Tuesday, September 1, 2009

Third Party Fiduciary Obligations

From the web page of the Ohio Supreme Court:

The Supreme Court of Ohio will accept public comment until Sept. 30 on a proposed rule change about lawyers’ duty to safeguard client funds and property in which third persons claim an interest.

The proposed amendments to Prof. Cond. R. 1.15(d) and Comment [4] are based on a 2007 Advisory Opinion issued by the Board of Commissioners on Grievances & Discipline and recommendations issued in late 2008 by a special Ohio State Bar Association committee.

The current rule requires a lawyer to protect the interest of a third-party in client funds and property held by the client, unless the claim is frivolous. The proposed rule changes specify that a lawyer must have “actual knowledge” of a third person’s interest and that the claimed interest must be “a statutory lien, a final judgment addressing disposition of the funds or property, or a written agreement by the client of the lawyer on behalf of the client guaranteeing payment from the funds or property.”

Changes proposed to the comment portion of the rule offer guidance about a lawyer’s ethical duties depending on whether the funds or property is in dispute and whether the client or third person’s claim to the funds or property is lawful. Where there is a dispute over interest in the funds or property, a lawyer must hold the funds or property in a trust account separate from the lawyer’s funds, until the dispute is resolved.

Update: go to this link and click on Opinion No. 07-007 to find the Advisory Opinion.

(Mike Frisch)

September 1, 2009 in Economics | Permalink | Comments (1) | TrackBack (0)

Thursday, June 18, 2009

Thinking About the Financial Crisis - It's Scary When We Don't Know What We Don't Know

Posted by Jeff Lipshaw

At the end of April, I attended a fascinating day-long symposium organized by fellow blogger Dave Hoffman and two of his colleagues at Temple, Jonathan Lipson and Peter Huang, on issues of complexity arising in the current financial crisis. One of the questions that kept occurring to me was the context of the complexity issue - what exactly were we trying to fix, if anything?  My analogy was this:  if law is a "science," and something about the financial crisis (whether complexity or something else) reflects a disease, then what is the relationship between what we know about the disease and the regulatory medicine we would want to prescribe?  I liken financial boom-and-bust to bipolar disorder - is there a regulatory equivalent of lithium that we are assured will tamp down the peaks and valleys?  And even if there is, do we want to prescribe it?  Maybe we like the booms enough to bear the busts!  There's a good chance Tchaikovsky and Van Gogh were bipolar - would we have their art if they had been medicated?

Anyway, when I get to thinking, I usually get to writing (particularly when ensconsed in our Michigan house). This seemed like grist for the mill on one piece of a longer work on the difficulties in forward-looking judgment, namely, the difference between looking backward and assessing causation as a matter of attributing blame, and understanding what is going on as a descriptive matter sufficient to make a good forward-looking decision in real time under conditions of significant uncertainty.  The result is The Epistemology of the Financial Crisis:  Complexity, Causation, Law, and Judgment, which I've just posted on SSRN.  (I apologize for the use of the word "epistemology" but I like it.)  Here is the abstract:

The focus on complexity as a problem of the financial meltdown of 2008-09 suggests that crisis is in part epistemological: we now know enough about financial and economic systems to be threatened by their complexity, but not enough to relieve our fears and anxieties about them. What marks the current crisis is anxiety that the financial world has evolved to the point that there are hidden structures, like concentrated "too big to fail" institutions and mechanisms, or like credit default swaps, that have widespread and adverse downsides. I propose an analogy between medicine and law in the sense of "regulatory technology." If bubbles are the disease, then the analogy is to bipolar syndrome - exuberance, or even a little hypomania is okay on the upswing, but true mania is bad, as is the resulting swing to depression. Good regulation, then, would be something like lithium, which keeps us on an even keel. The question is really whether we understand the forces well enough to regulate them. Regulation is a function of prediction; prediction is a function of observed regularity; observed regularities invoke the problem of causation; causation raises the issue whether the process being analyzed is reducible. Complexity in itself relative; what seemed inordinately complex to ordinary people, much less deep thinkers, in 1787 or 1887 might not seem at all complex to us now. What we are dealing with instead is a crisis of confidence in those who purport to be experts in what we cannot fathom merely through common sense. The conundrum, of course, is that if it takes an expert to see the problem caused by complexity, how are we, possessing merely common sense, supposed to do anything but rely on their judgment? The epistemological crisis arises from our own judgments to rely on, believe in, trust, or have faith in, that judgment.

