in the future discovered, anything that you submit to us, without any further consent, notice and/or compensation to you or to any third parties. By submitting any information to us, you represent and warrant that such submission is accurate, is not confidential, and is not in violation of any contractual restrictions or other third party rights. You further agree to inform LinkedIn in the event that any such information has changed since your registration with LinkedIn and, if appropriate, you agree to make such modifications yourself to your profile.

It's just as bad as Facebook's hated and rescinded Terms of Use, which claimed to own all of your content forever, with an added bonus in the last two sentences: you agree that everything you submitted is accurate and you agree to keep LinkedIn's information up-to-date.

Got that? Apparently most people don't; I found only one blog post on the subject, a month ago at Web.Tech.Law. Technorati says no one has linked to it. I found one link on a "social media roundup."

That needs to change.

LinkedIn is building its Web 2.0 Yellow Pages, and by ever submitting anything -- like your name, address, place of business, connections, recommendations and content like forum posts -- you agree to let LinkedIn use it forever and that you will take the initiative to update all of it if any of it ever changes.

But what if I terminate my account?

You granted them an "irrevocable" and "perpetual" license to all content and information you ever submit to the site, and imposed a duty on yourself to keep that content and information accurate and current, so what makes you think it could really be a "revocable" or "limited duration" license?

Before you turn those wheels, note that their User Agreement details exactly what happens when you terminate:

7.  Consequences of Termination

Upon termination, you lose access to LinkedIn. The terms of this Agreement shall survive any termination, except Sections 2 and 3 hereof.

The perpetual duty for users to supply accurate and current information for LinkedIn's business is in Section 1. It "survives."

What gets terminated? Section 2, "Your Rights — What You May Do" and Section 3, "Our Rights and Obligations — What We Must And May Do." Termination ends only "Your Rights" and Their "Obligations."

Will LinkedIn ever exercise these rights in an adversarial fashion? 

Probably not. Like I wrote yesterday, "A right with a remedy worse than the harm is not a right anyone will enforce." Trying to enforce these rights would likely cause a mass exodus from the platform.

But that's just theory, contradicted by the plain meaning of the words in the agreement. Moreover, all bets are off if the company goes into distress. Regardless, the core question remains: if LinkedIn doesn't plan on compelling users to keep its professional database accurate and current or to use its users' content commercial without permission, then why does it need these terms?

Ask a used car dealer.

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Craig Ball tells it how it is:

Ambling along the back roads of listservs and blogs, I often come upon a flea-bitten claim that, "Top notch computer forensic examiners have special tools and techniques enabling them to recover overwritten data from a wiped hard drive so long as the drive was wiped less than 3 or 7 or 35 times."

Nonsense!

...

You only need one complete pass to eviscerate the data (unless your work requires slavish compliance with obsolete parts of Department of Defense Directive 5220.22-M and you make two more passes for good measure).

No tool and no technique extant today can recover overwritten data on 21st century hard drives. Nada. Zip. Zilch.

Hopefully he'll do similar column on encryption which, despite what you see on television, is safe and effective so long as you stick to the public algorithms (like AES, Serpent, Twofish, or Blowfish) implemented in an open-source platform like TrueCrypt. Everything else (i.e., closed or proprietary systems) should be presumed snake oil.

Fact is, data breaches generally occur not through esoteric means like unwiping drives or breaking encryption, but through ordinary oversights like human breach (inadvertant or intentional) or failure to delete properly (like the failure to wipe a hard drive, or failure to wipe backups and copies retained by other users).

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I know, it's a long-shot, but when I see this:

Above the Law has been able to confirm that Ballard Spahr has officially pushed back start dates for its incoming first year associates. A tipster summarizes the details:

On Friday Ballard Spahr told its incoming class that it is delaying start dates until September 2010. There will be a $45,000 stipend offered.... The firm claims it will try to help the incoming associates find these jobs.

... Getting the money is contingent upon finding a job, but the firm is not limiting the work to public interest legal work. Incoming first years are encouraged to find employment at host of places, doing legal or non-legal work in certain circumstances.

[As noted by The Legal Intelligencer, Blank Rome and Morgan Lewis & Bockius have taken similar steps.]

And this:

Members of Philadelphia's seven-month-old Criminal Justice Advisory Board said the mayor's plan would force the city's courtrooms to shut down for 15 days in 2010 and result in the loss of several dozen prosecutors' jobs. ...

Nutter's proposed spending plan would reduce the District Attorney's Office budget to $25 million - a level of spending it has not seen since 2000.

The cut in the prosecutors' budget represents a 22 percent decrease from the $32 million the office was slated to get in the new budget, before the national financial crisis forced Philadelphia and cities nationwide to rein in spending.

I think, surely we can find a way to place some of these students where their legal services could be put to use for the public?

The DA has already been hit hard, having rescinded its offers to its incoming attorneys, who have had to scramble to find new work long after hiring season (to the extent it existed) closed. It's unjust and unfair to 'replace' those dedicated young lawyers with others who didn't even want the work in the first place, but that's the reality of Philadelphia's budget.

Art, Lynne, how 'bout it? First-years aren't so bad, some even go solo.

