ProfessorBainbridge.com

"How long before you’ll be asked to give a DNA swab before you can board a plane, work as a lawn contractor, join the football team at your high school, or drive?"

Walter Olsen poses the titular question.

WSJ: "Risk-Averse Culture Infects U.S. Workers, Entrepreneurs" But why?

The WSJ informs us that:

Americans have long taken pride in their willingness to bet it all on a dream. But that risk-taking spirit appears to be fading.

Three long-running trends suggest the U.S. economy has turned soft on risk: Companies add jobs more slowly, even in good times. Investors put less money into new ventures. And, more broadly, Americans start fewer businesses and are less inclined to change jobs or move for new opportunities.

The changes reflect broader, more permanent shifts, including an aging population and the new dominance of large corporations in many industries. 

Personally, I think the trend has other causes. First, the dearth of US citizens pursuing careers in science and engineering. Second, the impact of law and regulation.

In my essay, Corporate Governance and U.S. Capital Market Competitiveness, I discuss how "the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme" adversely affected risk taking in the capital markets. Instead of choosing to go public via an IPO, start ups took the safer route of merging with established companies. This reduced both the cash and psychic rewards to entrepreneurship, which inevitably had a negative impact on the volume of entreprenurial activity.

When you add up the growing costs of regulation and the growing risk of litigation, there's no wonder smaller firms and start ups struggle. Only big firms can achieve the sort of economies of scale that make such costs bearable.

LIBOR case tossed (mostly)

Kevin LaCroix reports that:

On March 29, 2013, in a ruling that she acknowledged some might find to be “unexpected” in light of the substantial regulatory fines and penalties that some of the defendants have paid, Southern District of New York [Judge] Naomi Reice Buchwald granted the defendants’ motions to dismiss the antitrust and RICO claims in the consolidated Libor-based antitrust litigation. Judge Buchwald also dismissed the plaintiffs’ state law claims and some of the plaintiffs’ commodities manipulation claims. However, she denied the defendants’ motions to dismiss at least a portion of the plaintiffs’ commodities manipulation claims. A copy of Judge Buchwald’s massive 161-page opinion can be found here.

As detailed here, the consolidated litigation arises out of allegations that the banks involved with setting the Libor benchmark interest rate conspired to manipulate the benchmark. The plaintiffs – several municipalities, commodities traders and investors, bondholders and the Schwab financial firm, among many others – variously allege that suppression of the Libor benchmark reduced the amount of interest income they earned on various financial instruments. The various cases were consolidated before Judge Buchwald. The defendants moved to dismiss.

In her March 29 Opinion, Judge Buchwald granted the defendants’ motions to dismiss as to all of plaintiffs’ claims, except for a portion of the plaintiffs’ commodities manipulations claims. All of the dismissals were with prejudice, except for her dismissal of plaintiffs’ state law claims, over which she declined to exercise supplemental jurisdiction and therefore she dismissed the state law claims without prejudice.

As LaCroix explains, this probably will not end the litigation over the LIBOR scandal. Going forward, however, the more important question is whether the reforms that are being undertaken will give us confidence in LIBOR in the future. On that issue, see my article Reforming LIBOR: Wheatley versus the Alternatives (January 31, 2013). NYU Journal of Law & Business, Vol. 9, No. 2, 2013. Available at SSRN: http://ssrn.com/abstract=2209970

 

 

The Fourth Amendment versus Wine Fraud

It is said that it is better that a hundred guilty men go free than one innocent man be punished (feel free to substitute whatever number you think the adage specifies). On the other hand, as Justice Benjamin Cardozo famously asked, "should the criminal go free because the constable has blundered?"

I was reminded of this famous dichotomy when I was catching up on some back issues of the Wine Spectator that had somehow slipped through the cracks. In the November 30, 2012 issue, I read that:

Accused wine counterfeiter Rudy Kurniawan [was contesting] the legality of FBI agents' search of his home, which occurred after his arrest in a Los Angeles suburb last March. ...

In that search, according to a grand jury indictment, agents found an elaborate setup for wine counterfeiting, including thousands of fake labels for wines with vintages as far back as 1899, and labels for all the first-growths of Bordeaux and several highly sought-after Burgundies.The operation also housed a cork inserter, hundreds of used corks, bags of new corks and foil capsules.

