ProfessorBainbridge.com

Yahoo Mock Draft # 1

10 team, standard scoring, snake draft, in which I drafted 5th (odd) and 6th (even). Round 1 started off odd, but it turned out that cubs964 must have been practicing for a PPR league:

Round 1

(1) cubs964 - Larry Fitzgerald (Ari - WR) [PB.: Huh?]

(2) rampage912 - Adrian Peterson (Min - RB) 

(3) dasrcastic1 - Michael Turner (Atl - RB) 

(4) Pops - Maurice Jones-Drew (Jac - RB) 

(5) Prof B - Matt Forte (Chi - RB) 

(6) Josh - DeAngelo Williams (Car - RB) [PB: Too early]

(7) beardown916 - Brian Westbrook (Phi - RB) 

(8) camjg - LaDainian Tomlinson (SD - RB) 

(9) jhawk2002 - Andre Johnson (Hou - WR) 

(10) Big G - Steven Jackson (StL - RB) [PB: Steal city.]

Round 2

(1) Big G - Frank Gore (SF - RB) 

(2) jhawk2002 - Randy Moss (NE - WR) 

(3) camjg - Brandon Jacobs (NYG - RB) 

(4) beardown916 - Chris Johnson (Ten - RB) 

(5) Josh - Clinton Portis (Was - RB) 

(6) Prof B - Steve Smith (Car - WR) 

(7) Pops - Steve Slaton (Hou - RB) 

(8) dasrcastic1 - Calvin Johnson (Det - WR) 

(9) rampage912 - Drew Brees (NO - QB) 

(10) cubs964 - Greg Jennings (GB - WR) 

Round 3 

(1) cubs964 - Anquan Boldin (Ari - WR)

(2) rampage912 - Reggie Wayne (Ind - WR) 

(3) dasrcastic1 - Roddy White (Atl - WR) 

(4) Pops - Peyton Manning (Ind - QB) 

(5) Prof B - Marques Colston (NO - WR) 

(6) Josh - Tom Brady (NE - QB) 

(7) beardown916 - Aaron Rodgers (GB - QB) 

(8) camjg - Dwayne Bowe (KC - WR) 

(9) jhawk2002 - Terrell Owens (Buf - WR)

(10) Big G - Tony Romo (Dal - QB) 

Round 4 

(1) Big G - Brandon Marshall (Den - WR) 

(2) jhawk2002 - Kurt Warner (Ari - QB) 

(3) camjg - Philip Rivers (SD - QB) 

(4) beardown916 - Roy Williams (Dal - WR) 

(5) Josh - Jason Witten (Dal - TE) 

(6) Prof B - Marion Barber (Dal - RB) 

(7) Pops - Wes Welker (NE - WR) 

(8) dasrcastic1 - Antonio Gates (SD - TE) 

(9) rampage912 - T.J. Houshmandzadeh (Sea - WR) 

(10) cubs964 - Thomas Jones (NYJ - RB) 

Second-guessing: I've got 2 potentially elite RBs and 2 potentially elite WRs. But did I make a mistake by taking Steve Smith when Calvin Johnson was still on the board? Or by going for Colston instead of Brady? 

Round 5 

(1) cubs964 - Tony Gonzalez (Atl - TE)

(2) rampage912 - Ronnie Brown (Mia - RB) 

(3) dasrcastic1 - Vincent Jackson (SD - WR) 

(4) Pops - Antonio Bryant (TB - WR) 

(5) Prof B - Hines Ward (Pit - WR) 

(6) Josh - Braylon Edwards (Cle - WR)

(7) beardown916 - Marshawn Lynch (Buf - RB) 

(8) camjg - Chad Ochocinco (Cin - WR) 

(9) jhawk2002 - Dallas Clark (Ind - TE) 

(10) Big G - Santana Moss (Was - WR) 

Round 6

(1) Big G - Santonio Holmes (Pit - WR) 

(2) jhawk2002 - Ryan Grant (GB - RB) 

(3) camjg - Lee Evans (Buf - WR) 

(4) beardown916 - Lance Moore (NO - WR) 

(5) Josh - Pierre Thomas (NO - RB) 

(6) Prof B - Kevin Smith (Det - RB) 

(7) Pops - Eddie Royal (Den - WR) 

(8) dasrcastic1 - Matt Schaub (Hou - QB) 

(9) rampage912 - Jonathan Stewart (Car - RB) 

(10) cubs964 - Eli Manning (NYG - QB) 

No second-guessing: This is a 3 WR league and I now have 3 very good WRs. Getting Kevin Smith in Round 6 strikes me as a real steal. He could end up starting. 