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Fresh off the presses is Acumed LLC v. Advanced Surgical Servs., 2009 U.S. App. LEXIS 5854 (3d Cir., March 20, 2009), a charming setup in the insanely hostile and competitive world of medical devices:

Acumed is a manufacturer of surgical implants and related devices, and appellant [Morris] and [Advanced Surgical Services] are in the business of distributing surgical implants and other medical devices for various manufacturers, including Acumed, to hospitals and surgeons. ... At the trial, Ryan Crognale, a sales representative for appellant, explained his view of the events that Casey described at Nazareth Hospital. Crognale testified that Morris directed him to deliver the implants to Nazareth and to attend the surgery. He then stated that after his earlier delivery of Acumed implants, he returned to the hospital and saw Casey in the operating room and observed that the physician doing the procedure was "not using my stuff anyway." Consequently, Crognale took the tray of instruments he previously had delivered and left the operating room. Thus, it appears that the physician performing the procedure used materials Acumed supplied through Surgical, its authorized representative.

As Crognale was leaving the surgery center, he encountered Casey, and an argument between the two representatives ensued. Appellant contends that during the argument Casey loudly accused Crognale of illegally selling Acumed inventory, an incident that appellant contends led Dr. Robert Frederick, a doctor at Nazareth, to stop doing business with it. Moreover, appellant contends that because of Dr. Frederick's connection with a large group of physicians in Philadelphia, the confrontation was a factor in a decision by Jefferson Hospital in Philadelphia to exclude Morris from its operating theater for one year. As a result of the incident at Nazareth Hospital, Acumed sent another notice to its customers stating that Surgical was its only authorized representative in eastern Pennsylvania and southern New Jersey.

Can you guess what happened next?

Appellees filed the complaint in this action against appellant in the District Court charging it with violation of the Lanham Act, 15 U.S.C. § 1125, violation of Pennsylvania's Anti-Dilution statute, 54 Pa. Cons. Stat. Ann. § 1124 (West 1996), unfair competition, breach of a non-disclosure provision in the Advanced-Acumed Agreement, conversion, unjust enrichment, and tortious interference with existing or prospective contractual relationships.

...

Appellant filed a four-count counterclaim against appellees. In counts I, II, and III appellant charged that Acumed breached its contract with appellant by not providing timely notice of termination of their relationship and by failing to pay the contractually required buy-out fee that became due to appellant when Acumed terminated their relationship. In addition, appellant charged that Acumed's failure to pay the buy-out fee violated the Pennsylvania Commissioned Sales Representatives statute, 43 P.S. §§ 1471 et seq. (West 1991). In count IV ("counterclaim IV") appellant alleged that Acumed and Surgical ". . .converted property belonging to Advanced, defamed and disparaged Advanced maliciously and falsely, intentionally interfered with Advanced's contractual and business relationships and competed unfairly against Advanced."

After a little more than a week of trial...

The jury returned a verdict on March 21, 2007, finding for appellees on their count against appellant for tortious interference with existing or prospective contractual relationships with appellees' customers. The jury, however, rejected appellees' claim that appellant had tortiously interfered with Acumed's and Surgical's contractual relationship between themselves and also rejected appellees' other claims, including appellees' Lanham Act claims. The jury also found against appellant on the portions of its counterclaims that had survived the District Court's dismissals, i.e., the claims predicated on breach of contract and violation of the Pennsylvania Commissioned Sales Representatives statute. The jury awarded $ 20,000 in compensatory damages to Surgical and $ 0 in compensatory damages to Acumed on the tortious interference claim but found that both Acumed and Surgical were entitled to punitive damages. ... The jury then returned a verdict awarding $ 1 in nominal damages to Acumed and punitive damages to both Acumed and Surgical Resources in the amount of $ 100,000 each.

Uh oh.

As we indicated above, to recover on a tortious intentional interference with existing or prospective contractual relationships claim in Pennsylvania, a plaintiff must prove that the defendant was not privileged or justified in interfering with its contracts: "While some jurisdictions consider a justification for a defendant's interference to be an affirmative defense, Pennsylvania courts require the plaintiff, as part of his prima facie case, to show that the defendant's conduct was not justified." Triffin v. Janssen, 426 Pa. Super. 57, 626 A.2d 571, 574 n.3 (Pa. Super. Ct. 1993) (citing Thompson Coal 412 A.2d at 471 n.7); Silver v. Mendel, 894 F.2d 598, 602 n.6 (3d Cir. 1990). We hasten to add, however, that our conclusion does not depend on the allocation of the burden of proof on the privilege issue, as we would reach our result even if appellant had the burden of proof to establish the privilege as a defense, because the evidence established conclusively that appellant did so.

Pennsylvania has adopted section 768 of the Restatement (Second) of Torts, which recognizes that competitors, in certain circumstances, are privileged in the course of competition to interfere with others' prospective contractual relationships. See Gilbert v. Otterson, 379 Pa. Super. 481, 550 A.2d 550, 554 (Pa. Super. Ct. 1988). The law necessarily recognizes this privilege because if more than one party seeks to sell similar products to prospective purchasers, both necessarily are interfering with the other's attempt to do the same thing. Moreover, even if an entity has an existing contractual relationship with another entity, a stranger to the relationship must be privileged to seek to replace one of the entities lest competition be stifled. Thus, under section 768: "[o]ne who intentionally causes a third person not to enter into a prospective contractual relation with another who is his competitor or not to continue an existing contract terminable at will does not interfere improperly with the other's relation if: (a) the relation concerns [*37] a matter involved in the competition between the actor and the other; (b) the actor does not employ wrongful means; (c) his action does not create or continue an unlawful restraint of trade; and (d) his purpose is at least in part to advance his interest in competing with the other."

