ProfessorBainbridge.com

Duckhorn Merlot (Napa Valley) 2003

A yummy steak wine. Dark fruit, chocolate, and a dash of oriental spices on the nose and palate. Probably not a wine for the cellar, but a very fine choice right now to accompany a simple grilled steak and fries. Grade: B+

Flying TB Infected Lawyer's Liabilities

CBS News reports:

A tuberculosis patient under the first federal quarantine since 1963 was taken Thursday to National Jewish Medical and Research Center in Denver, which specializes in respiratory disorders, officials said.

CBS News has learned the man with the extreme form of tuberculosis is Andrew Harley Speaker, a 31-year-old lawyer from Atlanta. A medical official in Atlanta also confirmed the name on condition of anonymity. ...

In a phone interview with the Atlanta Constitution-Journal from an Atlanta hospital earlier this week, Speaker explained that he knew he had TB when he flew from Atlanta to Europe in mid-May for his wedding and honeymoon, but that he didn't find out until he was already there that it was an extensively drug-resistant strain considered especially dangerous.

Despite warnings from federal health officials not to board another long flight, he flew home for treatment — fearing he wouldn't survive if he didn't reach the U.S.

I'm curious what liabilities Speaker faces for his decision to fly knowing he was infected with a very dangerous disease.

Did he violate any federal criminal statute by flying, especially after having been warned not to do so? If so, in addition to any potential criminal liability, he may also face tort suits from anyone he infected while on those flights on a negligence per se theory or, in the alternative, using the statutory violation as prima facie evidence of negligence. Such theores have been used successfully in some states in connection with the transmission of venereal diseases.

If there is no statutory violation on which to hang tort liability, would he be liable anyway? In Tort Liability for Infliction of Venereal Disease, 40 A.L.R.4th 1089, we learn that:

Although there are some contrary decisions, the courts have held the actual or alleged communication of a venereal disease to establish or support a tort cause of action on the grounds of assault and battery, fraud, negligence, seduction, and other or unspecified grounds.

Indeed, transmission and infection may not be necessary for liability in some cases. In 59 A.L.R.5th 535, we learn that:

Since the recognition of AIDS as a distinct condition, courts have had to deal with numerous types of claims involving the disease. One type of claim seeks to recover for damages attributable to a fear of contracting HIV or AIDS. Sometimes plaintiffs assert an independent tort claim for negligent or intentional infliction of emotional distress; sometimes plaintiffs identify emotional distress as one type of injury arising from the defendant's other wrongful conduct such as medical malpractice or battery. Claims based on a fear of contracting AIDS have been brought pursuant to common law and under statute—for example, under the Federal Employer's Liability Act (FELA). "AIDS-phobia" claims are still relatively new to the courts, and this area of the law is still developing, resulting in some inconsistency within jurisdictions as to what is required to support recovery.

But what about a non-venereal disease? From 6 A.L.R.5th 162, we learn:

In Plummer v United States (1978, CA3 Pa) 580 F2d 72 (applying Pennsylvania law), Federal Tort Claims Act (28 U.S.C.A. §§ 2671 et seq.) litigation, prisoners impacted by tubercle bacilli were held entitled to damages for mental suffering for their fear of having contracted active tuberculosis or of transmitting it to others in the future.

If prisoners can recover, surely passengers can. Right? Any tort law experts know the answer for sure? (Also, any tort law experts know of a theory on which the airline could be held liable?) Certainly, it seems likely that the exposed passengers are suffering emotional distress:

Laney Wiggins, said she is awaiting her skin test results, expected Friday.  "I'm very nervous," Wiggins told The (Columbia) State newspaper. "It's kind of sad that this is overshadowing the wonderful time we had in Europe."

Who can blame her? Speaker's conduct was selfish, narcissistic, and wholly lacking in regard for others.

Georgia doesn't appear to have a legal ethics under which Speaker could get in trouble. Nothing seems to address "conduct unbecoming" or "conduct that brings the proession into disrepute," at least outside the context of representation of a client. OTOH, if Speaker is convicted of any felony or "a misdemeanor involving moral turpitude where the underlying conduct relates to the lawyer's fitness to practice law," he could be disbarred on those grounds.