After this my draft went:

7. Jay Cutler (Chi - QB) 

8. DeSean Jackson (Phi - WR) 

9. Visanthe Shiancoe (Min - TE) [PB: I think people are on to the guy I thought would be a sleeper]

10. Felix Jones (Dal - RB) [PB: Good handcuff]

11. Steve Breaston (Ari - WR) [PB: If they deal Boldin, he'll be a steal here]

12. Philadelphia (Phi - DEF) 

13. Kyle Orton (Den - QB) [PB: It amused me to have the Cutler-Orton pair as my QBs]

14. John Kasay (Car - K) 

15. Hakeem Nicks (NYG - WR)

Erna Schein Sainte Fumèe (Napa Valley) 2007

This blend of Syrah (70%), Mourvèdre (10%), Petite Sirah (10%), and Petit Verdot (10%), comes in a funky squat bottle with an amusing label that reminded me of Rosie the Riveter about to grill a steak. At two years of age, the wine is a very deep purple in color with powerful legs. Intense, forward dark fruits dominate both the nose and the palate. Cassis, blackberry, and blueberry, with a hint of something slightly sour are the principal flavor associations. It does not strike me as a vin de garde. Instead, drink it up over the next couple of years with grilled steak or, as we did tonight, with steak au poivre et pommes frites. Grade: B++

Mark Cuban Wins a Big Round Against SEC Insider Trading Rap

Last year, I flagged the SEC insider trading case against Mark Cuban:

The Securities and Exchange Commission today charged Dallas entrepreneur Mark Cuban with insider trading for selling 600,000 shares of the stock of an Internet search engine company on the basis of material, non-public information concerning an impending stock offering.
The SEC today announced that:

The Commission's complaint, filed in the U.S. District Court for the Northern District of Texas, alleges that in June 2004, Mamma.com Inc. invited Cuban to participate in the stock offering after he agreed to keep the information confidential. The complaint further alleges that Cuban knew that the offering would be conducted at a discount to the prevailing market price and that it would be dilutive to existing shareholders.
Within hours of receiving this information, according to the complaint, Cuban called his broker and instructed him to sell Cuban's entire position in the company. When the offering was publicly announced, Mamma.com's stock price opened at $11.89, down $1.215 or 9.3 percent from the prior day's closing price of $13.105. According to the complaint, Cuban avoided losses in excess of $750,000 by selling his stock prior to the public announcement of the offering.

You can read the complaint here.

In doing so, I opined that:

My review of the complaint suggests that the SEC has a pretty weak case, even assuming they can prove out the facts alleged, in large part because they'll need to find a court willing to give the rules a liberal construction on one key point.

The court has now ruled. The opinion is available here.

US District Court Chief Judge Sidney Fitzwater was unwilling to give the SEC the liberal construction it needed:

The dispositive question presented by defendant Mark Cuban’s (“Cuban’s”) motion to dismiss is whether plaintiff Securities and Exchange Commission (“SEC”) has adequately alleged that Cuban undertook a duty of non-use of information required to establish liability under the misappropriation theory of insider trading. Concluding that it has not, the court grants Cuban’s motion to dismiss, but it also allows the SEC to replead.

Let me set up the background. Cuban was charged with insider trading pursuant to Section 10(b) and Rule 10b-5. Specifically, he was charged with misappropriating information from mamma.com. The misappropriation theory of insider trading liability is a recognzed basis for liability, under which the defendant need not owe a fiduciary duty to the investor with whom he trades. Likewise, he need not owe a fiduciary duty to the issuer of the securities that were traded. Instead, the misappropriation theory applies when the inside trader violates a fiduciary duty owed to the source of the information. As eventually refined, the misappropriation theory imposed liability on persons who (1) misappropriated material nonpublic information (2) thereby breaching a fiduciary duty or a duty arising out of a similar relationship of trust and confidence and (3) used that information in securities transaction, regardless of whether they owed any duties to the shareholders of the company in whose stock they traded.