...

Comment e to section 768 elaborates on the type of conduct that constitutes wrongful means: "If the actor employs wrongful means, he is not justified under the rule stated in this Section. The predatory means discussed in § 767, Comment c, physical violence, fraud, civil suits and criminal prosecutions, are all wrongful in the situation covered by this Section." Courts relying on comment e have interpreted the wrongful means element to require that a plaintiff, to be successful in a tortious interference action, demonstrate that a defendant engaged in conduct that was actionable on a basis independent of the interference claim. See Brokerage Concepts, 140 F.3d at 531 (citing DP-Tek, Inc. v. A T & T Global Info. Solutions Co., 100 F.3d 828, 833-35 (10th Cir. 1996)). Moreover, we noted in 2000 that even though the Pennsylvania courts have not interpreted the "wrongful means" element of section 768, it is likely that the Pennsylvania Supreme Court would adopt this meaning, that is, for conduct to be wrongful it must be actionable for a reason independent from the claim of tortious interference itself. See Nat'l Data Payment Sys., Inc. v. Meridian Bank, 212 F.3d 849, 858 (3d Cir. 2000); see also CGB Occupational Therapy, Inc. v. RHA Health Servs. Inc., 357 F.3d 375, 389 (3d Cir. 2004). Nothing in later Pennsylvania Supreme Court decisions to which the parties have directed our attention or of which we are aware leads us to change our view of this issue.

I'm sure you can imagine what happened next.

We therefore will reverse the District Court's order of May 21, 2007, to the extent that it denied appellant a judgment as a matter of law on the tortious interference claim, and will remand the case to the District Court for it to enter judgment as a matter of law in favor of appellant on that claim and to set aside the prior judgment on the claim. As a result, we also will reverse the jury's award of compensatory and punitive damages against appellant and the District Court's grant of an injunction in appellees' favor.

That's why business contingent fee cases demand such a high fee and why commercial litigators have to be so selective in the cases they take. On the most basic level, appellees won in the District Court and at trial and post-trial after years of complicated, intense litigation and trial.

How complicated? The Third Circuit Court of Appeal's opinion is a whopping 18,785 words, about one-fifth the length of a typical paperback novel. The briefs from the complaint to the appeal no doubt exceeded 100,000 words.

And the plaintiffs walked away with nothing.

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In law school, financial fraud is so simple -- Gollum tells Frodo something that isn't true, Frodo relies on the false statement, then Gollum steals the precious and runs away.

The reality is a little more complicated. Take, for example, what New Line Cinema did to Peter Jackson for the Lord of the Rings trilogy, prompting Jackson to sue:

The suit charges that the company used pre-emptive bidding (meaning a process closed to external parties) rather than open bidding for subsidiary rights to such things as "Lord of the Rings" books, DVD's and merchandise. Therefore, New Line received far less than market value for these rights, the suit says.

Most of those rights went to other companies in the New Line family or under the Time Warner corporate umbrella, like Warner Brothers International, Warner Records and Warner Books. So while the deals would not hurt Time Warner's bottom line, they would lower the overall gross revenues related to the film, which is the figure Mr. Jackson's percentage is based on.

According to people on both sides of Mr. Jackson's lawsuit, the claim strikes at the heart of the modern vertically integrated media company. One of the apparent - though largely unproven - benefits of media integration is the ability of conglomerates like the Walt Disney Company, Time Warner, the News Corporation, Viacom, Sony and General Electric to sell subsidiary rights to the many divisions within the company.

After 408 docket entries, including such fun as a $125,000 sanction order for defendant's refusal to comply with discovery, the case was settled.

In my own practice, these types of unfair insider deals with alter-ego entities comprise the bulk of financial fraud amongst members of a partnership, limited liability company (LLC), or corporation. The method of the fraud is dependent upon the target. If a partner wants to defraud another partner, they will set up a sham alter-ego entity and then engage in blatantly unfair transactions with it. If a partner or group of partners want to defraud an outside auditor or shareholders, they will set up a sham alter-ego entity and then unload assets or liabilities onto that entity.

That's what Enron and AIG both did to hide the fact that both were taking on liabilities and debt far greater than they could hope to repay if the market went south: they created baloney entities and deals that masked the source and destination of funds, assets and liabilities.

Given the frequency of this fraud, and Wall Street's evident skill in utilizing it, I was none too pleased to see Geithner's WSJ Op-Ed and this announcement:

• The Process for Purchasing Assets Through The Legacy Loans Program: Purchasing assets in the Legacy Loans Program will occur through the following process:
  • Banks Identify the Assets They Wish to Sell: To start the process, banks will decide which assets – usually a pool of loans – they would like to sell. The FDIC will conduct an analysis to determine the amount of funding it is willing to guarantee. Leverage will not exceed a 6-to-1 debt-to-equity ratio. Assets eligible for purchase will be determined by the participating banks, their primary regulators, the FDIC and Treasury. Financial institutions of all sizes will be eligible to sell assets.
  • Pools Are Auctioned Off to the Highest Bidder: The FDIC will conduct an auction for these pools of loans. The highest bidder will have access to the Public-Private Investment Program to fund 50 percent of the equity requirement of their purchase.
  • Financing Is Provided Through FDIC Guarantee: If the seller accepts the purchase price, the buyer would receive financing by issuing debt guaranteed by the FDIC. The FDIC-guaranteed debt would be collateralized by the purchased assets and the FDIC would receive a fee in return for its guarantee.
  • Private Sector Partners Manage the Assets:Once the assets have been sold, private fund managers will control and manage the assets until final liquidation, subject to strict FDIC oversight.

