Business Law Prof Blog

Attorneys Seeking Advice on Listservs

I am on several listservs of lawyers practicing in areas of the law that I teach. Attorneys on those listservs sometimes post the facts of situations they are dealing with and ask others for advice. This raises two concerns.

Ethical Issues (and the new Oregon State Bar opinion)

Does the exposure of the facts of the client’s situation to outsiders, even if the client is not named, potentially breach the attorney-client privilege? A newly released Oregon State Bar opinion (available at www.osbar.org/_docs/ethics/2011-184.pdf) addresses this issue. The answer, according to the opinion, depends on whether the inquiry would allow others on the list to identify the client. If the facts provided would not permit outsiders to identify the client, the inquiry is not an ethical violation. But, “[w]here the facts are so unique or where other circumstances might reveal the identity of the consulting lawyer’s client even without the client being named, the lawyer must first obtain the client’s informed consent for the disclosures.” The opinion notes that lawyers representing adverse or potentially adverse parties may be participating in the listserv, and disclosure to them could potentially harm the client’s interests.

This opinion’s prohibition is broader than it might seem on first reading. If the client is already involved in negotiations or a relationship of some kind with another party, it would not take much to enable that other party’s attorney to identify the client—especially if the other party’s attorney knows the attorney posting the inquiry represents the client.

And what about the possibility of future identification of the client?  Assume that, at the time the inquiry is posted, no one is able to identify the client. Once the client engages in the transaction proposed in the inquiry, represented by the attorney who posted the inquiry, it will be much easier to identify who the client was. Would an adverse party in later negotiations or litigation be able to use the attorney’s earlier inquiry to the client’s detriment?

Should the Attorney Be Representing the Client on the Matter?

Some attorneys' inquiries on listservs demonstrate substantial knowledge of the subject matter—raising issues that only an expert in the field could have thought of. Other inquiries, however, show that the attorney obviously doesn’t have even a rudimentary understanding of the basic law in the area. This seems to be a particular problem with securities law issues; securities law is notoriously difficult for someone without any background in the area.

I wonder in some of these cases if the attorney should have accepted the representation in the first place. I am sure that, if the client knew how little the attorney understood the issue, the client would not want this particular attorney advising it. The problem is magnified by the naivete of some of the responses to such inquiries—answers that no one should be relying on.

Don’t Do It

My advice, whether or not it’s ethically required: don’t seek assistance on pending matters on listservs.

-Steve Bradford

Are Lawyers to Blame for Poor Risk Management?

In the past year, we have seen some significant and tragic environmental disasters in the oil industry.  The question I pose here:  are lawyers to blame?

As for the disasters, first, of course, was the Deepwater Horizon disaster in the Gulf of Mexico, which released 4.9 million barrels (205.8 million gallons) of oil into the Gulf. In addition to some $20+ billion in cleanup and spill-related claims, BP lost (by my estimate), $531,797,000.00 @ today's price of $108.53/bbl. A second, smaller spill occurred last year when Enbridge Inc.'s oil pipeline dumped 800,000 gallons of oil into Michigan's Kalamazoo River. That's about 19,047 gallons of oil, a loss of $2,067,238.10 at today's price per barrel. Enbridge today announced that the cleanup would cost about $550 million.  

I know some people feel differently, but I think it is pretty clear no one at these companies wanted anything like this to happen.  The economic incentives are clearly there to try to avoid such spills, even before you take into account the necessary (and far more expensive) costs of remediation. I do think, however, this highlights that people are often very bad risk managers, even when they are highly educated and highly sophisticated.  

This is true well beyond the oil industry.  As the flood waters have begun to rise again in the Northern Plains, we again see the risk that returns annually when significant and permanent flood-avoidance measures are delayed or avoided.  Fargo, North Dakota, and the rest of the area are once again working diligently to prepare for potentially disastrous flooding.  

In years past, as I have argued elsewhere, we have seen the dangers of such floods when a city lacks adequate protection. In 1997 in Grand Forks, ND, flooding and a related fire led to $4 billion in losses and a $400 million dike system to protect the city from similar future events. The impact of Hurricane Katrina, and the resulting flooding, on New Orleans was even larger: $100 billion lost ($40B private).  The present value cost (at least arguably) of flood protection is about $1.5 billion. Thus, in both circumstances, the cost of prevention was far cheaper than the cost of repair.  And in both cases, the cost of prevention was also incurred (or needs to be).