The SEC will claim that the Mamma.com CEO was the source of the information and that Cuban owed him a duty of confidentiality arising not out of a traditional fiduciary relationship but rather out of a similar relationship of trust and confidence. The SEC will then rely on Rule 10b5-2, which provides "a nonexclusive list of three situations in which a person has a duty of trust or confidence for purposes of the 'misappropriation' theory...." Crucially, the Rule purports that such a duty exists whenever someone agrees to maintain information in confidence. Rule 10b5-2's imposition of liability whenever someone agrees to maintain information in confidence is inconsistent with the emphasis in Chiarella and its progeny on the need for a duty of disclosure that arises out of a relationship of trust and confidence. Whether the SEC has authority to create a rule imposing misappropriation liability on the basis of an arms-length contractual duty of confidentiality--as opposed to a fiduciary duty-based duty of confidentiality--had not been tested until this case. I have long thought the SEC lacked authority to adopt the rule. (See my book Securities Law: Insider Trading (Turning Point Series).

Alternatively, the SEC might have tried to show that the Mamma.com CEO and Cuban had a pattern or practice of sharing confidences such that the recipient of the information knows or reasonably should know that the speaker expects the recipient to maintain the information's confidentiality. This would also satisfy Rule 10b5-2. In addition, the Chestman case suggested that such a pattern could also give rise to fiduciary relationships, at least among family members.

Turning to the Cuban case, Judge Fitzwater correctly observed that:

Building on Chiarella, the Supreme Court concluded in O’Hagan that, like the classical theory, the misappropriation theory also involves deception within the meaning of § 10(b). O’Hagan teaches that the essence of the misappropriation theory is the trader’s undisclosed use of material, nonpublic information that is the property of the source, in breach of a duty owed to the source to keep the information confidential and not to use it for personal benefit.

I argued in that old blog post that:

Unfortunately for Cuban, there are some cases that suggest a mere contractual obligation of confidentiality suffices [to establish the requisite duty]. See, e.g., SEC v. Talbot, 430 F. Supp.2d 1029 (C.D. Cal. 2006) (holding that absent an express agreement to maintain the confidentiality of information, the mere reposing of confidential information in another does not give rise to the necessary fiduciary duty). I believe these cases were wrongly decided. Chiarella and Dirks clearly require something more than a mere contract. They require a fiduciary relationship. In turn, a fiduciary relationship requires more than just an arms-length contract.... 

Judge Fitzwater did not agree with that view, holding that:

Because under O’Hagan the deception that animates the misappropriation theory involves at its core the undisclosed breach of a duty not to use another’s information for personal benefit, there is no apparent reason why that duty cannot arise by agreement.

Yet, even though he got that wrong (IMHO), he got the next bit of the analysis right:

The agreement, however, must consist of more than an express or implied promise merely to keep information confidential. It must also impose on the party who receives the information the legal duty to refrain from trading on or otherwise using the information for personal gain. With respect to confidential information, nondisclosure6 and non-use are logically distinct. A person who receives material, nonpublic information may in fact preserve the confidentiality of that information while simultaneously using it for his own gain. Indeed, the nature of insider trading is such that one who trades on material, nonpublic information refrains from disclosing that information to the other party to the securities transaction. To do so would compromise his advantageous position.

Outstanding. The use/confidentiality distinction is something my insider trading scholarship has long emphasized, but which all too often courts have ignored. As I explained in my book on insider trading:

Although [the leading Supreme Court precedent in Dirks v. SEC] clearly requires that the recipient of the information in some way agree to keep it confidential, courts have sometimes overlooked that requirement. In SEC v. Lund, for example, Lund and another businessman discussed a proposed joint venture between their respective companies. In those discussions, Lund received confidential information about the other's firm. Lund thereafter bought stock in the other's company. The court determined that by virtue of their close personal and professional relationship, and because of the business context of the discussion, Lund was a constructive insider of the issuer. In doing so, however, the court focused almost solely on the issuer's expectation of confidentiality. It failed to inquire into whether Lund had agreed to keep the information confidential.

Lund is usefully contrasted with Walton v. Morgan Stanley & Co. Morgan Stanley represented a company considering acquiring Olinkraft Corporation in a friendly merger. During exploratory negotiations Olinkraft gave Morgan confidential information. Morgan's client ultimately decided not to pursue the merger, but Morgan allegedly later passed the acquired information to another client planning a tender offer for Olinkraft. In addition, Morgan's arbitrage department made purchases of Olinkraft stock for its own account. The Second Circuit held that Morgan was not a fiduciary of Olinkraft: "Put bluntly, although, according to the complaint, Olinkraft's management placed its confidence in Morgan Stanley not to disclose the information, Morgan owed no duty to observe that confidence." Although Walton was decided under state law, it has been cited approvingly in a number of federal insider trading opinions and is generally regarded as a more accurate statement of the law than Lund. Indeed, a subsequent case from the same district court as Lund essentially acknowledged that it had been wrongly decided:

What the Court seems to be saying in Lund is that anytime a person is given information by an issuer with an expectation of confidentiality or limited use, he becomes an insider of the issuer. But under Dirks, that is not enough; the individual must have expressly or impliedly entered into a fiduciary relationship with the issuer.