Liberal economists like Paul Krugman are on balance opposed, with the notable exception of Brad Delong.

But let's put aside economics and look at it from the perspective of a Wall Street banker.

Considering the Treasury's stubborn refusal to even identify the recipients of existing bailout funds (with rare exceptions, like the partial list of AIG counterparties) and penchant for creating its own slew of vehicles (for example, the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Money Market Investor Funding Facility, and Maiden Lane I, II and III), I have little doubt the new process will be as transparent as a chunk of coal.

Wall Street and their lawyers -- one of whom almost got a top spot at Treasury -- will have little trouble creating a slew of Special Purpose Vehicles / Entities (or repurposing existing, loss-laden hedge funds) for the sole purpose of bidding the price even higher than the expected value and unleashing that huge, 85% no-recourse Federal loan guarantee.

That makes the whole thing a win-win for Wall Street: it's like setting up "Toxic Assets LLC" then using an >85% government subsidy to "buy" everything at your own garage sale at inflated prices.

If your junk is worthless, it doesn't matter, since you set a price more than high enough to make a profit when you first sold it, taking into consideration the modest capital you put into Toxic Assets LLC.

I'm sure Treasury will put together a handful of half-hearted competitive bidding limitations that will say the exact same company that owns the assets can't bid on them, and I'm sure Wall Street will have no trouble finding its way around these limitations. I then expect to see these "legacy assets" go for sale at impressive, expectation-shattering levels, which will be hailed as a success.

A few months or years later, totally unexpected, the entities that bought these "legacy assets" will go bankrupt, pleading that they did the best they could to help the American taxpayer, and, gee whiz, we lost some money, too.

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Twitter, twitter, everywhere. My delicious morning coffee was interrupted this morning by Anne Reed, who tweeted the following on Twitter:

Another tweeting juror, in Philly Fumo trial; How Appealing posts copy of "motion for immediate voir dire", http://tinyurl.com/c74h6s

Apparently the blogging gods want to be kind to your gentle host, ensuring him an endless fountain of inspiration. The Philadelphia Inquirer summarizes:

Defense lawyers for former State Sen. Vincent J. Fumo moved late yesterday for an immediate halt in jury deliberations and the removal of one juror, contending that the juror posted oblique remarks on Facebook.com and Twitter.com - including one declaring, "Stay tuned for a big announcement on Monday everyone!"

The petition, filed on the eve of the scheduled sixth day of deliberations in Fumo's federal corruption trial, stated that there was "substantial evidence" that the juror, who was not identified, had violated admonitions not to disclose the status of deliberations.

The lawyers asked U.S. District Judge Ronald L. Buckwalter to question the juror and other members of the panel.

"An immediate suspension of deliberations and a delicate but probing judicial inquiry is warranted," lawyers NiaLena Caravasos and Peter Goldberger stated in the petition. "Depending on the results of that inquiry, it seems that one or more jurors ought to be removed and possibly replaced . . . or that a mistrial will be required."

The motion cites one case, United States v. Kemp, 500 F.3d 257, 301 (3d Cir. 2007). Here's the relevant passage:

"We review 'a trial court's response to allegations of juror misconduct for abuse of discretion.' United States v. Boone, 458 F.3d 321, 326 (3d Cir. 2006). Here, we conclude that the District Court acted within its discretion when it individually questioned the jurors.

We have recently had occasion to set forth the applicable legal standard governing the district courts' latitude to question jurors during deliberations about allegations of misconduct. In Boone, we recognized that '[i]t is beyond question that the secrecy of deliberations is critical to the success of the jury system.' Id. at 329. At the same time, we emphasized that '[i]t is also manifest, however, that a juror who refuses to deliberate or who commits jury nullification violates the sworn jury oath and prevents the jury from fulfilling its constitutional role.' Id. Attempting to reconcile these disparate values, we held that 'where substantial evidence of jury misconduct -- including credible allegations of jury nullification or of a refusal to deliberate -- arises during deliberations, a district court may, within its sound discretion, investigate the allegations through juror questioning or other appropriate means.' Id. We stressed that a district court, 'based on its unique perspective at the scene, is in a far superior position than this Court to appropriately consider allegations of juror misconduct, both during trial and during deliberations.' Id.

...

Accordingly, the legal standard is clear: a district court may investigate allegations of juror misconduct when presented with 'substantial evidence' of that misconduct.

In other words, while the District Court has ample discretion in deciding whether or not to question a juror, the Court can't just do so on a whim -- it needs "substantial evidence" of juror misconduct.

Here, however,the situation is a little different: while particular tweets (say, "he's guilty as sin, ain't nothin' gonna change my mind") might provide "substantial evidence" of "jury nullification" or "a refusal to deliberate," twittering alone isn't necessarily "substantial evidence" itself of any particular misconduct.