We see this problem with corporate managers every day.  Managers, of course, must deal with risks in a variety of ways.  As Robert Eli Rosen explained in his dissertation, Lawyers in Corporate Decision-Making:  a manager’s job is "balancing risks, developing a risk-portfolio, [and] securing support from others to minimize risks."  And it may be that lawyers are failing their client managers.  

Again, as Rosen explains: "The lesson to be learned in the risk analysis approach is that the lawyer must approach managers in a constructive fashion to effectively serve the corporation.  The lawyer must approach the manager from the position of helping the manager realize his objectives.  If the lawyer doesn't adopt this stance, the client will not consult him and will find ways to circumvent him."

Lawyers, especially in the non-litigation context, need to help their clients assess risk and help them solve problems. That can’t mean saying no all the time.  It means learning their clients’ business, and understanding what their clients need, then providing options and solutions.  Of course, some things are simply illegal. But, for the most part, it’s a not question of whether the clients can do something. It’s whether it’s worth it.

Risk management, obviously, can be done well.  For example, in Winnipeg (Canada), a floodway was completed in 1968 to protect the city from flooding of the Red River, which is the same (north running) river that flooded Grand Forks and threatens Fargo today.  Known as Duff's Ditch and Duff’s Folly (after its chief proponent, Manitoba premier Duff Roblin), it cost $63 million (about $300-$900m today, depending on how you do the calculation). In the years since its construction, "Duff's Folly" has saved billions of dollars, not to mention the human and social costs related to traumatic events.  

I’d like to think Premier Roblin had very good legal advice.

--JPF

Judges' Facebook Dilemma: To Friend or Not to Friend?

Now that Facebook is such a hot commodity (just check out Time Magazine's Person of the Year), there are concerns everywhere about what can happen when you have a Facebook page. (The same is true, of course, for Twitter, Myspace and other social networking sites.)  

Much has been made about whether judges should "friend" lawyers, especially those who do or may appear before them.  (See, e.g., The Columbus Dispatch on this subject here.) In Florida, judges are not to be "Facebook friends" with other lawyers.  In Kentucky, such connections are permitted, but the state ethics committee (pdf opinion here) provided only "qualified" approval, noting that Facebook connections are "fraught with peril" and that some site content "otherwise acceptable for members of the general public, may be inappropriate for judge." 

I very much agree that judges should be careful and work to avoid the appearance of impropriety, but I do find it funny how excited people are about Facebook.  It's not as though this medium is the first time judges ever connected in a friendly way with other members of the bar.  Maybe I just missed it, but there never seemed to be too much of a concern about judges being members of country clubs with other lawyers and playing golf with other lawyers.  My sense is that prudent judges avoided such interactions during cases in which a lawyer was appearing before them, but the connection itself was not often called into question.  (If it was a very close friendship, presumably a party would seek disqualification or the judge would recuse him or herself.)

As compared to country club rosters, more people can (depending upon settings and one's technical abilities) more readily access Facebook sites and see the people with whom a judge is friends, so the relationship is more apparent.  However, it's not necessarily a deep relationship.  As the Dispatch notes as an example, Ohio Supreme Court Chief Justice Eric Brown has more than 4,500 Facebook friends. One can hardly use that connection alone to demonstrate closeness.  

So, it's not likely the connection itself that's the problem. I think it's more of a social value thing.  That is, a large number of people don't see the value of Facebook, and thus think it's an especially bad idea for judges to have pages at all, much less ones that connect to other lawyers.  Maybe they are right, but it seems to miss the point.  Country clubs, on the other hand, are often (or were often) deemed necessary to "do business" and thus seemed somehow more appropriate.  This is kind of funny, because "doing business" with other lawyers is precisely what many are worried about when judges and lawyers are Facebook friends.

At the end of the day, it's the type of relationship and how judges interact with other lawyers who appear before them that matters, not where they do it.  For me, the open Facebook page is among the least of my concerns. After all, if it's on Facebook, at least we have a chance to know what's going on. Now that I think about it, maybe we should require judges to get on Facebook.