June 18, 2009 in Conferences & Symposia, Current Affairs, Economics, Hot Topics, Law & Business, Law & Society, Lipshaw | Permalink | Comments (0) | TrackBack (0)

Thursday, May 21, 2009

Pension Answer Book Not Firm Asset

The New York Appellate Division for the First Judicial Department affirmed a judgment on behalf of a departing lawyer against his former law firm but remanded for a recalculation of damages. The court held:

The finding that respondents were guilty of oppressive actions against petitioner was substantiated by corporate tax records of respondent law firm reflecting the uncompensated disgorgement of petitioner's 39 percent equity interest in the firm during his last year as a member.

The finding as to the fair value of petitioner's equity share in the firm was substantiated by the evidence offered by petitioner's expert appraiser, which included his report, with supporting documentation, and testimony. The asset values recommended by the expert were based on a cost/asset analysis, and the basis for the final values proposed by the expert can be gleaned from the record. Respondents elected not to submit a counter appraisal.

However, petitioner's expert's inclusion of the Pension Answer Book, that was co-written by Stephen J. Krass, one of the respondent partners, prior to formation of the firm, as an asset of the firm is unsupported by the record. The Referee found that while, during their 1984 discussion about merging their firms and forming a new law firm, petitioner and Mr. Krass discussed the book becoming an asset of the firm, that was never reflected in the firm's financial records. Krass not only owned and controlled the royalties paid on the book, and was taxed individually for the book's earnings but, although the royalties were listed on internal firm documents as a line of fee income, the firm's distributions to him were reduced by the amount of royalties he received. The fact that several of the firm's lawyers contributed legal work (on firm time) to subsequent revisions of the book, which was deemed a marketing tool for the firm, does not render it a firm asset.

Additional cash assets of the firm that allegedly had been earmarked for bonus compensation and other incentive payments to be distributed within a month after the filing of the petition on November 20, 2001 were properly treated as assets of the firm and subject to valuation. These cash assets remained within the firm's control to dispose of as necessary.

(Mike Frisch)

May 21, 2009 in Economics | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 12, 2009

Honor Among Fee-Sharers

The New York Appellate Division for the First Judicial Department has held that an oral fee-sharing agreement between non-affiliated lawyers is enforceable in the courts:

Plaintiff attorney alleges that he assisted defendants in a contingency fee case for which they paid him 20% of the fee they realized on settlement, in breach of an oral agreement calling for a division of the fee as the parties "had done in the past," and that in all previous contingency-fee cases procured by defendants on which plaintiff had worked, they had paid him 50% of the fee. Contrary to the motion court's ruling, the complaint alleges a course of dealing sufficient to establish the terms of the parties' oral contract. Equally unavailing is defendants' argument that the parties' alleged fee-sharing agreement would be void under Code of Professional Responsibility DR 2-107(a)(2) (22 NYCRR 1200.12[a][2]). Defendants are also bound by the Code of Professional Responsibility, and cannot avoid a fee-sharing agreement on ethical grounds if they freely agreed to be bound by and received the benefit of same. (citations omitted)

(Mike Frisch)

May 12, 2009 in Economics | Permalink | Comments (1) | TrackBack (0)

Friday, May 8, 2009

The Invisible Hand Meets the Internal Point of View: The Strange Mish-Mash of Law & Economics

Posted by Jeff Lipshaw

Richard Posner published an eminently sensible analysis of the bursting of the credit bubble in the Wall Street Journal the other day (a prelude, I assume, to his new book, The Failure of Capitalism, which he no doubt wrote in a couple nights of intense work).  I'm not sure what's going on in his thinking, but the virtue Images-2 of having what appears to be very few unpublished thoughts is that we ankle-biters have all sorts of grist for the mill when we find changes in thinking or contradictions.  For some reason, it got me thinking about some of the, well, (how should I say this?) odder results of the combination of economics and law, such as Judge Posner's 1993 comment that "[a]t the heart of economic analysis of law is a mystery that is also an embarrassment: how to explain judicial behavior in economic terms. . . .”  In the spirit of Thomas Kuhn's The Structure of Scientific Revolutions, it seemed to me fair to trace this particular convergenceImages of philosophy, science, and economics.  (I've done it before, but more people will read this post in a couple hours than have combined read the essay!)