Sure, the jury is instructed to keep the content of deliberations secret, but it doesn't seem the juror revealed any content, other than the cryptic reference to a "big announcement" on Monday, which itself doesn't reveal any content other than the jury being close to a resolution.

Moreover, there's the bigger question of: so what? The Third Circuit still hasn't settled on a standard for removing a juror. Suffice to say it's not easy:

"While it is undisputed that in certain circumstances, district courts may discharge a juror for cause during deliberations, see Fed. R. Crim. P. 23(b), we have yet to enunciate the appropriate standard. 24 Any standard must accommodate two clashing interests. First, it is clear that 'a court may not dismiss a juror during deliberations if the request for discharge stems from doubts the juror harbors about the sufficiency of the government's evidence.' United States v. Brown, 262 U.S. App. D.C. 183, 823 F.2d 591, 596 (D.C. Cir. 1987). Any other rule would eviscerate the right to a unanimous verdict of guilt. See id. On the other hand, courts agree that a district court has the authority to dismiss a juror -- even during deliberations -- if 'that juror refuses to apply the law or to follow the court's instructions.' United States v. Abbell, 271 F.3d 1286, 1302 (11th Cir. 2001) (per curiam). That is because 'a juror who refuses to deliberate or who commits jury nullification violates the sworn jury oath and prevents the jury from fulfilling its constitutional role.' Boone, 458 F.3d at 329. While the jurisprudence discussing the discharge of jurors during deliberations has largely focused on a refusal to deliberate or jury nullification, its reasoning applies with equal force to claims of juror bias." United States v. Kemp, 500 F.3d 257, 303 (3d Cir. 2007).

Id. at 303.

Twittering a couple lines about the status of the trial doesn't come close to "refusing to apply the law." At the most, the juror arguably didn't "follow the court's instruction" with regard to secrecy, but it's hard to say such was deliberate when the juror plainly made an effort not to disclose any specific information.

It all comes back to a discussion I had with Anne Reed just last week (on Twitter, about another juror twittering case, of course):

annereed: Civil defendant wants new trial after finding juror's trial tweets; they look appropriate to me. http://ping.fm/OvHlM

phillyshortcite: @annereed re http://ping.fm/OvHlM Agreed; jurors entitled to tell others they're on a jury and to describe verdict afterwards.

 

annereed: @phillyshortcite Yes.Juror networking issues are easier than people think; q is whether it would be ok if juror said it face to face.

 

phillyshortcite: @annereed I'm surprised by depth of confusion over social media & law. "Are tweets admissible?" Yep, just like everything else.

There's nothing different here. Jurors for centuries have told their friends over the weekend "I think we've finally reached a verdict!"

We just have more "friends" these days, and, as Seth Godin would put it, everything goes on your permanent record.

So, juror, if the jury's suspended while the lawyers argue and you're reading this... stop reading this! Do what the court tells you to and stick to the evidence at trial!

But if you're done with deliberations and have entered a verdict, don't sweat it. You're not the first juror to breathe a sigh of relief after months of trial.

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At the National Law Journal:

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

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

...

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

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

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

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

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

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

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

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

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

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

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

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

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Among the many provisions included in Obama / Congress' "Stimulus Plan" passed in February is $1.1 billion for "comparative effectiveness" research ("CER"), which will finally start putting some money into figuring out if many of the medical treatments routinely prescribed across America at considerable expense are actually worth it. DB at Medical Rants is all in favor, but Kevin MD raises a red flag:

Newsweek's Sharon Begley comments on how patients can refuse to adhere to the findings of comparative effectiveness research by suing doctors who try to do so. As she points out, "What are [doctors] supposed to do when a patient demands antibiotics for a cold? for a child’s ear infection? when a patient demands an MRI for back pain or knee pain? If they refuse, several doctors told me, they can expect a call from the patient’s lawyer that afternoon."

...

Yes, physicians are the ones ultimately responsible for ordering unnecessary antibiotics or MRIs. But, the threat of malpractice is indeed a cloud that hangs over every decision a doctor makes. Just because Mr. Cross disagrees with that doesn't make it any less true, or any less of a factor.

The patient's lawyer will call that afternoon and... what? Threaten the doctor for complying with a Federally-approved de facto standard of care?

Put simply, CER will cut both ways. A doctor who does not utilize a CER-approved treatment will have a lot of explaining to do down the road if that treatment would have helped. Conversely, a plaintiff alleging a doctor should have used a CER-disapproved treatment will have a hard time convincing a jury that the doctor should have overridden the billion-dollar research.

From a liability / malpractice standpoint, doctors who abide by the standard of care should welcome the CER with open arms, as it will give them a powerful tool to wield when a plaintiff's lawyer later asks "why didn't you do _____?" They can quite honestly answer "because the CER says it's not effective."

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As you've probably heard at sites like Overlawyered and Drug & Device Law, the sky is falling upon us because the Supreme Court didn't override Congress and the FDA and decide to pre-empt state failure-to-warn tort suits against prescription drug manufacturers.

If you don't know the basic facts, see SCOTUSBlog. Some initial commentary at the WSJ.

Wyeth manufactures pharmaceuticals, subject to FDA regulation. The FDA sets a minimum standard for the use of these drugs and their labeling; it does not dictate the text of warning labels, though it does have to approve them, which it does after intense lobbying by the manufacturers, lobbying generally unopposed by anyone at all, where the sole "evidence" are manufacturer-sponsored studies, studies which have repeatedly come under fire for conflicts of interest.