--JPF

Freedom of Contract in Delaware LLCs: Use It or Lose It

As Francis Pileggi and Larry Ribstein have already more than amply explained, the Delaware Court of Chancery has determined that creditors of an insolvent LLC do not have standing to pursue a derivative claim against the LLC.  CML V, LLC v. Bax, C.A. No. 5373-VCL (Del.Ch. Nov. 3, 2010) (pdf here).  The court determined that, unlike similarly situated creditors of Delaware corporations, LLC creditors have no such right. 

As Mr. Pileggi explained, the court acknowledged that other courts have allowed creditor suits against insolvent LLCs, but Vice Chancellor Laster declined to follow along with that determination.  This seems like the right outcome to me.  If the legislature intended to put that language into the statute they could have, but they didn't.  Or they could have at least used language that parallels the corporation law, but again they did not.  

This is reminiscent of some of the LLC veil piercing statutes and cases. Minnesota and North Dakota, for example, specifically incorporate the state's corporate veil piercing laws.  Wyoming, at least as of 2002, did not have such language in the statute, but the state's court nonetheless incorporated veil piercing principles.  (H/T Profs. Klein, Ramseyer, & Bainbridge) But they probably shouldn't have.  

In my first summer law firm job, one of the partners I worked with was skeptical of LLCs because he didn't trust the body of law and whether the entity would be treated like a partnership or a corporation(and when).  I have retained that skepticism, even though there is significantly more law on the subject today than there was ten years ago.  

My skepticism doesn't mean I don't like LLCs.  In fact, I think they often make a lot of sense.   I just think lawyers (and their clients) should be a lot more careful about considering what they want when they enter contracts.  I always tell my students -- don't rely on veil piercing if you want a personal guarantee.  At least at negotiation, insist on a personal guarantee.  If you can't get one, then assess the situation and move forward with eyes wide open. Same here -- as both VC Laster and Prof. Ribstein explain, there are contractual options to protect LLC creditors in Delaware. Don't forget to use them if you want them. 

That, or try to persuade your Delaware legislator to change the law.  

--JPF

SEC Charges: True Facts and Misleading Positive Spin

The SEC announced charges on September 21 against a Minnesota attorney (who left his partnership to run the fund) and two Bay Area fund promoters for misleading investors.  (Complaint here.)

The SEC asserts that, initially, the fund's sole business was to make real estate loans to one business partner.  After that business partner defaulted, the SEC alleges that the defendants continued to raise money, even though they "had no meaningful income" and were instead using the new investor funds to pay their original fund investors.  The defendants raised this money by claiming that they were in a position to take advantage of the real estate market collapse, but the SEC asserts there was no such possibility.  In a statement, the SEC's Chicago Regional Director explained:  "Investors were entitled to know true facts rather than the misleading positive spin that [was] provided."

I don't love the phrasing, but it's an interesting way to frame the case.  It's certainly reasonable that the the SEC would want to ensure investors have access to "true facts" (as opposed to any other kind of facts). And I suppose the SEC is trying to send a message that what might be (in the mind of some business people) justified as "positive spin" can, nonetheless be "misleading" under Rule 10b-5.  I see the point; when we discuss disclosures in my course BA courses, I often borrow Dwight Drake's recommendation (see his book here) to lay out all risk factors for the offering and to "stay clear of bold adjectives."  As he puts it, "You are protecting here, not selling."  

Further, it seems to me that a "misleading positive spin" on the investment implies that the SEC will be taking a hard line on those soliciting investors, expanding beyond just those, for example, who "lied" to investors. The only concern I would have is that "misleading positive spin" also seems to imply an argument that the positive spin was not knowing or reckless.  That is -- positive spin implies that there's some truth there, it's just truth with the best possible framing.  I haven't forgotten that Rule 10b-5 also covers material omissions; I'm just saying it's kind of soft language and might elicit sympathy in some corners. 

Personally, I'd go for something stronger in my statement:  "The investors were entitled to all the necessary facts, not a deliberately misleading set of cherry-picked items designed to hide the realities of the investment."  Just a thought. 