According to a source close to the defense, FBI agents had an arrest warrant but no search warrant when they entered the house Kurniawan shared with his mother. The agents arrested Kurniawan and also "looked around," according to the source. Only later did the agents return to Kurniawan's house with a search warrant to execute a "protective sweep" of the home.

On criminal procedure issues, I tend to come down hard on the civil libertarian side. But wine fraud on this scale put that tendency to the test ... big time.

Indeed, I must confess to being pleased to learn that Kurniawan's Fourth Amendment arguments were rejected:

When news that Federal Judge Richard Berman ruled the FBI had probable cause to search the home of Rudy Kurniawan broke, wine lovers all of the world rejoiced! Now that Judge Berman ruled that the search warrant had a sound basis for probable cause, the trial of Rudy Kurniawan could take to place shortly!  

Had the case come out the other way, I admit I would be sorely tempted to advocate a wine fraud exception to the Fourth Amendment!

Judge Kozinski goes out of his way to be an asshole, but did he go far enough to require disqualification?

28 US Code sec. 455 provides that "(a) Any justice, judge, or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned. (b) He shall also disqualify himself in the following circumstances: (1) Where he has a personal bias or prejudice concerning a party, or personal knowledge of disputed evidentiary facts concerning the proceeding ...."

Many of us have become familiar with the activities of Paul Watson and his anti-whaling group Sea Shepherd Conservation Society through the Animal Planet program Whale Wars. In a civil case brought by the Japanese whalers' front group against Watson and the Sea Shepherds, US Ninth Circuit Court of Appeals Alex Kozinski (of cow porn fame) has issued an opinion finding that the whalers should be allowed to bring piracy claims against Watson and the Sea Shepherds. 

Kevin Jon Heller has shown that Kosinzki's grasp on the law is pretty weak:

... the Ninth Circuit, in an opinion written by Judge Kozinski, has decided that anti-whaling activism qualifies as piracy if it involves violence against a ship on the high seas. I’m running short for time right now, but I want to briefly respond to Kozinski’s key claim about the traditional understanding of piracy’s “private ends” requirement (p. 4; emphasis mine; internal citations omitted):

The district court construed “private ends” as limited to those pursued for “financial enrichment.” But the common understanding of “private” is far broader. The term is normally used as an antonym to “public” (e.g., private attorney general) and often refers to matters of a personal nature that are not necessarily connected to finance (e.g., private property, private entrance, private understanding and invasion of privacy)…. We give words their ordinary meaning unless the context requires otherwise. The context here is provided by the rich history of piracy law, which defines acts taken for private ends as those not taken on behalf of a state.

Kozinski doesn’t mention any of the historical sources that ostensibly constitute this “rich history”; he simply cites the dictionary definition of “private” and a 25-year-old Belgian case that has never been followed by any other court. But that’s not surprising: although the traditional understanding of piracy is not limited to acts of violence motivated by the desire for financial gain (an error made by many scholars and activists), there is significant historical support for the idea that piracy specifically excludes acts of violence that are politically motivated.

Heller continues with examples from legal history showing that Kozinski is wrong on the law, before concluding that:

Kozinski’s “rich history,” in short, is actually much poorer than he imagines. Perhaps he should spend less time writing clever introductions to his opinions and more time analyzing actual historical sources. 

Which brings me to that "clever introduction." Kozinski opens his opinion with these paragraphs:

You don’t need a peg leg or an eye patch. When you ram ships; hurl glass containers of acid; drag metal-reinforced ropes in the water to damage propellers and rudders; launch smoke bombs and flares with hooks; and point high-powered lasers at other ships, you are, without a doubt, a pirate, no matter how high-minded you believe your purpose to be.

Plaintiffs-Appellants (collectively, “Cetacean”) are Japanese researchers who hunt whales in the Southern Ocean. The United States, Japan and many other nations are signatories to the International Convention for the Regulation of Whaling art. VIII, Dec. 2, 1946, 62 Stat. 1716, 161 U.N.T.S. 74, which authorizes whale hunting when conducted in compliance with a research permit issued by a signatory. Cetacean has such a permit from Japan. Nonetheless, it has been hounded on the high seas for years by a group calling itself Sea Shepherd Conservation Society and its eccentric founder, Paul Watson (collectively “Sea Shepherd”). Sea Shepherd’s tactics include all of those listed in the previous paragraph. 