Nonetheless, under the "changes being effected" regulation, a drug company can unilaterally change its warning labels to improve patient safety.

Does this regulatory authority preclude all state tort suits alleging drug companies promoted or failed to warn against unsafe uses of these drugs?

Vested interests have spent a lot of money trying to convince judges (and the public) that this question is so hard to answer on purely legal grounds that it requires the judges start making policy instead of law.

Because the law is very clear, as the Supreme Court ruled, 6-3:

As it enlarged the FDA’s powers to “protect the public health” and “assure the safety, effectiveness, and reliability of drugs,” id., at 780, Congress took care to preserve state law. The 1962 amendments added a saving clause, indicating that a provision of state law would only be invalidated upon a “direct and positive conflict” with the FDCA [Food, Drug and Cosmetics Act]. §202, id., at 793. Consistent with that provision, state common-law suits “continued unabated despite . . . FDA regulation.” Riegel v. Medtronic, Inc., 552 U. S. ___, ___ (2008) (slip op., at 8) (GINSBURG, J., dissenting); see ibid., n. 11 (collecting state cases). And when Congress enacted an express pre-emption provision for medical devices in 1976, see §521, 90 Stat. 574 (codified at 21 U. S. C. §360k(a)), it declined to enact such a provision for prescription drugs.

Slip op. at 10.

Congress has had numerous opportunities, while amending the FDCA, to change that. It didn't.

The FDA has had numerous opportunities, while promulgating regulations with the force of law (as opposed to mere policy positions, which are not binding on courts), to change that. It didn't.

There was no "direct and positive conflict" between plaintiff's claims and the FDA approval.

There's nothing more to say here.

The Supreme Court is to be commended for refraining from telling Congress and the FDA they didn't know how to set policy, and for sticking to basic principles of judicial, statutory and regulatory interpretation.

Thanks for refraining from judicial activism.

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New to the site? Haven't been here in a while? Here are some of the most popular posts over the past few weeks.

Litigations and Trials:

• Managing Expectations in Defamation Cases: A Legendary Trial Lawyer Faces His First Malpractice Suit
• $120 Million In Hourly Billing For A Single Trial: What Happened In Robertson v. Princeton?
• How Not To Spend $120 Million In Hourly Fees On A Single Trial: A Few Questions for Robertson v. Princeton
• The Watchmen Movie Ruling: How Typical Lawyer Obstructionism Can Destroy Your Case
• "Quinn Emanuel Hit With Malpractice Suit" -- More Business Contingent-Fee Madness

Law Practice:

• Creating "The Black Triangle," A Critical Step Before Any Trial, Deposition or Brief
• "The End of Leverage"? What Are BigLaw Associates Really Worth?
• "Remember That Profits Equal Revenues Minus Costs" - The Real Reason for the Billable Hour's Impending Demise

Current Events:

• Can the Octuplets Sue for Medical Malpractice? (Part 1 of 2)
• Differential Diagnosis, Defensive Medicine and Medical Malpractice: Coumadin Edition
• 25 Things About Facebook's Terms of Use and Your Rights
• Facebook and the Law of Stealth Changes in Consumer Contracts

Recent Court Opinions:

• Pennsylvania Commonwealth Court Limits the Special Value to the Plaintiff Damages Doctrine
• Reminder: Contract Disputes Act Requires You Exhaust Administrative Remedies Before Suing the United States Government
• An Ounce of Prevention: Dismissal Upheld In Derivative Suit Because of Independent Inquiry
• The Third Circuit's 1:1 Punitive Damages Ruling: The Lingering Complications of State Farm v. Campbell

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Via the Law & Magic Blog (via @walterolson via @nomadtoes), I learned ahead of time of an article by Shannon P. Duffy in today's Legal Intelligencer:

In a motion in limine in Blash v. ABA Construction Group, the plaintiff's lawyers begged the judge to forbid their opponent, Steven G. Leventhal of Reger Rizzo & Darnall, from performing magic tricks or even mentioning that he is a professional magician.

Leventhal's response (the cause of most of the laughter) asked the judge to use his or her own sleight of hand to make the plaintiff's motion disappear -- with prejudice.

Now that the case has settled for $1.2 million, the motion will never be ruled on by a judge.

Just as well; it's very hard to prevail upon a judge that opposing counsel's closing argument was prejudicial, unless the closing either inappropriately referenced previously excluded or stricken testimony, or if counsel tried to inflame the jury through bias or emotion.

For kicks, I threw some search terms into Lexis and, whaddayaknow, found something similar, from the Supreme Court of Kansas:

During closing argument, an attorney is given wide latitude in the language and manner of presenting argument and may indulge in impassioned bursts of oratory and may use picturesque speech as long as he or she does not refer to facts not disclosed by the evidence. State v. Duke, 256 Kan. 703, 719-20, 887 P.2d 110 (1994). In prior cases, analogies similar to the prosecutor's "puff of smoke" argument in this case have been found to be within the permissible bounds of rhetoric and not gross or flagrant.