--Joshua Fershee

 

Merging Skills and Doctrine in the Classroom: One Professor's Modest Beginning

The AALS Annual Meeting bulletin arrived in my mailbox today, reconfirming that curricular reform, new forms of  assessment, and the need to bring skills into the class are hardly new topics of conversation for most faculties.  From the Carnegie Report to Best Practices, there seems to be an emerging consensus that more skills and professional training are necessary for law students.  What is not always clear is how to do it. 

A number of schools, including University of Detroit Mercy and Washington & Lee, have transitioned to full programs that seek to modify the way students experience law school, especially in their third year. Whether the new programs actually achieve their goals remains to be seen, but such programs certainly provide an interesting new method of one part of legal education.  

Of course, not every school has the resources, consensus, or personnel to make such a change (often, all three are probably lacking to some degree).  But that doesn't mean nothing can be done.  As we consider how best to update and evolve our curriculum at the University of North Dakota School of Law on a school-wide basis, a number of us have also looked at what we can on a micro level to build on our current offerings.  

To me, helping student be come more practice ready is an essential part of our mission.  The emerging importance of teaching students skills is one major part of this.  I believe that this means having a concerted effort of the full-time faculty to at least consider integrating skills into their courses and providing new learning experiences for their students. Despite the often highly specialized and superb talents of many adjuncts, we cannot rely only on non-full-time teachers to handle such a critical part of learning to become a lawyer.    

While it is not realistic to expect that we can prepare law students to handle "partner-level" work on day one of practice, we can do a better job of preparing students to handle life in practice from the moment they join the firm, start at the prosecutor's or public defender's office, or hang out a shingle.  This means giving them a taste of what it's like work think and write in a practice setting. 

For my Business Associations I class, which usually has between 55 and 85 students, I use some exercises and share real-life documents to help provide connections to practice.  Beyond that, though, I haven't found a way to make this a highly skills centered class.  I am okay with that, because I don't think every course needs to (or should) be skills focused in the same way I don't think every class should be taught by, for example, a lecture with a single comprehensive exam at the end.  

In my Labor & Employment Law class, however, I do something a little different.  This is my second time through this iteration of the course, and my students (and I) enjoyed it in the first year.  Here's the plan:   I run the course as a small law firm, where everyone works with me. Enrollment is capped at 24.  I use the Case and Controversy files, which are formerly the CaseFile Method, (available here) as the primary materials, and I have created a number of my own materials, especially for the labor-related issues I cover.  Below the break are some excerpts from my syllabus and course overview.  I welcome questions, comments, and/or suggestions (via comments to this blog or my e-mail, which can be found on the left bar of this page). 

Labor & Employment Law Course Overview and Syllabus (excerpts)

Course Introduction:

Welcome to Labor and Employment Law. By enrolling in this course, you have just joined a virtual law practice, Dewey, Servem & Howe, P.C., in which you and your classmates are entry-level associates. As such, my expectations of you will parallel to those found in the workplace. For example, our classroom will be a casual “office,” but professional dress is expected during times where it would be in the law firm (e.g., a client meeting). Your reading assignments are provided in this syllabus. However, your writing assignments, which are part of how you will be assessed in this course (described in detail below), will be provided via e-mail in the same way you would likely receive assignments in practice. Those assignments will explain your overall audience, such as the client, opposing counsel, or legislators, but at all times you will also be writing for me as your assigning partner. Below you will find a description of the course materials, objectives, and expectations, and a syllabus. I look forward to working with you.

Course Overview and Expectations Objectives: 

Upon successful completion of the course, students should be able to 

• Recognize issues and argue legal positions related to labor and employment law problems, including an understanding of employment markets; hiring, firing, and dispute resolution processes; and contract interpretation and negotiation. 

• Write, reason, and deliver writing projects on deadlines similar to those found in legal practice. 

• Present legal ideas in a clear and cohesive manner for a variety of audiences, including other attorneys, current and potential clients, opposing parties and counsel, judges, arbitrators, and mediators.