Remember there has been no trial. Kozinski is reversing the district court's dismissal of the piracy claims against Watson and the Sea Shepherds. There is no factual record on which Kozinski can draw any conclusions about Sea Shepherd’s tactics.

Beyond this, however, there is the demeaning and belittling tone adopted by Kozinski. "You don’t need a peg leg or an eye patch." A lame attempt at humor at defendants' expense?

Asserting the whalers have been "hounded," without proof thereof?

Calling Watson "eccentric"?

We are told that "it is reversible error for the trial court to belittle counsel, demonstrate outright bias, or 'so infect[ ] [the trial] with the appearance of partiality' that the trial court's conduct inevitably improperly influenced the jury." McMillan v. Castro, 405 F.3d 405, 409-10 (6th Cir.2005). Should it not equally be error for an appellate judge to belittle a party, especially before there is even a shred of admissible evidence on which to base such perjorative comments?

We are told by the Ninth Circuit itself that:

The Ninth Circuit has disapproved of the admission of derogatory statements from a judge concerning a defendant's credibility because a judge is an “authoritative, professional fact finder” who is apt to carry excessive weight with the jury. United States v. Sine, 493 F.3d 1021, 1033–34 (9th Cir.2007); see id. at 1031 (agreeing with a defendant that “derogatory factual findings and comments” from a judge's order in a prior related case created “too great a danger of unfair prejudice and thus violated Rule 403”). 

U.S. v. Wiggan, 700 F.3d 1204, 1220 (9th Cir. 2012). Yet, don't we have precisely such derogatory comments here? Don't they call into question Kozinski's impartiality?

Look, I think what Watson and the Sea Shepherds do at the very least hovers on the brink of eco-terrorism. But I'm not a federal judge charged with impartially assessing evidence and applying law. I'm just a guy with a blog.

Whatever one makes of Watson and his fellow ecomentalists, they deserve a fair shake. They didn't get one from Judge Kozinski. He may not be legally obliged to disqualify himself from further involvement in the case, an almost impossibly high standard, but he sure ought to take a hard look at himself and ask himself why he went out of his way to be an ass.

By the way, in what is the utlimate irony, Kozinski concludes his opinion by disqualifying the trial judge:

The district judge’s numerous, serious and obvious errors identified in our opinion raise doubts as to whether he will be perceived as impartial in presiding over this high-profile case. The appearance of justice would be served if the case were transferred to another district judge, drawn at random, and we so order in accordance with the standing orders of the Western District of Washington.

But Kozinski's opinion doesn't raise doubts about his impartiality? The man is a joke! Albeit not a very funny one.

Angela Riley at the US Supreme Court

Congratulations to my colleague Angela Riley , who recently was invited to give a lecture at the United States Supreme Court. She was introduced by Justice Ruth B. Ginsburg and gave her lecture, on the history of Native Americans and the Court, inside the courtroom. A very high honor, indeed. Her talk, which was organized by the Supreme Court Historical Society and televised on C-Span, is available here: http://www.c-spanvideo.org/program/309427-1

A disgruntled Admin Law prof's take on his subject

Michael Greve:

I’m teaching something called, fraudulently, administrative “law.” Believe you me: nothing in that corpus juris poses any meaningful constraint on government. E.g., I’m supposed to teach and therefore do teach that judges must bow to any bureaucrat’s take on the law (unless it’s completely nuts) because otherwise the D.C. Circuit might end up running the country and good sense and lawful government might break out.

LIBOR, UBS, and the recurring problem of institutional versus individual wrongdoing

A post at Global Corporate Law blog poses a perennial question:

UBS admitted to fixing Euribor and Tibor – interest rates (financial benchmarks) set by lenders in the Eurozone and in Japan.

UBS has stated that it has agreed to pay fines to financial watchdogs in Europe and the US. These include:

• $1.2bn or £740m in combined fines to the US Department of Justice (DoJ) and theCommodities Futures Trading Commission
• £160m to the FSA
• 59m Swiss francs or £40m to Switzerland’s Financial Market Supervisory Authority

As a lump sum, the above penalties comprise the second largest fine to be imposed in banking history: the first largest, of course, was when HSBC opted to pay US $1.9 billion authorities to settle allegations of money laundering.