In Duke, 256 Kan. 703, 887 P.2d 110, defense counsel attempted in closing argument to cast doubt on the veracity of the State's witnesses and the quality of the police investigation. In response, the prosecutor told the jury there had been "'a lot of smoke in this case. . . a lot of smoke that was given to you in the argument of the defendant when he closed his case'" and, after objection to this argument was overruled, the prosecutor continued, "'It's smoke and mirrors. And when you have that, you get illuminations and things . . . trying to confuse you.'" 256 Kan. at 718. When the defendant argued on appeal that the comments implied to the jury that defense counsel was trying to intentionally mislead the jury, we found that the comments were within the permissible bounds of rhetoric. 256 Kan. at 719-20.

In State v. Baker, 249 Kan. 431, 447, 819 P.2d 1173 (1991), we concluded that the prosecutor's closing argument which included comments that the "nice boy image" that the defense was trying to give the jury was "nonexistent," and "it's a smoke screen" was neither gross nor flagrant and had not deprived the defendant of a fair trial.

Although "smoke screen" types of argument have been noted in some cases where the prosecutor's overall arguments were found improper, the comments were not found improper merely because of the smoke screen references.

State v. Rodriguez, 269 Kan. 633, 643-644 (2000). The law isn't much different anywhere else, including Pennsylvania. But that's not actually a trick, just language describing a trick. So perhaps there's room for prejudice in the actual presentation.

The article also reveals an impressive amount of candor from plaintiff's counsel, who filed the motion:

Dooley, in an interview, said that he and Coppol decided to file the motion to "bust his [Leventhal's] stones," and to throw Leventhal off his game.

But Dooley also said he believed the law was on his side and that a judge would likely agree that performing magic tricks during a trial is improper.

Maybe so. Defense counsel defends his closing as follows:

"That the undersigned counsel opted to travel the globe to learn a special set of performance skills rather than wasting his brain cells drinking his summers away at the Jersey Shore should not be held against him," Leventhal wrote.

Touché.

Frankly, I'd worry about performing a magic trick at closing, as it would not only distract the jury from what you're saying (see "Monkeys in Business Suits") but would run the risk of deeply offending jurors who had not been won over to your arguments, who would consider it all the evidence they needed that you were, as they suspected, a professional con man paid to mislead and to deceive them.

My question is not whether the judge would have granted the motion (probably not), but whether the magic trick closing is ever really worth doing. Just the facts, ma'am.

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Closing arguments are the only time that trial lawyers get to be the pious, melodramatic, over the top shysters that television portrays them to be. It's where Clarrence Darrow stood against the death penalty for Leopold and Loeb, where Socrates admits the charges but not the crime.

It's the only point in the entire trial where all the facts make sense to the jury.

It's also where, for the first time, the law is revealed to the jurors and they are told what it is that they're supposed to do(warning: PDF), where it is explained, just once, that:

Proof beyond a reasonable doubt does not mean proof beyond all possible doubt or to a mathematical certainty. Possible doubts or doubts based on conjecture, speculation, or hunch are not reasonable doubts. A reasonable doubt is a fair doubt based on reason, logic, common sense, or experience. It is a doubt that an ordinary reasonable person has after carefully weighing all of the evidence, and is a doubt of the sort that would cause him or her to hesitate to act in matters of importance in his or her own life. It may arise from the evidence, or from the lack of evidence, or from the nature of the evidence.

I've often wondered if further explaining the burden of proof makes matters clearer or more confusing. The rules of evidence and the practical reality of storytelling require that each and every claim or defense be proven with at least some conjecture, speculation or hunches, exactly the sort of evidence deemed unreasonable.

My favorite instruction is this one, which has an analogue in civil trials of an instruction to the jury that the number of witnesses or length of testimony is not a relevant factor in assessing which side should prevail:

Although the government is required to prove the defendant guilty beyond a reasonable doubt, the government is not required to present all possible evidence related to the case or to produce all possible witnesses who might have some knowledge about the facts of the case. In addition, as I have explained, the defendant is not required to present any evidence or produce any witnesses.

In every trial I've seen, the lawyers promptly request the jury to disregard this instruction, after which they proceeded to "bang the empty chair," the trial lawyer's term for arguing the importance of one side's failure to call a particular witness or present particular evidence. That's already happened here, with Assistant U.S. Attorney Zauzmer calling out Dennis Cogan and Edwin Jacobs' failure to call Michael Rubin to the stand.

And it'll happen tomorrow when Cogan and Jacbos lay into Zauzmer for failing to call Litchko, whose destruction of emails and guilty plea formed the core of their obstruction of justice case.

The real question, to me, comes down to the choice between the kitchen sink or the frying pan. Do you throw all of the facts back at the jury again, including the kitchen sink? Or do you beat the jury over the head with the frying pan, making sure they really, really, really understand the most important parts of your argument?

It would be great if you could strike a balance between these two, but "striking a balance" in this context is about the same as telling someone to "keep their eye on the ball." It doesn't help and it's pointless anyway. Whatever you do, you are going to annoy some jurors with your repetition. You are still not going to reach some of them. And some of them will not interpret the facts and the issues the same way you do. Period.

As Zauzmer enters his third day of closing, it's clear he's gone with the kitchen sink, a logical choice given the way they prosecuted and presented their 141-count indictment and the simple fact that, by now, nothing remains in the jury's mind of most witnesses' testimony except some notes and a vague impression.

Cogan and Jacobs will likely take the opposite approach, poking a few holes in the prosecution's case (like with the chart of Citizens' Alliance Fumo tried to take apart on the standard) but generally sticking to their themes of intent and criminality.