Even this statement does not go far enough, however, because it does not acknowledge the additional requirement of an affirmative assumption of the duty of confidentiality.

In contrast, Judge Fitzwater in the Cuban case correctly observed that an agreement could give rise to misappropriation liability only if it includes both a duty of confidentiality and a duty of non-use. 

Judge Fitzwater then went on to determine that, to the extent SEC Rule 10b5-2 purports to permit the imposition of liability solely where there was a duty of confidentiality, the SEC lacked authority to adopt it:

Because Rule 10b5-2(b)(1) attempts to predicate misappropriation theory liability on a mere confidentiality agreement lacking a non-use component, the SEC cannot rely on it to establish Cuban’s liability under the misappropriation theory. To permit liability based on Rule 10b5-2(b)(1) would exceed the SEC’s § 10(b) authority to proscribe conduct that is deceptive. This is because, as the court has explained, under the misappropriation theory of liability, it is the undisclosed use of confidential information for personal benefit, in breach of a duty not to do so, that constitutes the deception.

Because the SEC only pled that Cuban's agreement was one of confidentiality, the complaint had to be dismissed. He allowed them leave to replead, alleging the requisite agreement, but there are no public facts to support a claim that Cuban agreed both to keep the information confidential and to refrain from using it for personal gain.

FYI: I was one of five amici curiae who filed a brief in support of Cuban:

In a brief filed Monday, law professors from Harvard University, Yale University, the University of Chicago, the University of California at Los Angeles and Southern Methodist University argue that the U.S. Securities and Exchange Commission made a legalistic land grab when it sued Cuban for insider trading involving a Canadian company, Mamma.com.

The professors argue that the SEC's case rests on a regulation that is "an invalid exercise of the agency's rule-making authority" and exceeds the scope of case law established by the U.S. Supreme Court. ... 
The law professors who signed Monday's brief are SMU's Alan Bromberg, Harvard's Allen Ferrell, Yale's Jonathan Macey, Chicago's Todd Henderson and UCLA's Stephen Bainbridge. ... 
"In the context of a business relationship, a confidentiality agreement alone is insufficient to create a fiduciary or similar relationship of trust and confidence between the parties," the five professors wrote in their brief, echoing earlier filings by Cuban's team.

The WSJ's Law Blog calls us "five big-wig law professors." Heh.

The Immorality of High Taxes

The top combined federal, state, and local marginal tax rate in NY will hit 57% if the House Democrats health care plan goes through. Even though the effective rate paid by such earners will be somewhat lower, when you add in property, state, and other taxes, the tax burden on high earners is going to increase substantially. Of course, we haven't even dealt with reducing the budget deficit yet.

Well, so what? Why not soak the rich? Besides the fact that it's bad economic policy--in the middle of a recession, we're raising taxes on the segment of the population that produces the most jobs--it's also immoral. Sam Gregg explains:

In his Wealth of Nations, Adam Smith said that taxes were necessary to enable governments to perform three essential functions. One was national defense. Another was public security and the administration of justice. The third was public infrastructure needs, though Smith envisaged that governments could contract much of this to private companies.

Today’s reality, however, is that taxes are raised for purposes that go far beyond these limits. Many politicians, for example, do not even bother to disguise the fact that they regard high taxes as a means for massive wealth-redistribution and financing social engineering. The fact that high taxes destroy incentives for entrepreneurs and businesses to create the wealth that gradually improves everyone’s material well-being — including the poor — appears to escape many politicians’ attention. Likewise high tax rates are often justified by the need to fund government-provided social services that families, charities, private associations, and churches are invariably much better at performing.

Then there are the negative moral effects of high tax rates.

First, high taxes undermine respect for property rights. If the state routinely takes, say, 40 percent of peoples’ incomes, then we should hardly be surprised that some individuals become rather casual in the way they treat others’ private property. Second, the existence of high taxes helps facilitate a culture in which some political parties basically tell people that, in return for their vote, they will effectively transfer large amounts of others’ property to them via taxation. That’s surely a mild form of corruption.