But do these fines go far enough?

Not really. Surely, the people, these modern day Robert Clives, behind all this rigging and manipulation should be charged under the criminal law and sentenced accordingly.

I have pretty strongly held views that in these cases institutional liability punishes the wrong people. In an important article, Vicarious Liability for Fraud on Securities Markets: Theory and Evidence, 1992 U. Ill. L. Rev. 691, Jennifer Arlen and William Carney, tackled this question with regard to corporate liability for securities frauds committed by agents of the firm. As they demonstrate, when a corporation pays a large fine the resulting balance sheet effect is to reduce assets on the left side. On the right hand side, liabilities remain constant. To offset the decline in net assets, accordingly, shareholder equity must fall. As a result, the effect of civil monetary liability is to replace "one group of innocent victims with another: those who were shareholders when the fraud was revealed. Moreover, enterprise liability does not even effect a one-to-one transfer between innocent victims: a large percentage of the plaintiffs' recovery goes to their lawyers. Finally, enterprise liability may injure innocent people in addition to shareholders. For example, employees are injured if enterprise liability sends a firm into bankruptcy or causes it to lay off employees." Id. at 719.

The case for corporate criminal liability is even weaker. The principal functions of criminal liability are retribution and deterrence. As I have argued elsewhere in the context of corporate reparations:

A corporation is not a moral actor. Edward, First Baron Thurlow, put it best: "Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and nobody to be kicked?" The corporation is simply a nexus of contracts between factors of production. As such, there is no moral basis for applying retributive justice to a corporation - there is nothing there to be punished.

So who do we punish when we force the corporation to pay reparations? Since the payment comes out of the corporation's treasury, it reduces the value of the residual claim on the corporation's assets and earnings. In other words, the shareholders pay. Not the directors and officers who actually committed the alleged wrongdoing (who in most of these cases are long dead anyway), but modern shareholders who did nothing wrong. Retributive justice is legitimate only where the actor to be punished has committed acts to which moral blameworthiness can be assigned. Even if you assume the corporation is still benefiting from alleged wrongdoing that happened decades or even centuries ago, which seems implausible, the modern shareholders are mere holders in due course. It is therefore difficult to see a moral basis punishing them. They have done nothing for which they are blameworthy.

As always in corporate accountability, both efficiency and morality require that punishment be directed solely at those who actually commit wrongdoing. In this context, it would be the directors, officers, or controlling shareholders who actually enslaved people. Since they're long dead, there is nobody left who properly can be punished.

That conclusion was influenced in part by the Arlen and Carney paper, which argues for imposing liability on the corporation's agents:

... we find that there is little reason to believe that enterprise liability is the superior rule from the standpoint of deterrence, and there are many reasons to suspect the contrary. The deterrent effect of the available monetary sanctions under agent liability probably exceeds the deterrent effect of enterprise liability because a civil judgment against an agent hurts his reputation more than does a sanction imposed by the firm in private. Moreover, the threat that sanctions will be imposed appears to be greater under agent liability. Agent liability places the responsibility of sanctioning wrongful agents with the victims, who have no reason not to proceed against them and have every reason to proceed. Enterprise liability, by contrast, places the responsibility of proceeding against the wrongful agents with the firm, and thus with the very agents (and their close associates) most likely to have committed fraud. Moreover, agent liability in effect enlists insurance companies as corporate monitors and disciplinarians, thereby eliminating the agency costs associated with firm managers monitoring and disciplining each other. Furthermore, the judgment proof problem under agent liability can be completely eliminated if, in addition to civil liability, the government imposes sufficient nonmonetary criminal penalties on agents, such as imprisonment.

Although they are discussing civil liability, their comments on deterrence seem equally applicable to the criminal law.

The consequences of making Bork a verb

I think Andrew Sullivan's basically right about this:

There were many legitimate ways to discuss and criticize Bork's radical judicial philosophy, but the demagoguery deployed against him was a smear campaign of almost unprecedented ferocity. Ted Kennedy was among the crudest. (Wally Olson has a fascinating column on how Bork was also borked for not being a religious man.) The consequences are still with us, along with the deep polarization that event intensified in Washington. Reagan need not have nominated Bork, of course - and he deserves some of the blame for such a radical move. But the smear campaign from Bork's opponents dwarfed everything else, in my view. It helped create the poisonous atmosphere we now live in. Because it worked.