Attendance and Participation: For the Case and Controversy materials to be effective, students must attend class regularly and must be prepared for class. Students must be prepared to discuss the cases and other materials and support their clients’ positions, as well as explain the counterarguments. Students will be permitted one opportunity to “pass.” Beyond this, additional “passes” will be counted as an absence. That said, the course is designed to be less formal and have the discussion flow naturally. As such, the goal and expectation is that there will be little need for anyone to “pass.” To be clear, incorrect answers are never a problem in this course. No response or uniformed guesses are a problem. There will never be sanctions for trying in this course, only for not trying. Students are expected to attend every class. Students are permitted to miss up to four classes for other obligations without explanation. This number is to include all absences (except those for religious observance, which are separate), including sickness, out-of-town interviews, etc. If classes in excess of four are missed, to avoid withdrawal from the course a written explanation may be required, including the reason for missing additional classes, the student’s plan to ensure the materials covered in the missed classes will be learned, and the reasons the student should be permitted to continue in the course. Please contact me or Dean McLean with any questions about the attendance policy. 

Evaluation/Grading: Because of the course and assignment structure, grading in this course is not anonymous. 

Short Writing Assignments – 60% of the course grade (3 assignments at 15% each and 3 rewrites at 5% each) For each segment of the course, students must pick three Files upon which to complete their writing assignments. Students may be asked to write a short memorandum, draft proposed legislation, suggest contract language, or craft other practice-related documents. These assignments will be 2-4 single-spaced pages addressing the issues related to the relevant File. Rewrites and/or corrections to the assignments are also required. Once signed up for an assignment day, the specific assignment will be provided by e-mail between 48 and 96 hours before that class. More detailed requirements for these assignments will be provided during the first class meeting. 

Class Participation/In-Class Assignments – 10% of the course grade In-class assignments will be distributed in some of the classes. Some of these assignments will be completed in small groups and others will be individual assignments. These assignments, along with the contributions to the class, will be part of the grade. The expectation is that each student will get all the available points in this segment of the course, assuming each student makes an effort to participate and engage in the discussions. Obviously, regular (but not perfect) attendance is necessary. 

Student-Led Review – 5% of the course grade After the materials for each the Employment Law section of course is completed, there will be two days of review that will be student led. Each student must present a portion of the course (5 minutes) related to one of the CCFs. Students may choose to work in groups of two, if they wish (groups of two would have 10 minutes of presentation time). A sign-up sheet will be provided during class to assign each student a case or group of cases for review. 

Course Material Presentation – 15% of the course grade Each student will be required to teach a portion of one class (15 minutes) in the last third of the semester. The student will be provided the materials to teach and will be responsible for presenting a portion of that day’s materials. 

“Exit Memos” – 10% of the course grade (5% mid-term, 5% end of course) After the review for each portion of the course is completed, students will be asked to write an Exit Memo of 1-2 pages. The Exit Memo is designed to be self-reflective and will explain what the student has learned during that section of the course, what was most important to them in that section, and what they believe is likely to be the most significant impact on the law and practice of law. A detailed description of the exit memo will be provided.

--Joshua Fershee

Hedge Fund Investors Still Bullish

Despite selected academic studies showing hedge fund investors that the investments do not "beat the market," the hedge fund investors themselves disagree.  The investors expect to put $200 billion in hedge funds this year and expect their funds to make 10% (with all funds to make 7%).  The survey, conducted by the Deutsche Banks' hedge fund group, is of over 1,000 investors in 500 institutions, the largest in the industry.   

Lawyer CEOs?

The firing of Prince at Citigroup and Cherkasky  at Marsh & Mclennan has some wondering whether lawyers make good CEOs.  Too much attentiont to process and not enough attention to results was common in both firings.  Is this a bias that lawyers must overcome to be good CEOs?  Some think so.

Backdating Suits

With the dismissal of the Apple lawsuit, lawyers have discovered that stock backdating suits are better presented as derivative actions that securities class actions.  In securities class actions, the plaintiffs cannot relate the offense to declining stock prices.  In derivative suits, on the other hand, plaintiffs can claim that all back dated stock options should be canceled and any profits off such options be returned to the firm. 

Democrats and Arbitration

This has to be tough for the ADR crowd.  Democrats, favoring the trial bar, have begun attaching routine riders to new laws that limit the use of arbitration.  A new House bill attempting to outlaw shady mortgage lending techniques, for example, bans pre-dispute arbitration agreements.  The trial bar's money has eclipsed left-leaning political theory.