The image that comes to mind is that game in which you start with one word, and by changing it one letter at a time into a series of different words, you finally end up at a word that is the opposite of, or an ironic twist on, the original word.  Remember what Adam Smith's invisible hand was?  The wealth of nations comes about from individual Images-1 self-interest.  "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest."  That is, each individual doesn't worry about creating a better world, but a better world comes about regardless.  (That's why Judge Posner correctly says that classical microeconomics doesn't try to get inside the head of each actor - it just assumes the actors, as a whole, are rational in seeking their self-interest, like rational frogs.)  But the combination of law and economics has produced (incrementally, I think, like the word game) a "scientific" orthodoxy or paradigm (see Kuhn) in which it's assumed that the butcher, brewer, baker, or frog actually has societal welfare maximization inside his or her head when making decisions.  (Steve Bainbridge expressed this in economic jargon the other day.  Corporate boards don't generally make decisions based on pareto-optimality, i.e., making everybody better off; they make "Kaldor-Hicks" decisions, which means that they are looking to maximize the corporation's share of any consumer surplus without regard to its overall impact on society.  That's what we all do every time we haggle with somebody over the price of the goods or services.)  This transformation (or Kuhnian paradigm) completes itself in models like the justification of contract formalism proffered by Alan Schwartz and Robert Scott (contracting parties really do want to maximize the joint surplus, not their individual share of it), or Ronald Gilson's justification of lawyering, in which he theorizes the only reason lawyers are present is because they have to increase the value of the total deal, not just each party's Kaldor-Hicks share.  I've criticized both of those models in other pieces.

Here's my Kuhnian thesis.  About a hundred years ago, the dominant philosophy of science was logical positivism.  (This was the Vienna Circle.)  The idea was that only the observable had any meaning at all - metaphysics was meaningless, including any attempt to posit a priori concepts like causation in the explanation of the world.  In other words, the only appropriate tools in the scientific tool box were observations of regularities, and the use of deductive logic.  The logical positivists viewed any attempt to explain one event in terms of another by way of "causation," for example, as without meaning.  From this basis, Carl Hempel developed his "covering laws" thesis, Popper rejected the verification principle in favor of falsification, and so on.  The point is that philosophers of science were rejecting Kantian metaphysics in favor of a strict empiricism.  What we want to do is identify the regularities, not try to explain why they are occurring.

I don't think it's a coincidence that the concepts of legal positivism were developing at about the same time.  Hans Kelsen developed his "Pure Theory of Law" to identify positive law, but it turned on neo-Kantian metaphysics expressed in the fundamental Grundnorm, an a priori concept (i.e., one accessible to us merely by reason, and preceding our experience of the world) by which physical events took on legal consequence.  H.L.A. Hart's positivism put aside the metaphysics, but substituted the Rule of Recognition, and the "internal point of view."  That's the key move:  the melding of the objective and observable (i.e., positive) with the subjective and internal.  Note the paradox that is now simply ignored.  We observe people stopping at red lights and going on green lights, but that only tells us there's a norm.  What makes it law, objectively and positively, is the subjective view of the individual from the internal point of view - the placement of the traffic light traces back to a "Rule of Recognition" by which the subjective actor recognizes the light has having the force of law.

So, economics is a science in the logical positivist tradition.  It ought not try to speculate why things are happening, but to explain or predict regularities.  If marginal costs exceed marginal revenues, generally the firm will shut down production.  If interest rates go down, generally demand for houses will go up.  The explanation of law, on the other hand, in the positivist tradition at least, demands that we look at the internal point of view; otherwise we may be studying norms and not law.  Note again that there is a metaphysical paradox that Hartian legal positivism just doesn't contemplate.  The incremental result of combining the two - the external point of view of economics and the internal point of view of law - is the mish-mash in which, against all intuitive good sense, the theory demands (see Schwartz and Scott or Gilson as evidence) individual actors incorporate the external point of view in their internal motivations!

To me, reading these accounts of motivation is as strange as if reading a theorist in quantum mechanics who felt obliged to explain the individual motivations of the electrons versus merely predicting where they'd be.

May 8, 2009 in Economics, Law & Society | Permalink | Comments (3) | TrackBack (0)

Saturday, April 18, 2009

When It Rains It Poors: Now Texas Has Revoked License of Solo Practitioner For Unpaid Student Loan Debt

Posted by Alan Childress

As a follow-up to Mike's story Thursday on the New York bar applicant who was denied admission for student load debt, consider that even existing law licenses are at risk.  The National Law Journal's Leigh Jones reports Monday (found here at law.com) on this harrowing tale:

An appeals court in Texas has revoked the license of a Houston attorney for failing to repay his student loans and other debts. ... The three-judge appeals panel in Austin found that, because Santulli, a Houston solo practitioner, did not adhere to a previous order requiring him to pay his debts, he lacked the trustworthiness necessary to represent clients.