Third, high taxes create what might be called “occasions of sin.” When the state takes such large amounts of people’s income, is it any wonder many are tempted to minimize the law’s effects through tax avoidance or actually break the law through tax evasion?

Lastly, high taxes have a distorting effect on how we think about our investment decisions. They encourage people to put their money into schemes that reduce taxes rather than activities which create more wealth for everyone.

Back in the 1960s, John Chamberlain focused specifically on the morality of progressive taxation:

Time was when the progressive tax would not have been accepted as equitable even by a majority of the poor. Traditional equity required that taxes should be levied proportionately, not progressively. This was in accordance with the belief that’ a man’s property, or his income, was an index of deserving achievement, or of value contributed in the market place to society. True, some men inherited their property or incomes—but that was something to be handled or regulated under laws of inheritance. In any case the erosion of time could be counted on to take care of the inefficient use of inherited fortune—“shirtsleeves to shirt-sleeves in three generations” expressed the common wisdom in this matter of luck in the choice of one’s parents.
Under the proportional theory of tax equity, a rich man would pay more taxes than a poor man, naturally. But every dollar of assessed property value, or of income, or of spending, would be taxed in equal amount, at flat ‘percentage rates. Dollars would be treated equally, no matter who owned them, or spent them. Thus the citizens would be accorded the “equal protection of the laws”—and their “privileges and immunities” would be equal, as provided for in the United States Constitution. Any other way of treating taxation was regarded as discriminatory, or as putting penalties on ability, ambition, and success.
It was Marxian socialism—“From each according to his abilities, to each according to his needs”—which fathered the great attack on proportional tax equity: a “heavy graduated income tax” is a salient feature of the Communist Manifesto of 1848. But the Marxians would have made little headway if non-Marxian economists had not come unwittingly to their support with the theory that “it is not equal to treat unequals equally.” In cases of charity, this is undoubtedly true, but no comprehensive legal system can be reared on a rule which begins by regarding everybody as an exception.

Chamberlain also noted the effect on the political system:

It begins with the politics of “soak the rich.” Soon the definition of “rich” is expanded to include the middle classes. And it all ends with the exaltation of the bureaucrat, who is in charge of spending the spoils. Minorities are inevitably put at the mercy of majorities—and everybody is at the mercy of the politicos, who get first whack at the resources of the state.
Instead of fostering brotherhood, then, the progressive income tax introduces a psychology of depredation into society. Pressure groups everywhere go for their share of the spoils. The arid states want big dams-at the expense, not of willing investors, but of the common people who have chosen to stay in greener, though more densely populated, New Jersey and Connecticut. Everyone has his pet scheme for spending other people’s money, and empires grow in Washington as the politicos cater to the schemers. As money income is taxed away, there is a tremendous competition to get income in terms of social services (untaxed). The state is called upon to provide more money for schools, medical services, pensions, what-not. Producers, who have their own corporate income taxes to worry about, struggle for special tax write-offs; every different productive group, from agriculture to labor, wants exemptions. The result is an intense materialism which is rendered all the more ugly because it puts guns into the hands of any group which thinks it has a chance of transforming a minority into a majority by the mere offer of a trade in votes.

That last line of argument seems an apt prediction of what we'll see as Congress continues trying to fund Obama's social agenda.

I want to use my Apple tablet for Kindling

Reports are that Apple is planning a netbook/tablet computer that would priced around $800:

Is Apple looking to build the best of both words, and combine the two? ... According to CEO Jobs, Apple doesn't know how to build a $500 notebook that wouldn't be a glorified paperweight. Jobs' netbook opposition, however, has led to speculation that if Apple isn't churning out a netbook, then it is likely to spit out a touch-screen tablet -- think a giant iPod Touch -- sometime this year, a theory that would make more sens
But news sites like the China Times contend that an Apple netbook is happening, and it will happen as soon as October of this year. China Times also indicates that a touch-screen tablet is on the way. Wait a second. Does that mean Apple is doing a touch-screen tablet that's also a netbook? That's essentially what China Times is saying.
Leave it to Apple to take two widely popular form-factors, combine them and make them their own hybrid as a touch-screen tablet netbook. Of course, as Apple does with everything, it's changing the rules a little bit. China Times indicates that Apple's touch-screen tablet netbook will measure about 9.7 inches, a departure from the standard 10.1-inch netbook size. Additionally, Apple's netbook, or tablet, or tab-book, or whatever the heck it'll be called, will scrap the traditional clamshell format of netbooks for a tablet format.