Toward Common Sense and Common Ground?: Remarks from Vice Chancellor Strine

From the Harvard Governance Blog:

The Law School’s Program on Corporate Governance has recently issued a discussion paper by Vice Chancellor Leo Strine, Toward Common Sense and Common Ground? Reflections on the Shared Interests of Managers and Labor in a More Rational System of Corporate Governance.  The paper presents the Vice Chancellor’s recent remarks at the Spring Banquet for the Journal of Corporation Law at the University of Iowa College of Law.  The Abstract is as follows:

In this essay, Vice Chancellor Strine reflects on the common interests of those who manage and those who labor for American corporations.  The first part of the essay examines aspects of the current corporate governance and economic environment that are putting management and labor under pressure.  The concluding section of the essay identifies possible corporate governance initiatives that might--by better focusing stockholder activism in particular and corporate governance more generally on long-term, rather than short-term, corporate performance--generate a more rational system of accountability, that focuses on the durable creation by corporations of wealth through fundamentally sound, long-term business plans.

The full essay is available for download here.  The essay will be appearing in the Journal of Corporation Law with responses by a number of prominent commentators.  In a subsequent post, Guest Contributor Hillary Sale will offer some background on that issue of the Journal and the responses to the Vice Chancellor’s remarks.

I guess I count as a "prominent" commentator, because I was asked to provide comments for the Journal. My contribution is up on SSRN as The Shared Interests of Managers and Labor in Corporate Governance: A Comment on Strine:

Abstract: In his essay, Toward Common Sense and Common Ground?, Delaware Vice Chancellor Leo Strine seeks to identify common concerns of corporate management, labor, and shareholders. In so doing, Strine endorses a vision of the corporation as "a social institution that, albeit having the ultimate goal of producing profits for stockholders, also durably serves and exemplifies other societal values." Accordingly, he directs our attention to the prospects of creating "a corporate governance structure that better fosters [the corporation's stakeholders'] mutual interest in sustainable economic growth."

There is much that is admirable in Strine's analysis of what ails corporate governance and his proposals for reform, as well as much that is debatable. In this brief comment, I identify three aspects of Strine's analysis that strike me as underdeveloped. First, what do we mean when we call the corporation "a social institution"? Second, do managers and laborers really have common interests threatened by shareholders? Finally, even if Strine's search for common ground is a worthwhile project, is corporate law and governance the appropriate arena in which to find it? Taken together, these issues raise serious questions about the viability of Strine's project.

Keywords: corporation, corporate governance, management, labor, shareholders

JEL Classifications: K22

Reality versus Fantasy: What Effect Would Holosex Have on Population?

Here are PB.com, we don't bog about sex much, but the sci fi geek in me can't help commenting on Jane Galt's criticism of Naomi Wolf:

Naomi Wolf continues giving feminism a bad name by confusing offhand conversations with data:

The onslaught of porn is responsible for deadening male libido in relation to real women, and leading men to see fewer and fewer women as “porn-worthy.” Far from having to fend off porn-crazed young men, young women are worrying that as mere flesh and blood, they can scarcely get, let alone hold, their attention.

Here is what young women tell me on college campuses when the subject comes up: They can’t compete, and they know it. For how can a real woman—with pores and her own breasts and even sexual needs of her own (let alone with speech that goes beyond “More, more, you big stud!”)—possibly compete with a cybervision of perfection, downloadable and extinguishable at will, who comes, so to speak, utterly submissive and tailored to the consumer’s least specification?

I would venture to say that all of us have, from time to time, been a little disappointed when comparing our fantasy partners--whether they be from film, television, or novel--with what is actually available in the real world. Why, those people don't always have something snappy and/or wise to say. They generally have fat in at least a few unsightly spots. Their clothes don't send a coherent statement carefully managed by the wardrobe people. Sometimes they don't pay attention to you, and worse, sometimes you don't really feel like paying attention to them. Few of them can fell an army of rogue ninjas with a series of well-placed kicks. And most annoying of all, you have no idea how it's all going to end.

But I can't say that this has ever stopped me, or anyone I know who is not actually mentally ill, from dating. ... This indicates that actual women have benefits that pornography can't offer, just as actual men are in most ways preferable to Rhett Butler. Online pornography has been pretty freely available for ten years now, and yet marriage and dating still seem to be pretty much de rigeur for most of the country. ...