He had been granted conditional admission in 2001 and an extension later, but still owed some $67,000.

A year later, the board found that he had not taken care of his debt and recommended the revocation of his license. A trial court later affirmed the decision.

In arguing against the revocation of his license in the appeals court, ... [he] argued that the boardMarshalsea4 erred in finding that he lacked good moral character. The appeals panel was not persuaded ... Santulli, who represented himself, said that he plans to hire a lawyer to appeal the decision.

As Mike has pointed out many times on this site, based on his experience as a bar prosecutor, there's wisdom to that last sentence.  And in other news, PBS is just finishing up its Masterpiece Classic's presentation of Dickens' Little Dorrit.

Compare Mike's post last month on an Illinois hearing board that "concluded that a lawyer's license should be 'monitored rather than revoked' in a case where the attorney had diverted to himself over $30,000 in fees, half of which were due to his firm." The lawyer's explanation:  behind on house note and bills, from paying debts including "repaying about $65,000 in student loans" and credit cards.  Hmmmm.  Not repay loans = untrustworthy = revoke license.  Repay loans by stealing from firm = worthy of redemption = nine month suspension then probation.  But do not try this at home.  Especially if the home sits in Texas.

April 18, 2009 in Bar Discipline & Process, Current Affairs, Economics | Permalink | Comments (2) | TrackBack (0)

Tuesday, April 14, 2009

Third Party Exception To American Rule

The New Jersey Supreme Court has held that the third-party exception to the American Rule governing counsel fees does not apply in a circumstance where the tortfeasor and the putative third party are effectively the same. The case involved an action to vacate a foreclosure in which an individual was alleged to have breached a fiduciary duty to his entity co-defendant partners. The plaintiffs had prevailed on the theory that the individual and the entity were one. Thus, the entity "was the instrument of [the individual's] deceit, not a separate and distinct party." The plaintiffs may recover attorneys' fees for its legal action against the entity defendant. (Mike Frisch)

April 14, 2009 in Economics | Permalink | Comments (0) | TrackBack (0)

Monday, April 13, 2009

Fee Apportionment Affirmed

A decision from the New York Appellate Division for the First Judicial Department in a fight over legal fees between two law firms:

Order...in a dispute between plaintiff's outgoing and incoming counsel as to the division of a $1,000,000 contingency fee earned in a personal injury action, apportioned 70% of the contingency fee to plaintiff's incoming attorneys Finkelstein & Partners, L.L.P. (Finkelstein) and 30% to the outgoing attorneys Trief & Olk (T & O), unanimously affirmed, without costs.

The motion court's apportionment of the contingency fee was a provident exercise of discretion. The court analyzed the relevant factors including the amount of time spent by the attorneys on the case, the nature and quality of the work performed and the relative contributions of counsel toward achieving the outcome. The record shows that T & O laid the foundation for the case in the eight months that they represented plaintiff, and obtained a $900,000 settlement offer, which plaintiff rejected. Finkelstein then handled the case for three more years, adding additional defendants, and obtained a settlement of $3,000,000 prior to the jury publishing its verdict following a 10-day trial. The motion court appropriately recognized the relative contributions of the attorneys in awarding 30% of the contingency fee to T & O. (citations omitted)

(Mike Frisch)

April 13, 2009 in Economics | Permalink | Comments (0) | TrackBack (0)

Friday, April 3, 2009

Not Lawyer Or Broker

An attorney admitted in Nebraska and South Carolina was contacted by the attorney of a person who wished to sell real estate in Costa Rica. The seller agreed to pay a 4% finder's fee to the attorney if he was able to find a purchaser. The attorney (named Wiseman) introduced the seller to one of his clients, who eventually made the purchase. The attorney did nothing to facilitate the transaction other than a single phone call. When the seller died, the attorney sought payment of the 4% from his estate.