This might be the coolest Apple product yet, provided it can run both Mac and iPhone apps. Email would be easier than on the iphone. But the possibilities are even more impressive. Imagine, for example, being able to use the Kindle application on a 9.7 tablet. Who would need a Kindle DX? Tetris could definitely benefit from extra real estate. Ditto Youtube and iPod video.

For serious business trips, I suppose I'd still want to pac my MacBook. For short pleasure trips or even just hanging out around town, however, the netbook would be very cool.

Having it on the market in time for Christmas would be very, very cool.

Smith on Health Care Reform

One reason Tom Smith is one of my favorite bloggers is the way he always pulls his punches:

I expected the House to come up with a really stupid way to finance medical "reform" and they did not disappoint.  ... If health care does pass in anything like the House form, it will be really, really bad.  In addition to my prospects of a comfortable, pain free old age with all the drugs I need to keep those important parts running being much diminished, it will be a budget buster.  The talk of Save Money By Health Care Reform! is utter rubbish that no one believes, cheaper than cheap talk.  Indeed, it would be so bad, I just don't believe our Senate, philandering, ignoble squids though they may be, would do something so irresponsible. I expect the House to behave like rabble and they have done so.  So my cautious hopes lay with the Senate.

Ditto. Go read the whole thing, for a great smackdown of "our young President."

PS: I really liked this comment someone left on his post:

Nonsense. The best 30-year-old minds in the country are working around the clock on this problem. What could go wrong?

Mankiw on Marginal tax rates

Greg Mankiw crunches the numbers:

The Wall Street Journal reports, House Health Bill Slaps 5.4% Tax on Top Earners. The Tax Foundation calculates that adding this surcharge to existing taxes would raise the top tax rate to over 50 percent in 39 states. Click on the link to find out where your state stands in their ranking.

I believe the relevant marginal tax rate is even higher than the Tax Foundation suggests. Their calculations seem to ignore sales taxes, which are significant in many states. Because income earned will eventually be spent and thus subject to sales taxes, sales tax rates need to be combined with income tax rates to find the true tax wedge that distorts the consumption-leisure decision. Once sales taxes are included, a top earner in a typical state would face a marginal tax rate of about 55 percent.

The best trend ever

Mt cousin Hannah Wallace is a food and travel journalist, who occasionally flags items for me. Here's her latest, a blog post by Scott Gold, which describes an item that must be seen to be be believed (He has a picture):

I recently took a long vacation with my family to Portland, Oregon, foremost to celebrate my brother’s college graduation, but perhaps more importantly — we being a family of New Orleanians — to do as much Pacific Northwest eating as we could manage. ...At the diminutive, elegant Le Pigeon, listed nonchalantly among the other appetizers, was this:

Foie gras jelly donut, $16

No way…could it really be? I spoke the words aloud, just to make sure something in my cranium wasn’t all tangled up like an Oliver Sacks patient, causing me to see things that weren’t actually there. ”Foie. Gras. Jelly. Donut,” I said. And then, “Holy shit.” Now, I normally try not to swear in front of my parents, but some things just have to be said. I needed to order it - the decision was made as soon as I saw the words. I wasn’t really even in the mood for it, but when confronted with something so outrageous, all will power is lost. It’s as though the menu had performed the Jedi mind-trick on me: “You will have the foie gras jelly donut.” ”I will have the foie gras jelly donut.” When the server came to take our orders, I pointed at the menu and asked, simply, “Seriously?” ”Oh, yes,” he said. Oh well, I thought. I guess we’re going to do this.

When my appetizer arrived, it was both exactly and absolutely nothing like I’d expected. The fatty liver wasn’t incorporated into the donut — it wasn’t a foie-filled pastry — nor was it some sort of mousse cleverly disguised as chocolate frosting. There was no subtlety about the dish at all, which made it that much more brazen. It was, quite literally, a house made jelly donut topped with a generous lobe of seared foie gras, with yet another lobe of foie on the side. It was fried fat topped with seared fat, plain as can be. ... When I’ve told people about this, once their incredulity subsides, they always ask, “Did you like it?” Well, yes, of course I liked it. Animal fat — particularly of the engorged liver variety — has a way of injecting itself directly into the pleasure centers of your brain, not unlike a marvelous drug. Which is pretty much the reaction I had after consuming the thing, an intense wave of pleasure followed not long thereafter by a sudden crash, and feelings of embarrassment and guilt. As I sat there, dazed and sweating, I felt hung-over, bordering on ashamed. ”Dear Lord,” I whispered, “what have I done to myself? I still have an entree coming! Will I survive?”