I have no dog in that argument. Instead, I want to use it a springboard for mentioning an interesting hypothesis I ran across a while back while browsing SF Site.com (on my off time, of course, and definitely not at work):

... actions have consequences, and I think we need to consider the consequences of sex with holograms. Who could resist the temptation? And yet, not to put too fine a point on it, what is going to happen to the human race? Who will risk the ups and downs of a real relationship when they can be in complete control and act out their every fantasy on the holodeck? Also, sex isn't the only thing you can use the holodeck for. You want children? I bet holo-children are a lot better behaved than real children. Computer, delete dirty diapers. Once you accept holo-sex, you open the door to a lot of other holo-options.

Maybe this explains why the Federation is so peaceful, rich, and uncrowded. I've never seen a slum on a Federation planet. Maybe all the work is done by holo-slaves, who don't eat or sleep, and the entire real human population has decreased to just a few million, as fewer and fewer people have children. That would explain all those empty parklands we see on the future Earth. Instead of overpopulation, we have underpopulation. It also explains why, in seven years, only one child has been born aboard Voyager.

Almost every negative Megan mentions about real partners would not exist in a holodeck partner:

• "something snappy and/or wise to say" - so write a program with Churchillian wit
• "They generally have fat in at least a few unsightly spots" -- Lara Croft doesn't and I bet Minuet didn't either
• "Their clothes don't send a coherent statement carefully managed by the wardrobe people" -- Minuet's did
• "Sometimes they don't pay attention to you, and worse, sometimes you don't really feel like paying attention to them." You can always turn off a holodeck (unless you've created another Moriarty)
• "Few of them can fell an army of rogue ninjas with a series of well-placed kicks" -- Worf's holodeck opponents could. So turn one to, shall we say, peaceful pursuits.
• "And most annoying of all, you have no idea how it's all going to end." Sure you do, you wrote the holodeck program.

Megan is undoubtedly correct that "actual women have benefits that pornography can't offer, just as actual men are in most ways preferable to Rhett Butler," but is that merely conditional on our current state of technology?

We now return you to your usual non-salacious programming.

Ted Frank on Stoneridge v. Scientific-Atlanta

In the W$J, Ted explains why this securities fraud case pending before the US Supreme Court is of momentous import:

Treasury Secretary Henry Paulson called securities litigation the "Achilles heel for our economy," endangering the global competitiveness of American financial markets. Last January a report released by Sen. Charles Schumer (D., N.Y.) and New York City's Republican Mayor Michael Bloomberg concluded that investors were being driven away from American shores because "the highly complex and fragmented nature of our legal system has led to a perception that penalties are arbitrary and unfair."

The proposed solution to the legal mess offered by the so-called Paulson Committee Report was modest enough: "Greater clarity for private litigation." Yet even this small step could suffer a big setback. The plaintiffs' bar is heavily lobbying the SEC to intervene in a pending Supreme Court case, Stoneridge v. Scientific-Atlanta, on the side of a gigantic expansion of private litigation.

The case's facts are straightforward: Charter Communications purchased set-top cable boxes but got back some of the money in the form of advertising bought by the vendors. Charter executives recorded the outgoing money as a "capital expenditure" (to be depreciated over several years) but the incoming money as revenue recorded within a single year, thus falsely inflating operating cash flow. Three Charter executives went to prison over the shenanigans. Plaintiffs' attorneys sued Charter and the executives, of course, but named as codefendants two of the vendors, Motorola and Scientific-Atlanta.

The suit makes little sense. The vendors had no say in how Charter accounted for or reported its transactions. Worse is the precedent it represents: How can a business function if it is potentially liable for hundreds of millions because those whom they trade with misreport a day-to-day transaction? The Supreme Court stopped such private "secondary liability" suits in Central Bank v. First Interstate Bank, a 1994 decision that Congress ratified the next year, explicitly rejecting private suits for "aiding and abetting" in the Private Securities Litigation Reform Act (repeating the rejection in the 2002 Sarbanes-Oxley Act.)

A federal court in Missouri dismissed the case against the equipment vendors and the Eighth Circuit Court of Appeals affirmed that decision: Such liability would, the court said, create far-reaching "uncertainties for those engaged in day-to-day business dealings." Nevertheless, the Supreme Court has agreed to hear an appeal.