The Nebraska Supreme Court held that the attorney was not entitled to any fee for legal services to the seller as his claim that he had represented the seller "is not supported by the record." Further, the attorney did not have a real estate license and was precluded by statute from payment for services performed as a real estate broker. (Mike Frisch)

April 3, 2009 in Economics | Permalink | Comments (1) | TrackBack (0)

Fee Award Upheld

The New York Appellate Division for the First Judicial Department upheld a judgment for legal fees and dismissed malpractice counterclaims. As to fee entitlement:

The record shows that in December 2003, each defendant signed an agreement with [law firm]plaintiff, acknowledging that it owed plaintiff a certain sum of money for their legal representation and agreeing to pay it within a certain amount of time. Although defendants contend that there is a triable issue of fact as to whether these agreements were signed under duress, "[r]epudiation of an agreement on the ground that it was procured by duress requires a showing of both (1) a wrongful threat, and (2) the preclusion of the exercise of free will" Here, defendants have admitted that the December 2003 agreements resulted from significant negotiations with plaintiff during which they were represented by separate counsel, and even if plaintiff threatened to cease representing defendants unless it were paid, that is not a wrongful threat (id.). There is no need for discovery as to whether the December 2003 agreements are enforceable, as the existence of a wrongful threat and the overbearing of defendants' free will are both matters within defendants' knowledge.

The affidavit of defendants' principal, which claimed that he orally protested plaintiff's services, does not serve to defeat plaintiff's motion. A client's "self-serving, bald allegations of oral protests [a]re insufficient to raise a triable issue of fact as to the existence of an account stated" and defendants do not need discovery as to whether they ever protested plaintiff's bills, since that is also a matter within their own knowledge.

Defendants' contention that the December 2003 agreements cannot form the basis of an account stated because they are not itemized billing statements, is raised for the first time in their reply brief and is not entitled to consideration. In any event, plaintiff's account stated claims are not based solely on the December 2003 agreements, but also on the detailed billing statements dated from January 2004 through August 2004. (citations omitted)

(Mike Frisch)

April 3, 2009 in Economics | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 31, 2009

Contract Language Controls Fee Dispute

In a dispute between lawyers over a $1.9 million award of attorneys' fees in a medical malpractice action, the New York Court of Appeals held that an attorney who had brought in co-counsel to try the case was entitled as a matter of contract to the agreed upon one-third of the entire fee.

Attorney Simal contacted attorney Samuel to serve as trial counsel. They agreed that Simal would get "one-third of the entire legal fee." The client was notified of the arrangement in writing and consented to the agreement. Samuel brought in another attorney to assist in the trial. After three weeks of trial, the matter settled for $6.7 million, resulting in a statutory attorneys' fee of over $800,000.

The two trial counsel moved for an enhanced fee and were awarded $1.9 million. Samuel then sent Simal a check for 1/3 of the fee his firm had received but nothing from the fee award to the firm of the second trial counsel. Simel rejected the amount, demanding one-third of the entire fee. Samuel then sought a declaratory judgment that Simal had violated fee-sharing ethics rules and should get nothing.

The Appellate Division concluded that Simal had complied with ethics rules (the court here agrees) but should only get paid from Samuel's share. The court here concludes that the lower court erred in disregarding the express language of the agreement between Simal and Samuel: "...it is of no moment that Simal did not contribute to that part of the work that resulted in the award of the enhanced fee. In the realm of fee-sharind disputes, 'courts will not inquire into the precise worth of the services performed by the parties.' " The court also noted that Samuel should not be heard to complain about the ethics of an agreement to which he had freely accepted. (Mike Frisch)

March 31, 2009 in Economics | Permalink | Comments (0) | TrackBack (0)

Monday, March 30, 2009

Credit Or Debit?

The Legal Ethics Committee of the District of Columbia Bar opines as follows:

A lawyer may accept credit cards from a client for payment of fees, including unearned fees (commonly referred to as a retainer or advance fees), so long as the lawyer ensures that she complies with applicable District of Columbia Rules of Professional Conduct, including ensuring that she does not enter into a merchant agreement with the credit card company that violates the Rules.

The committee notes the issues presented where the fees are paid in advance:

Before accepting credit cards for an advance fee, the lawyer must have a complete and detailed understanding of the agreement imposed on her by credit card companies. In many cases it may prove impossible for the lawyer to deposit advance fees paid by credit card into trust accounts and adhere to the terms of the agreement. Funds in trust accounts belong to the clients, not to the lawyer. As such, they cannot be attached by the lawyer’s creditors. But because many credit card agreements permit the credit card company to invade the merchant’s bank account and charge back monies already paid the merchant if the customer disputes a bill, there is a danger that funds deposited in a lawyer’s trust account might be “clawed back.” Under some circumstances this could result in a situation where there are insufficient funds in the account. 