Which is not to say that it wasn’t a uniquely wonderful experience. Le Pigeon’s executive chef, Gabriel Rucker — a 2007 Food and Wine Best New Chef — clearly knew what he was doing. He’s become part of a new breed of cook, the kind that brashly gives the middle finger salute to all conventional wisdom regarding food, health and nutrition. ... This trend is obviously a backlash, a thumbing of collective noses against years of picky eaters, sauce-on-siders, vegans and other dietary malcontents so frequently bemoaned by fine-dining chefs, as well as a celebration of that delightful category of ingredients that will likely send you — both literally and figuratively — to heaven. Moderation and good common dietary sense have no place here. Foie gras jelly donuts, on the other hand…

To tell you the truth, I welcome this change.

Me too. Fight the power!

The Mystery that is Volokh

I was struck by this comment to a post by my friend and colleague Eugene Volokh:

[Noting] Prof. Volokh's habit of posting about what, to an outside observer, might seem like random topics on the basis that the arguments contained therein are "unsound in a way that's generally worth exposing." I too have been baffled by what causes Prof. Volokh to take the time to refute something found in a random blog post, blog post comment, or even more obscure source.

Ditto. But those posts are almost always among his most interesting and provocative.

Congress and the auto dealers

No real surprise here:

General Motors may have emerged from bankruptcy-court protection, but its headaches are far from over.

Next up, its dealers. Or should we say its soon-to-be-former dealers.

More than a hundred dealers from that category are to gather on Capitol Hill today, pushing Congress to pass the Automobile Dealer Economic Rights Restoration Act, which was spurred by the plans of GM and Chrysler to close more than a combined 3,300 of their dealers. ...

“All we ask for is to run our business. If we fail, we fail because of our poor business performance. But we refuse to be forcefully closed down,” said Jack Fitzgerald, one of the initiators of the bill and a longtime auto dealer in Maryland. “Letting the market decide is a simple solution to this complex problem and the reason why the bill is getting massive support.”

It will be interesting to see how that argument plays out amid concerns about the federal government’s role in the new GM. An early indication might have come in a House Appropriation Committee vote last week, 60-0, to approve an amendment to the appropriation bill funding the White House and the Treasury Department. That amendment asked for restoration of the dealers’ economic rights prior to GM’s bankruptcy filing. “Even if it were necessary for auto makers to shrink their dealer body to be financially healthier, they need to choose carefully who to close down because tens of thousands jobs will be lost because of that,” says Rep. Roscoe Bartlett, a co-sponsor of the dealers bill in the House.

This is the problem with the government owning new GM--it's 99.99% certain that the government will not let GM make economically rational decisions that negatively impact politically powerful constituencies. Once that dam breaks, moreover, it will be harder and harder to prevent future political interference. If this bill passes, for example, it becomes all the more likely that Congress will interfere with GM plans to shutter factories. Likewise, we can expect Congress to do things like objecting to Bob Lutz's plan to keep importing the Australian-built Pontiac G8, rebadged as a Chevy Caprice. Congress will want jobs in the US, not the USA Australia.

The Dutch Right of Inquiry

The Defining Tension blog posts on "the right of inquiry," which we learn "is a very popular and important avenue for corporate litigation in the Netherlands; the framework as such does not exist in other countries." Certainly, I'm not aware of any US corporate law equivalent. The post by Bastiaan Assink relates that:

The right of inquiry entitles shareholders - and trade unions, as well as some others, including holders of depository receipts - who own either 10% of the outstanding stock or shares with a nominal value of at least Euro 225.000 (or less if provided by the corporation's articles of association), to request the Enterprise Chamber of the Amsterdam Court of Appeal to review the course of action followed by/the affairs of certain legal entities, including corporations. ...