Though I favor the frying pan approach -- IMHO, if the jury hasn't absorbed your alleged facts by now, they're not going to -- neither can be said to be better, it's just a question of which tool you use for the job.

There are, however, two main points to consider as the defense begins their closing and the jury deliberates.

First, what is the law? Zauzmer's closing was, in my opinion, thin on the jury instructions themselves. And that's understandible: confusion and complexity create doubt, which favors the defense, and there is little more confusing and complex than a federal charge of mail and wire fraud, the core of which is an element that mails or wire communications be used to commit the fraud so as to satisfy the constitutional requirement that the federal government is acting within its commerce clause powers in bringing the case. Such a requirement, glossed over by both jurors and lawyers in most cases, does nothing to simplify the case.

As such, expect Cogan and Jacobs to walk the jury through the finer details of the law, particularly the obstruction of justice charges and the vague "corruptly persuade" requirement of the witness tampering law.

Second, what was not said? "Show, don't tell." The same is just as true for closing arguments -- sometimes your best arguments should be left unspoken, so as to leave their inherent power in juror's minds as the jurors find the words to express the argument themselves in deliberations. This is a terribly risky strategy, one that requires considerable fortitude, as you don't want jurors to miss one of your arguments, but one that I think is underused by lawyers. Jurors don't really want to hear your arguments unless they're really novel -- don't be afraid to let them figure some things out on their own.

Cogan and Jacobs, bearing no burden of proof at all, have far more latitude to use this tactic, and so have used it far more than Zauzmer and Pease, just as I discussed way-back-when in my jury nullification post, the groundwork for which was laid heavily by Fumo's testimony, particularly the part about being a target of the Bush Administration.

Will those issues enter the deliberations?

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[Ed - I originally accidentally posted an uncorrected draft with some truly interesting (and incomprehensible) voice recognition errors, hopefully now corrected below.]

And so 62 days of ugly testimony comes to its ugly end. Fumo's defense was short -- largely his own testimony -- and the prosecution's rebuttal was his lawyers, called to rebut Fumo’s testimony that he had been advised he could continue and step up his deletion policies, a rebuttal the lawyers were all too willing to give.

As one observer told me, "I did not think it was possible, but they actually got me to feel sorry for Vince Fumo." Indeed, Fumo has left this saga a pathetic figure, a wealthy and influential man with few friends, no relationship with his own child, spying on those closest to him, surrounded 24 hours a day by people paid to be there, a Citizen Kane on trial for the excesses of his last few years in power.

Which is really a shame. Far be it from me to defend Fumo's conduct on a personal or ethical level, but we don't arrest and convict people for who they are, but rather for what they have done, and Fumo is not on trial for abusing his legislative position to extract multimillion-dollar private (and secret) settlements from major industries, nor is he on trial for lying to everyone in the Philadelphia-area about his connection to Citizens Alliance, nor is he on trial for the dysfunctional and sometimes abusive way he treated his staff, friends and family.

He is on trial for fraud against three particular entities and obstruction of justice. He is on trial for what appear to have been an open secret.

Let's start with part of the Third Circuit Court of Appeals in model jury instructions for criminal fraud, the basis for what the jury was told this morning:

The first element that the government must prove beyond a reasonable doubt is that (name) knowingly devised (or wilfully participated in) a scheme to defraud (the victim) of money or property (or the intangible right of honest services) by materially false or fraudulent pretenses, representations or promises.

A ''scheme'' is merely a plan for accomplishing an object.

''Fraud'' is a general term which embraces all the various means by which one person can gain an advantage over another by false representations, suppression of the truth, or deliberate disregard for the truth.

Thus, a “scheme to defraud” is any plan, device, or course of action to deprive another of money or property (or the intangible right of honest services) by means of false or fraudulent pretenses, representations or promises reasonably calculated to deceive persons of average prudence.

…

The false or fraudulent representation (or failure to disclose) must relate to a material fact or matter. A material fact is one which would reasonably be expected to be of concern to a reasonable and prudent person in relying upon the representation or statement in making a decision (describe relevant decision; e.g., with respect to a proposed investment).

This means that if you find that a particular statement of fact was false, you must determine whether that statement was one that a reasonable person (or investor) might have considered important in making his or her decision. The same principle applies to fraudulent half truths or omissions of material facts.

In order to establish a scheme to defraud, the government must also prove that the alleged scheme contemplated depriving another of money or property (or of the intangible right of honest services).

Does that bear any relationship to what happened with the Pennsylvania Senate, Citizens Alliance and the Independence Seaport Museum?

What, really, should Fumo have told Citizens Alliance, and who would he have told? He was in constant contact with the director, who approved all of these expenses, and the board never even met until well after all of the allegedly criminal activity occurred. Same goes for the ISM – would they have done anything different if he had gone out of his way to tell each and every board member what he planned?

The Senate has a similar problem. It’s not as if Fumo wrote his own checks out of the Senate; did no one ask why he had three drivers? Have they ever asked?

Put simply, the "fraud" that occurred here doesn't bear much of a relationship to how we normally perceive fraud. Fudging the duties of politically-appointed government employees is a disreputable tradition with a long history stretching directly to the present, but only a single example of anyone in the past actually being prosecuted and convicted for it in Pennsylvania, the Habay case.

More tomorrow.

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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.]