For example, suppose a lawyer deposits an advance fee of $50,000 into her trust account and, as the fee is earned, transfers $40,000 to her operating account. If the client lodges a protest with the credit card company challenging the lawyer’s right to payment, the credit card company, under its standard merchant agreement, might invade the lawyer’s trust account, and claw back the entire $50,000, pending resolution of the dispute. This would mean that the lawyer had insufficient funds in her account to cover her obligations to other clients whose funds she is holding. In some circumstances, it could even result in the account being overdrawn.

Because the Committee does not and cannot know the details of all contractual arrangements between lawyers and credit card companies, we cannot conclude that credit cards can never be used to pay advance fees into trust accounts. But if a credit card is used in this fashion, the lawyers must ensure that under no circumstances can the credit card company invade her trust account. If that possibility exists, a credit card may not be used. Moreover, the lawyer must understand all the provisions of her agreement with the credit card company to ensure that entrusted client funds are safe and secure. Absent that assurance, a credit card may not be used to advance entrusted funds.

(Mike Frisch)

March 30, 2009 in Economics | Permalink | Comments (1) | TrackBack (0)

Friday, March 27, 2009

Uncovered

An insurance company is not obligated to defend claims brought against a law firm that do not involve allegations of negligence or malpractice, according to a decision of the New York Appellate Division for the Second Judicial Department:

Here, Liberty established its prima facie entitlement to judgment as a matter of law declaring that it was not obligated to defend and indemnify the Burkhart Firm in the underlying action, and the Burkhart Firm failed to raise a triable issue of fact in opposition. The basic coverage provision of the Liberty policy clearly limits coverage to claims which are caused by "any actual or alleged act, error, omission or personal injury which arises out of the rendering or failure to render professional legal services." Inasmuch as there is no allegation of negligence or malpractice arising out of the Burkhart Firm's performance, or failure to perform, legal services, the claim in the underlying action does not fall within the ambit of the policy. For the same reason, the Supreme Court properly denied that branch of the Burkhart Firm's cross motion which was for summary judgment.

The allegations against the firm are summarized in the court's order:

In the underlying complaint, Financial Advisors Legal Association, Inc. (hereinafter FA Legal), asserted claims for relief against the Burkhart Firm for "wanton, willful and malicious" breach of fiduciary duty for misappropriating FA Legal's confidential information and trade secrets; tortious interference with contract for using this information to attempt to convert FA Legal's members and prospective members to a newly- formed competing business entity; and for "wanton, willful and malicious" misappropriation of trade secrets.

(Mike Frisch)

March 27, 2009 in Economics | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 25, 2009

Reasonableness Remand

The New Jersey Appellate Division remanded a matter for a proper determination of whether the fees awardrd to class action counsel were reasonable. The underlying class claims had been brought by doctors who had rendered services to patient-members of  the defendant health care plan alleging harm from unfair trade practices. The trial court had awarded $6.5 million in attorneys fees. (Mike Frisch)

March 25, 2009 in Economics | Permalink | Comments (0) | TrackBack (0)

Thursday, March 19, 2009

Who Pays?

A case decided today by the Massachusetts Supreme Judicial Court holds:

It is well settled that an insured is entitled to recover reasonable attorney's fees and expenses incurred in successfully establishing the insurer's duty to defend under the terms of the policy. See Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 98 (1997) (Gamache ). What happens when the party incurring attorney's fees and expenses to establish the insurer's obligation to defend is not the insured but a different insurer that has defended and provided coverage to the insured? That is the question raised in this case. We answer that the exception to the American Rule in Gamache and its progeny does not extend to allow the prevailing insurer recovery of its attorney's fees associated with an action brought to establish the defense and coverage responsibility of another insurer.

The court found that a contrary Maryland decision was not persuasive on public policy grounds.  The case is Callahan & sons, Inc. v. Worcester Insurance Company. (Mike Frisch)

March 19, 2009 in Economics | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 18, 2008

Beetles, Frogs, and Lawyers

Posted by Jeff Lipshaw

Several weeks ago, I was provoked (in a good way) by Usha Rodrigues' reference to Ronald Gilson's 1984 article on how transactional lawyers create value as the "reigning academic account."   I wrote a quick little essay and let it sit until this weekend when Gordon Smith reported on a clever quip from Professor Gilson about lawyers who become professors, and in the classic line:  "I resemble that remark."  I decided to update the little essay a bit and it is now on SSRN as Beetles, Frogs, and Lawyers:  The Scientific Demarcation Problem in the Gilson Theory of Value Creation.  Here's the abstract:

Recently, Ronald Gilson described a transactional lawyer turned law professor as someone who was a beetle, but became an entomologist. This is not the first non-mammalian metaphor used by an economically inclined legal academic to demarcate those who study and those who are studied. As Richard Posner so colorfully explained rational actors as they appear to economists studying them objectively: "it would not be a solecism to speak of a rational frog." In this short essay, I suggest that both say something about the prevailing view of theorizing that is entitled to privileged epistemic status in the legal academy. I assess Professor Gilson's classic 1984 article on value creation by lawyers in terms of its implicit claims to (social) scientific truth.