... Unfortunately, we cannot be certain why the Supreme Court has taken the case, or if it will do the right thing. While Chief Justice John Roberts and Justice Stephen Breyer have spoken of the need for judicial modesty, both have recused themselves from the case. All the more reason for Treasury and the SEC to stand firm and ask the solicitor general to urge the Supreme Court to keep liability circumscribed. And for Sen. Schumer to explain to his Democratic colleagues why that would be a wise choice -- before they criticize the Bush administration for making the wrong decision.

For additional commentary see Brown versus Ribstein. Predictably, I come down on Larry's side.

But here's a prediction that has nothing to do with the merits. As Gordon Smith observes, the Circuits are split on this issue. The 5th and 8th have come down on the no liability side. The Ninth came down on the side of imposing vendor liability. The SCOTUS doubtless took the case to resolve the split. Given that the SCOTUS seems to take special delight in reversing the 9th Circuit, my guess is that the Court will come down on the no liability side. OTOH, the excusal of Roberts and Breyer (who is usually sensible on securities issues) is somewhat worrisome for the reasons Ted blogged a while back.

Hillary

Senator Clinton affirms that she has "nothing against" rich folks. Presumably, this is especially true of rich folks who give her free private jet travel.

On a more serious note, AP reports:

Presidential hopeful Hillary Rodham Clinton outlined a broad economic vision Tuesday, saying it's time to replace an "on your own" society with one based on shared responsibility and prosperity. ... "I prefer a 'we're all in it together' society," she said. "I believe our government can once again work for all Americans. It can promote the great American tradition of opportunity for all and special privileges for none."

If nobody gets special privileges, does that mean she favors dismantling affirmative action? (That's a rhetorical question, BTW.) More seriously, the trouble with Hillary's "it takes a village" communitarianism is that it reduces an individual's incentives by reducing the return to hard work:

... in the US many high earners had the benefit of a good education. Such an education costs money, but can increase your lifetime earnings. If we assume part of an individual?s objective function is to maximize probability of a successful off-spring, then people will work harder to afford to live in a community that provides good schools and pay university tuition. Ideally, an excellent education should be available to everyone, but the disparities motivate parents to work harder, contributing to a more dynamic economy.  They may also work harder to improve their local schools, in and of itself a good thing, even though it contributes to income inequality. (link)

If wealth redistributive and other leveling policies remove those incentives, we reduce the return to hard work, and in the long run society as a whole suffers.

Or, to reduce the argument to an aphorism:

--"Government does not solve problems; it subsidizes them." Ronald Reagan

Law Firm IPOs

Larry Ribstein's got an article on publicly held law firms in which he addresses some of the common questions the idea raises. But I've still got a couple of questions:

1. The value of a law firm is almost entirely the sum of the huiman capital of its lawyers. If law firms start going public, what effect will there be on lawyer mobility? After all, imagine your firm does a big IPO and the next day your 5 biggest rainmakers move to another firm. What happens to your stock price (can you say plummet?)? Do you get sued for not having adequately disclosed this risk? My guess is that the rise of public law firms would be accompanied by much more extensive use of non-competition agreements, litigation over client lists, and so on. I gather Larry agrees, but is this likely to be attractive to lawyers?
2. Peter Lattman reports that Mike Dillon, the GC of Sun, predicts that "The traditional law-firm model is going the way of the Mastodon." According to Dillon, "law firms serve primarily as aggregators of specialized legal expertise. The premise has been that by combining multiple legal disciplines you can provide “one stop shopping” for current and prospective clients. This structure previously made sense." But, Lattman reports, Dillon believes that the internet has changed things so that:

... a GC “can easily send an email to my network of other in-house attorneys or within professional associations like the ACC and get referrals.” Not to mention all the information available on attorneys via the Web. The result: Dillon and his team can increasingly identify and engage specific legal talent directly.

Dillon cites as an example Sun’s use of Foster & Associates, a five-person boutique, for all its employment-litigation work. Why? “They focus only on employment law, are very good at what they do, understand our business, get excellent results and are very cost effective,” writes Dillon. “They don’t have the overhead of supporting attorneys practicing in other areas.” He adds that Sun recently chose a small number of law firms to support us as “preferred partners” because these firms “get it” and “are receptive to looking at new ways to drive down their (and our) cost structure.”