Associate Salaries and Judges and Law Professors

The WSJ.com Law Blog reports that second year salaries at the larger New York City firms will top $225,000, which is higher than the pay of Supreme Court Chief Justice John Roberts ($212,000) and substantially higher than the average salary of federal district court judges ($165,000).  Comments to the blog worry about adverse selection on the bench. What kinds of folks will want to be judges? I have commented on this before here, mentioning a study of the politics of new judicial appointments (they are overwhelmly ex-public interest lawyers and ex-public officials and, to a far lesser extent, ex-academics).  There should also a concern about adverse selection problems for law professors.  What kinds of folks will want to be law professors?  Again the answer seems obvious -- public interest and social engineering types. 

Judges and Disclosure Control

Judge Strine, in an open hearing on the SLM Corp. buyout, refused to let a spectator leave his courtroom after a ruling from the bench.  The reason?  The spectator wanted to inform traders in Sallie Mae stock.  The judge wanted all traded to get the information "at once."  The Judge, in essence, was imposing his own version of Reg. FD on courtroom spectators.  This is over the top.  Spectators in open court should be able to pass on information as they please.  If a judge is sensitive to disclosure problems he does not hold hearings in open court (a practice I am not condoning; Judges are too quite to impose confidentially orders already).  This information control fetish is not healthy for the public functioning of our court system. 

B-Schools Rankings

There is a fascinating debate going on in the country's B-School that foresees what law schools will soon also be debating.  For some time the B-School ranking systems are heavily weighted towards post graduate employment.  Professors bemoan the loss of an incentive to teach the "intangible qualities."  B-School rankings are more market driven.  The purveyors of rankings, and there are several that compete for the attention of potential students, have discovered that students pay primary attention to how employment opportunities enhanced by an MBA at a given school.  The purveyors are just reflecting the market; they known they do not set or create the market.  So B-School professors are upset with market forces in which they operate-- a common complaint of academics who want to "mold" things.  I don't know about you but I'll throw my support in favor of the wisdom of the market. 

Lawsuit Against Deal Lawyers

The private equity firm that bought Refco, the company that collapsed with cooked books, is suing Refco's attorneys in the deal, Mayer, Brown, Rowe & Maw, for complicity in the fraud.  This suit bears close watching.  The PE firm alleges that Mayer Brown "knowingly" allowed its client to lie..."  Deal lawyers have become experts at taking fees from questionable clients and careful limiting their exposure to criticism when a client tanks ("CYA" in the the trade).  We shall see how a judge handles it.

Judge Jacobs Shows Some Common Sense

Judge Jacobs, Chief Judge of the Second Circuit, started Court watchers when he dissented from a First Amendment decision of a panel of his own court by noting that he could not and would not make any legal arguments against those in the majority because he had "not read [the majority opinion]."   He thought the case silly, "years of litigation over $2," and he was busy.  At stake was a remark made in a college newspaper in 1997.  Judge Jacobs has long argued that many cases in the federal courts, especially those over federal jurisdiction or other constitutional minutiae, make only lawyers, judges, and law clerks happy at the expense of judicial time and sensible doctrine.  A voice in the wilderness. 

Milberg Weiss's Woes

David J. Bershad, a former partner with the nation's leading plaintiff securities firm for over twenty years (now split into two firms), has pleaded guilty to a 20 count indictment detailing illegal kickbacks to named plaintiffs in the firm's lawsuits.  He has also agreed to cooperate with federal prosecutors in providing information that may be used against other high profile partners (William S. Lerach and Melvyn I. Weiss may be probable targets).  This is bad stuff, despoiling the name of lawyers, which needs no further rotting.  Folks in industry (and their lawyers) often suspected that the named shareholders where paid puppets of the plaintiff's lawyers but they could not prove it.  The government has (using a deal with one of the paid named plaintiffs would had other criminal troubles and agreed to sing). [I cannot get over the hubris of using the same named plaintiff in 150 or so suits! Did the lawyers think no one would notice???]  This is the big break in the case -- the facts are now out and confirmed; the prosecutors will now play out the string on the remaining targets.

The case is largely historical due to a change made in 1995 by Congress that permits large shareholders to take over securities class action cases brought by smaller ones.  The new larger plaintiffs often bring their own lawyers.  There is still an incentive to find (bribe) a small shareholder to bring the case and stimulate larger shareholder to take the case, but the incentive to bribe a smaller shareholder to sue initially is diluted substantially.  A final salutary change would be a minimum shareholder stake requirement for private litigation that is small (.01% in stock or $25,000 in value, whichever is less) but large enough to discourage the practice of holding one share in 500 companies or so solely to be available to plaintiff's firms as a named plaintiff.         