November 18, 2008 in Abstracts Highlights - Academic Articles on the Legal Profession, Economics, Law & Society, Lipshaw, The Practice | Permalink | Comments (0) | TrackBack (0)

Friday, November 7, 2008

Suing Law Students

A former Rutgers law student was sued for alleged failure to pay off student loans. He in turn filed a pro se third-party complaint against the law firm that had initiated the action for alleged violation of the Federal Fair Debt Collection Practices Act. He contended that the proper venue for the original case was where he resided and that the claim had been brought in the wrong jurisdiction. Summary judgment for the firm was reversed by the New Jersey Appellate Court, which found that the initial suit had been brought in the wrong venue. The matter was remanded with instructions to vacate the grant of summary judgment on behalf of the law firm. (Mike Frisch)

November 7, 2008 in Economics | Permalink | Comments (1) | TrackBack (0)

Wednesday, October 22, 2008

Why Early Voting Is Not A Luxury, But An Ethical Duty for Citizens

Posted by Alan Childress

Voting "the day of" is a scarce resource in many precincts, especially those with long lines and for voters whose jobs or responsibilities make it hard or impossible to wait more than a half hour.  So I regard using early voting as a near necessity in states that offer it, and voting the day of potentially as a wasteful exercise or at least a luxury item.  I will go further and make the claim that those who can vote early have a citizen's ethical responsibility to do so, at least in areas at serious risk of having long waits or administrative disruptions that prevent others in good faith from voting.

I don't think that is a Versus issue (democrat: republican, conservative: liberal).  It is a citizen's thing, in a democracy that holds its elections on workdays and cannot equally ensure short lines.  Give Louisiana (yes, Louisiana!) some credit on this front: we have Saturday elections for the local races except when coupled to a mandatory federal date.  That is another one of Huey Long's gifts that keep on giving.  Since states are unable (or unwilling) to give everyone the same feasible wait times, and even in the best of circumstances Muurphy's Lwa may kick in or machines can malfunction -- witness Homer Simpson's efforts to vote this year for a President -- every precinct is at risk of essentially turning away intended voters.  Some predictably more than others, which is where I think the ethical duty lies to vote early if possible.

I came to this conclusion in response to U Miami's Professor Michael Froomkin's interesting musings on his blog as to whether to vote early in Miami.  To me, especially for him in Florida, it is a no-brainer.  I get his point:  he waxes nostalgic about the collective emotional feel of participation that he has long felt the day of elections, walking to his polling place (and makes a nice aside about the fact that it is a Catholic church) and waiting his turn.  He writes, "I’ve never voted early — there’s something about the democratic ritual of the polls, plus the convenience of the local site, only a few blocks from home, that makes it very appealing."  I hope he will develop a new fond memory with the early voting process. 

I actually share that sense of "day of" excitement and do not belittle it.  I totally get that and can easily remember my first time too.  I think many of us feel that way.  But nowadays such participation is a luxury that runs the risk of hording a finite resource at the expense of others.  Think of it this way. It feels luxurious because it is a luxury. If you vote the day of, you will be one extra person in a line. Someone less committed to this election than you (or just someone who has a job that allows a short window of voting time) will see that line and walk away.  (I am not talking about minor inconvenience where you just fail to accommodate the tepid voter who has zero patience.) The more all of us can do to make the lines shorter that day, the more that others can vote. Especially in places like Florida, that matters. Until voting officials make it easy for everyone to vote on election day without lines, the opportunity to vote that day is a scarce resource that should not be horded or enjoyed for the luxury that it is (for anyone who can vote early).

If you can vote early and manage the inconvenience of that, why not help out the voter who cannot, and runs this risk of facing a long line the day of while thinking of their kid sitting on the front stoop at school.

October 22, 2008 in Economics | Permalink | Comments (4) | TrackBack (0)

Thursday, October 16, 2008

Understanding the Financial Crisis

[By Bill Henderson, cross-posted on ELS Blog]

Like everyone else, I am struggling to get my head around exactly what happened to produce our current financial crisis.  That is a precondition of anticipating the longer term consequences.  In a single paragraph, this is what (I surmise) happened. 