In the so-called 'first phase' of inquiry proceedings, one of the central questions is whether there are 'well founded reasons to doubt the correctness of the course of action followed by the corporation' (section 2:350(1) DCC). If the answer is yes, the court may order an inquiry - after having balanced all the interests involved, including that of the corporation - and appoint one or more investigators. Other important questions are (a) whether the plaintiff is authorized to make the request (typically: does he meet the shareholding threshold?) and (b) whether the plaintiff (i) has informed the management board and supervisory board in writing of his complaints first and (ii) has given the corporation a reasonable period to investigate the complaints and take the necessary measures. The first phase ends when the investigators file their report with the court. This first phase is an independent proceeding: if the plaintiff wants to proceed with the inquiry proceeding, he will have to file a new request, which starts the so-called 'second phase'.

In the second phase of inquiry proceedings, the court determines upon request, based on the investigators' report, whether the corporation has followed an 'obvious incorrect course of action' (section 2:355 DCC). This can be framed as clear mismanagement. Upon request, and if such mismanagement is established, the court can take one or more measures to put an end to this mismanagement. The court can for example nullify decisions taken by organs of the corporation, fire directors, or even order the dissolution of the corporation. The list of possible measures is limited....

... the right of inquiry does not center around liability related questions, as it is not a proceeding primarily designed to establish liability of actors in the corporation for damage suffered by the corporation. If litigants want to initiate liability proceedings, they will have to address a different court in different proceedings. Sometimes inquiry proceedings are used as a stepping stone for liability proceedings, as it may be easier for a plaintiff to make his case in liability proceedings with the investigators' report in hand. Although a determination of mismanagement in inquiry proceedings does not automatically result in director liability, such a determination will generally give a plaintiff in liability proceedings a head-start, as the conduct reviewed by the Enterprise Chamber will typically be more or less the same as the conduct complained of in liability proceedings and the Enterprise Chamber is generally seen as a court specialized in business matters.

I suppose the closest analogy in US law is the provision in Model Business Corporation Act section 8.09(a) for judicial removal of directors, but that provision requires much more serious misconduct than mere mismanagement:

The ... court of the county where a corporation’s principal office (or, if none in this state, its registered office) is located may remove a director of the corporation from office in a proceeding commenced by or in the right of the corporation if the court finds that (1) the director engaged in fraudulent conduct with respect to the corporation or its shareholders, grossly abused the position of director, or intentionally inflicted harm on the corporation; and (2) considering the director’s course of conduct and the inadequacy of other available remedies, removal would be in the best interest of the corporation.

The commentary to that section further indicates that policy disputes and business judgment arguments should be left to the shareholders usual corporate governance powers such as voting and suing for damages. In addition, this provision hardly could be described as "popular" or "important." To the contrary, judicial removal of directors is rare. After all, why should we think that judges (or shareholders, for that matter) are well-positioned to evaluate the merits of board actions? To the contrary, the logic of the business judgment rule is that, as I argued in The Business Judgment Rule as Abstention Doctrine, Justice Jackson famously observed of the Supreme Court: “We are not final because we are infallible, but we are infallible only because we are final.” Neither courts nor boards are infallible, but someone must be final. Otherwise we end up with a never ending process of appellate review. The question then is simply who is better suited to be vested with the mantle of infallibility that comes by virtue of being final—directors or judges?

Corporate directors operate within a pervasive web of accountability mechanisms. A very important set of constraints are provided by a competition in a number of markets. The capital and product markets, the internal and external employment markets, and the market for corporate control all constrain shirking by directors and managers. Granted, only the most naïve would assume that these markets perfectly constrain director decisionmaking. It would be equally naïve, however, to ignore the lack of comparable market constraints on judicial decisionmaking. Market forces work an imperfect Darwinian selection on corporate decisionmakers, but no such forces constrain erring judges. As such, rational shareholders will prefer the risk of director error to that of judicial error. Hence, shareholders will want judges to abstain from reviewing board decisions.

Not all decisions, of course. Self-dealing and the like are appropriately subject to judicial review. Yet, mere allegations of mismanagement would not rise to that level.

Romo Ruminations

Dallas Cowboys QB Tony Romo has now shed both Terrell Owens and Jessica Simpson:

Jessica Simpson and Tony Romo have called it quits, Usmagazine.com has confirmed.

A source close to Simpson confirms they broke up the night before her 29th birthday July 10. She was supposed to celebrate with a Ken and Barbie-themed party. (On Simpson's birthday, Romo spent the night at Los Angeles hot spot My House.)

Don't you think 29 is a little old for a Ken and Barbie-themed birthday? (FYI: I'm required to keep up on this sort of thing as a resident of Hollywood. There's a quiz.)

Anyway, Romo's got no excuses left. He either gets the job done or goes into the "can't win the big one" category.