Difficult Federal Judges

The description of Judge Reggie Walton comments in the court room during the trial of Scooter Libby were not flattering.  Multiple times he made comments from the bench that are more correctly described as speeches; several of the comments were petulant.  His conduct reminds me of the Judge in the KPMG tax case.  A lack of judicial humility on the bench is not new but it seems to be growing in frequency, particularly in the newsworthy cases.  New data on the selection of federal judges illustrates a selection bias against main-line practicing attorneys and in favor of academics, public officials, and those who practice public law.  Are the two related?  Judges with a cause would seem to be more likely to be peevish to those with whom they disagree.

[New post]  In response to Judge Chidester's comment, I should note I agree with the potential unfairness of press accounts of judge's actions but occasionally judges do deserve a barb or two, especially when based on the judge's own language in an opinion or in open court that smacks of a loss of judicial temperament.  Here Judge Walton was very, very preachy in open court, suggesting he was riding his own horse in this notable case.  You have to be a judge to judge a judge??  Hardly.

Judge Spats: The Role of Blogs

Judges on the same bench routinely disagree and sometimes those disagreements turn personal.  The judges own stage in their public image (read legitimacy) --- judges are measured, thoughtful, and respectful-- usually restrains judges from taking their personal conflict public.  We hear about personal conflicts, if at all, through leaks from friends or clerks long after the fact.  Sharp exchanges on the bench in oral arguments are 1) a surprise, 2) judged harshly, and 3) assumed to be "purely professional" (the judges disagreements are reflections of personal animosity).  Disagreement in private, in conferences and correspondence about cases, are, historically, confidential.  But judges are human.  Within the last month there have been two illustrations of courts going public with personal spats.  The D.C. Circuit Court had a public spat over the acceptance of a amicus brief from retired judges (a split panel held that retired judges could not feature the use of the title "judge" in court proceedings).  I have mentioned it in an earlier blog.  Judges from the DC Circuit are still writing letters to the editor on the issue (a recent defense by a spurned brief writer noted that they used their titles as Judge on in the "bio" materials and in the body of the brief and that other judges had submitted similar briefs that had been accepted.) 

The Michigan Supreme Court now has been featured in the New York Times in a public spat over a disciplinary action against lawyer who was also an unsuccessful candidate for governor, Geoffrey Fieger. (Adam Liptak, Unfettered Debate Takes Unflattering Turn in Michigan Supreme Court.") [See also "It's Getting Ugly on the Michigan Bench," from CNN.com].  The defendant was charged with, get this, making negative comments about sitting judges.  The successfully candidate for governor had picked four judges on the bench and several of the judges had made negative public comments about the loser/defendant during the political contest.  The Michigan Supreme Court judges had a very rough conference on the case and one of the judges went public, on her blog, with the comments of one of her colleagues (he called her, among other things, "a child engaging in a tantrum").  Rosie O'Donnell and Donald Trump move over..

The court, characteristically, met to pass a new rule, on a 4 to 3 vote, prohibiting any member of the court from revealing the contents of inside judicial communications on pending cases.   The aggrieved judge called the rule a "gag order" and, characteristically, labeled it as unconstitutional.  She has started a blog, for pete's sake.  Next up -- a rule against judges having blogs. 

Fieger has sued the Michigan court in federal court.  Law professors and other judges have, characteristically, clucked their tongues, bemoaned the lack of decorum and supported the need for confidentially.

I, on the other hand, welcome and laugh and enjoy the public spectacle.  Increasing publicity about courts is and will be inevitable.  Judges had better get used to it.  Moreover, it is healthy.  Illusions about courts will be more difficult to sustain, judges will suffer public disgrace for poor behavior and be induced to behave better and we will all be better off for it.       