Sometime during the 1990s, momentum began to build on Wall Street for securitizing home mortgages in new and exotic ways.  Residential real estate seemed like an attractive business because the yields were decent, the historical default rates were low, risk of loss was mitigated by pooling thousands of mortgages (which were, themselves, divided into parts), and the underlying assets (homes) generally went up in value, sometimes by a lot in major metropolitan areas. Institutional investors had an insatiable appetite for these debt instruments, which were graded as safe by all the major rating agencies.  Further, respected companies like AIG wrote insurance on these instruments on the theory that they would never have to pay.  All the risk was supposedly hedged by "credits swaps," which are fancy and unregulated contracts between private parties.  So money gushed in. Because virtually any loan could be sold the next day to Wall Street (who, in turn, could repackage them for a large profits within a short time), banks and other mortgage originators could make money with no risk (zero risk!).   This cycle continued even though the pool of mortgage applicants became weaker and weaker--eventually people with (a) bad credit, (b) no assets, and (c) no job.  This had the predictable effect of driving up the price of real estate to a frothy bubble. 

If we want to get back to good old-fashion, sane capitalism where risk is actually assessed before a lender gives a borrower money (and I do), we need to know what the underlying asset (a home) is really worth. 

Here, the news is not good.  According to this story in the New York Times, the price of real estate could tumble throughout 2009.  Frankly, this is where analogies to the 1930s seem like they have some traction.  When an average person's largest asset turns out to be a terrible investment, they have lost a lot of money in the stock market (any opinions on privatizing Social Security now?), and banks are failing left and right, it has a devastating effect on society's ability to pool risk--all the money ends up in the mattress, so to speak.   No surprise, people like my grandparents who lived through the Great Depression tended to be very cautious and risk averse with money.

Frankly, the issue now is not how to regulate Wall Street--the investment banks are gone.  It is how to unwind this mess.  The larger tragedy here is not the loss of money; it is the loss of trust by ordinary people in basic financial and commercial institutions.  They worked hard and played by the rules. Yet many of their homes will be worth less than what they paid for them, and retirement seems beyond reach.   Unregulated capitalism failed.  Like it or not, government is the only entity that can fill the breach. 

These two stories from This American Life, both 1-hour long audios, are the two best resources I have found on these topics:

October 16, 2008 in Economics | Permalink | Comments (4) | TrackBack (0)

Thursday, October 9, 2008

The Drift Toward Pure Numbers Admissions

[by Bill Henderson, cross-posted to ELS Blog]

Law schools are part of a production function for entry level lawyers.  Therefore, if law schools alter their admissions practices, the character and complexion of the law school applicant pool can shift in significant ways.  On the input side, the data are crystal clear: over the last 15 years, the rankings arms race has pushed U.S. law schools toward a pure numbers approach to admissions.   The more interesting question, however, is whether prestige-conscious law firms are now, inadvertently, experiencing any fallout.   First the data.

Law schools operate in an environment of supply and demand and are famously counter-cyclical.  When Silicon Valley was booming in the late 90s, law school applicants plummeted.  When the economy faltered in the early 90s or after 9/11, applicants spiked.  Therefore, to examine how admissions practices have changed over time, it is important to pay attention to the underlying applicant pool.  Below are trend lines for median LSAT scores by USNWR rank for 1994 and 2007, which reflect classes that entered in the fall of 1993 and 2006 respectively.  During those two admissions cycles, the number of applicants was virtually identical:  89,600 (class entering fall 1993) and 88,700 (class entering fall 2006).

Lsat_9407_2

Obviously the blue line (2007) is higher than the orange line (1994).  In fact, despite slightly fewer law school applicants, the average median LSAT increased by 2.18 points (std. dev. of 1.99). For the record, only three schools fell out of Tier 1 between 1994 and 2007.  And it cannot be explained by the ABA policy shift that instructs law schools to no longer average LSAT scores when reporting 25th, 50th, and 75th percentile figures, thus slightly pumping up the volume of high LSAT scores.  That change was not enacted until the summer of 2006

Here is the same analysis for UGPA (1994 data came from the Princeton Review, 2007 from the ABA):

Slide2

Although we might chock some of the higher UPGAs (avg. of +.17, std. dev. of +.12) on grade inflation between 1994 and 2007, it is likely that schools were also trying to maximize this number. More after the jump ... .

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October 9, 2008 in Economics, Law Firms | Permalink | Comments (0) | TrackBack (0)