“My point is that the epoch of the current law firm model - which derives its profitability from growing scale and raising hourly rates - will soon be over,” Dillon writes.

If Dillon's right, what future is there for the large, IPO-funded public law firm?

The Peoples Republic of Chicago

Thom Lambert:

I’ve previously tiraded about paternalism in my beloved Chicago. I won’t beat that dead horse, but I just can’t ignore the latest liberty restriction imposed by our esteemed aldermaniacs. The members of the aldermen’s Buildings Committee recently voted to extend the city’s smoking ban to performers in theatrical productions.

What a freakin’ embarrassment. ...

Theatre critic Terry Teachout had it right in this weekend’s WSJ:

To perform “[A] Streetcar [Named Desire]” without cigarettes, or “Twelve Angry Men” without a smoke-filled jury room, is to insult the intelligence of audiences who come to see these well-known plays expecting to see them performed as written. … Such a ban isn’t unconstitutional — but it’s stupid, which is even worse. It makes Chicago look like a backwoods burg full of philistine pols with nothing better to do than mind other people’s business. … [S]ince when did Carl Sandburg’s City of the Big Shoulders turn into Nannytown, U.S.A.? As for those Chicagoans who don’t care to have their nostrils brutalized by the smell of a lone cigarette burning halfway across a crowded theater, they have an inalienable right of their own — the right to head for the nearest exit. I urge them to exercise it and leave the actors to go about their stage business undisturbed.

Well said.

Back before I moved to Los Angeles, I used to think Chicago would be a cool city in which to live. Now I know better. Chicagoans are now subject to an even worse version of looney left regulation than that practiced in Santa Monica, on top of which the weather sucks. You couldn't pay me enough to move there now.

For my take on Chicago's ever-increasing trend towards paternalism, see The Hog Butcher Blinks. For my take on smoking bans, see Smoke Gets in Your Eyes.

Ridge Dusi Ranch Late Picked Zinfandel (San Luis Obispo) 2003

I'm not a big fan of late-picked Zinfandel, but they do have their uses; in this case, standing up to slightly sweet, slightly spicy, smoky BBQ ribs. With a dollop of residual sugar, lots of alcohol, and plenty of forward berry fruit, the wine had more than enough stuffing to compete for your attention against the BBQ sauce. Better yet, it exhibited none of the slightly sour, off flavors that marred late picked Ridge zinfandels in recent years. Commendable, if not likely to become a regular tipple. Grade: B/B+

Are CEOs Underpaid

From the U Chicago Law Faculty blog:

Todd Henderson's a provocative guy. On Wednsday, May 9, 2007, he delivered the talk on "CEOs are Underpaid." As he said, he may not have convinced the audience that CEOs are underpaid, but he was pretty convincing in explaining that they seem to be efficiently paid and not overpaid. You're going to have to listen to hear for yourself.

Short Takes

• For the second year in a row, the commie pinkos who run Google are ignoring Memorial Day
• Like most bullies, Rosie O'Donnell turns out to be a coward
• Larry Ribstein notes the increasing likelihood of SEC v Delaware fights, while bopping b�te noire Gretchen Morgenson
• DUI and cocaine possession "no big deal" if you're Lindsay Lohan (which is probably true both in the sense that she'll probably get a slap on the wrist and that it comes as no surprise)
• However far one may think Andrew Sullivan has drifted towards the left these last few years, at least he's still to the right of Michael Moore
• How to get published in a law review

Equal Rights or Unequal Privileges

From the BBC:

A gay pub in the city of Melbourne has won the right to ban heterosexuals - the first time such legislation has been passed in Australia. The Victorian state civil and administrative tribunal ruled the Peel Hotel could ban patrons based on their sexual orientation. ... Civil liberties groups have supported the decision.

How much do you want to bet that an all-men's club would not be allowed by the panel to exclude women? Or, if the panel allowed it, that "civil liberties groups" would support that decision? In an Orewllian twist, civil liberties no longer means equal rights for all, but rather privileges for a few.

Using Insider Trading Prosecutions for Political Cover

Via Peter Lattman:

A big Bloomberg story puts Chris Cox on the hot seat, raising the issue of whether the SEC chairman is favoring corporations at the expense of investors. ... Said one investor-protection advocate: “There are certain actions they have taken that strongly suggest the SEC is using its authority to scale back litigation and enforcement . . . Cox appears to be very sympathetic to the concerns of corporate defendants.'’