Judge Selection Economics: Business Suffers

The Chief Justice's Annual Report, issued Sunday, contains facts that demonstrate the economics of judicial selection.  First, federal judges are leaving the bench, not retiring, in increasing numbers.  Seventeen have left the bench in the past two years.  While Chief Justice Roberts worries about these numbers his concerns seem overblown.  This is not a large number, given the number of federal judges on the bench. Many judges leave to engage in for-profit arbitration groups.  The low number leaving is also explained, in part, by the second fact. Second, and more significantly, is the claim that fewer and fewer federal judges come from private practice.  Only forty percent of the new district court judges come from private practice, although, and, I am guessing here, well over 80 percent of all licensed lawyers are in private practice.  Judges come from the public sector or from law schools.  Judges are no longer the cream of the private bar.  The salary differential from private practice to a judge's salary is just to great.  The selection of judges will, of course, reflect a functional and political slant on how the judges decide cases.  I would suggest, subject of course to ridicule, that this explains why  many judges are so unsympathetic to context and culture of doing business in the United States.  Judges too often, with the best of intentions, do not and perhaps cannot reflect on or predict the effect of their decisions on the rigors of doing business (both on the operating side and the capital raising side) in a competitive environment.   

Litigation

Two recent studies on lawsuits in the United States provide detail for what we all know: We are a litigation happy nation.

The studies show that litigation in the United States continues to grow, with each year setting new records, and that no other country has costs even close to ours, even if normalized for population or GDP.  There can be no doubt: Litigation, suing or getting sued, has become a defining characteristic of doing business in the United States.

One of the country’s most respected law firms, Fulbright & Jaworski, recently released a survey of 310 in-house counsel on their litigation costs (2006 Litigation Trends Survey).  In-house counsel are lawyers employed by companies to manage their pending cases.  A selection of their findings demonstrates the volume and scope of legal actions against companies in the United States.

For companies with sales of $1billion or more last year, a United States company faces an average of 556 pending lawsuits, with fifty fresh suits filed each year for over one-half the companies.  Insurance companies report a average of 1,600 pending cases; energy company report 364 pending cases; retail companies 333, financial services companies 300, and manufacturers 206.

The size of the claims is staggering.  The seven in ten of the billion dollar firms were defending at least one lawsuit claim more than $20 million last year and several companies noted that they were facing over 50 new lawsuits of $20 million each (for a total exposure of over $1billion).

On top of the pending cases, companies face multiple pending arbitration and regulatory proceedings. A number of companies reported more than fifty pending regulatory proceedings. 

Legal fees in the survey averaged $12 million annually, with several companies spending over $35 million.

There were some surprises in the Fulbright & Jaworksi survey.  The in house counsel listed employment litigation has their top litigation concern.  As noted by Stephen Dillard, who presented the results of the survey, “the workplace has become a legal minefield over issues ranging from pay and promotion to harassment and discrimination, and claims of wrongful termination.”  Contract disputes were second more cited, followed by Intellectual Property Disputes, personal injury filings, regulatory actions, products liability claims, toxic torts, securities actions and antitrust issues. 

The securities and products liability class actions get most of the headlines but are not the top litigation concern of the in house counsel.

Similarly, the most recent survey (U.S. Tort Costs and Cross-Border Perspectives: 2005) by the Tillinghast business of Towers Perrin, a well-known financial consulting firm, found that payments in tort cases reached a record $260 billion in 2004 (its latest full year of data).  This is $866 per person in the United States.  Medical malpractice costs for 2004 totaled $28.7 billion and grew at over 11.7 percent since 1975, the highest growth rate for any of the torts over that period.    

The growth of tort costs in the United States is unique among the world’s developed countries.  Since 1950 tort payment costs, adjusted for inflation, grew at over nine times the rate of population growth in the United States.  The costs are 2.2 percent of United States Gross Domestic Product (GDP) as compared with 1.1 percent in Germany, 0.8 percent in Japan, and 0.7 percent in the United Kingdom.

At issue, of course, is whether our system of private litigation, producing results that are dramatically different than those in any other developed country, is better or worse than the systems of other countries.  Trial lawyers, who are not neutral observers, have long maintained that our system is superior, providing relief to those who deserve it.  Business leaders, who are also not neutral observers, believe the system facilities the equivalent of economic extortion.  The truth is probably somewhere in between.

All have to admit, however, that the newest numbers are staggering, both in their absolute amount and in their annual rates of growth.  There seems to be no top or equilibrium to the litigation.  This alone suggests that we need to think about taking more effective steps to contain the numbers.