Cox disagrees, saying his agency has “absolutely'’ put shareholders first in regulating financial markets and securities firms. On May 10, he told reporters: “We are relentless advocates for investors . . . Every day we come to work, that’s our priority.'’ His defenders also point out his stepped-up efforts in the area of insider trading.

Personally, I think the balance did need to shift back towards companies and away from the trial lawyers, but that's neither here nor there. Instead, I was struck by the reference to stepped-up insider trading enforcement. If the SEC is taking a deregulatory tack towards corporations under Cox, this would not be the first time that the Commission used increased insider trading enforcement activity to get political cover. As I explained in Insider Trading Regulation: The Path Dependent Choice between Property Rights and Securities Fraud, 52 SMU SMU Law Review 1589 (1999):

During the 1980s, the Commission embarked upon a limited program of deregulating the securities markets. Among other things, it adopted a safe harbor for projections and other soft data, the shelf registration rule, and the integrated disclosure system, as well as expanded the exemptions from registration under the Securities Act. The deregulatory trend motivated one long-time critic of the SEC to compliment the Commission for being 'well on the road toward a sensible disclosure system with much of the dead wood, idiosyncrasies, overregulation, and overdrafting eliminated.' At about the same time, however, the SEC adopted a vigorous enforcement campaign against insider trading. Not only did the number of cases increase substantially, but also the Commission adopted a 'big bang' approach under which it focused on high visibility cases that would produce substantial publicity. In part, this may have been due to an increase in the frequency of insider trading, but one suspects the Commission's renewed interest in insider trading was motivated in large measure by a desire to preserve its budget during an era of deregulation and spending restraint.

Insider trading defendants can thus rest assured that their suffering is for the greater good of protecting the SEC's budget while Corporate America is protected from the trial lawyers.

Competitive Advantages for Small Business Owners

In a post on whether speed offers competitive advantages, The BusinessPundit addressed such questions as:

If a small business owner wanted to start getting faster, what questions could she ask herself to get started down that path?

Personally, I would advise such an owner to ask him/herself "what does Sarbanes-Oxley mean to me?" The answer may be found, of course, in The Complete Guide to Sarbanes-Oxley.

Are Happy Employees More Productive?

In my article Private ly Ordered Participatory Management: An Organizational Failures Analysis, I reviewed evidence that employee "happiness" does not result in higher productivity, despite the arguments to the contrary advanced by HR consultants and left-leaning academics. The BusinessPundit apparently agrees:

Awhile back I wrote about whether or not happy employees mean better business. It's a wonderful story to tell ourselves, but it doesn't hold up under research. Now, a new look at the issue is going so far as to say there is no performance- happiness or happiness-performance causation. Instead, the two are actually correlated.

Job satisfaction has traditionally been thought of by most business managers to be key in determining job performance. The prevailing thought is if you are satisfied and happy in your work, you will perform better than someone who isn't happy at work.

Not so, according to a research project by Nathan Bowling, Ph.D., an assistant professor of psychology at Wright State. His findings, which will be published soon in the Journal of Vocational Behavior, show that although satisfaction and performance are related to each other, satisfaction does not cause performance.

"My study shows that a cause and effect relationship does not exist between job satisfaction and performance. Instead, the two are related because both satisfaction and performance are the result of employee personality characteristics, such as self- esteem, emotional stability, extroversion and conscientiousness," he explained.

I'm a skeptic when it comes to measuring *personality* because I don't think modern neuroscience supports the idea of a stable personality very well. As a result, my initial reaction is to take this research with a grain of salt.

In contrast, I think Bowling's probably right. In my article, I pointed to "findings that the success of a participatory management program largely depends on the personality of workers and managers. Workers with weak desires for independence are unaffected by employee involvement, while those with strong independence drives get increased job satisfaction from it. Based on the various studies recounted above, both types of workers appear to be present in the American workplace. Whether the taste for participation or for hierarchy is more common is hard to say from the evidence to date, but at the very least the 'checkered history of job enrichment efforts has taught us not to assume that everyone wants more autonomy, challenge, and responsibility at work.'"