Or, as the WSJ put it:

Led by Ted Kennedy and Joe Biden at his slimiest in charge of the Judiciary Committee, Democrats and the left ran a smear campaign for the ages. ...

So nasty was the campaign against Bork that his name became a verb—to bork, as in to utterly trash someone's personal and professional reputation. For younger readers who wonder when U.S. politics took on their current poisonous character, the Bork fight was the turning point. Democrats cast the first smear.

The Wit and Wisdom of Robert Bork

The WSJ collects some of the great man's best writing.

Olson on Bork

A thoughtful and balanced appraisal of the late Robert Bork by the always perspicacious Walter Olson.

Speaking of Mike Koehler's FCPA Professor Blog

Here is  Mike Koehler's (of the FCPA Professor Blog) analysis of the recently issued government guidance on compliance with the Foreign Corrupt Practices Act:

This article is a critical analysis of the Foreign Corrupt Practices Act Guidance released by the Department of Justice and Securities and Exchange Commission. Issues discussed in the article include the following: (i) the enforcement agencies' motivations in issuing the Guidance and the fact that it should have been issued years ago; (ii) the utility of the Guidance from an access-of-information perspective and how the Guidance can be used as a measuring stick for future enforcement agency activity; (iii) how the Guidance is an advocacy piece and not a well-balanced portrayal of the FCPA as it is replete with selective information, half-truths, and, worse information that is demonstratively false; (iv) how, despite the Guidance, much about FCPA enforcement remains opaque; and (v) how, despite the Guidance, FCPA reform remains a viable issue.

A History of the Foreign Corrupt Practices Act

Here at PB.com, we have occasionally had occasion to mention the Foreign Corrupt Practices Act. To be truthful, our knowledge about the FCPA derives in no small amount from Mike Koehler's indispensable FCPA Professor Blog. So we were pleased to learn that Mike has now posted The Story of the Foreign Corrupt Practices Act:

In the mid-1970s, Congress journeyed into uncharted territory. After more than two years of investigation, deliberation, and consideration, what emerged in 1977 was the Foreign Corrupt Practices Act (FCPA), a pioneering statute and the first law in the world governing domestic business conduct with foreign government officials in foreign markets. This Article weaves together information and events scattered in the FCPA’s voluminous legislative record to tell the FCPA’s story through original voices of actual participants who shaped the law. As the FCPA approaches thirty-five years old, and as enforcement enters a new era, the FCPA’s story remains important and relevant to government agencies charged with enforcing the law, those subject to the law, and policy makers contemplating reform.

It's a balanced and accessible treatment of the FCPA's origins. I recommend it.

Lost maxims of equity

I recently ran across a very short article by my friend and UCLAW colleague on "The Lost Maxims of Equity," 52 J. Legal Educ. 619 (2002):

Equity abhors a nudnik.

Equity delights in a good practical joke.

He who seeks equity must do so with full pockets.

Equity is not for the squeamish.

Equity, schmequity.

Equity can be grumpy before its first cup of coffee.

Equity is crunchy on the outside, soft and chewy on the inside.

Equity is a mean drunk.

Equity, like all of us, prefers the rich and good-looking.

Super Hero Law

Bill: "As you know, l'm quite keen on comic books. Especially the ones about superheroes. I find the whole mythology surrounding superheroes fascinating."

So Bill would probably enjoy The Law of Superheroes. I suspect I will too. A while back, for example, I pondered that:

Remember the main car chase in Batman Begins? 

Just how many millions of dollars in property damage did Batman inflict on Gotham in that one night? And how are those poor property owners going to explain things to their insurance company?

Plus, if the mob runs the construction business and unions in Gotham, Batman's rooftop drives are helping subsidize organized crime.

And what if some of those crumbling roofs had fallen through the ceiling of the top floor apartment and crushed some poor guy trying to get a good night's sleep?

In the WSJ, Jonathan Last opines that:

Suppose Superman catches Lex Luthor while he's robbing a bank. In the tussle Superman burns Luthor with his heat vision and accidentally breaks his arm. Once Luthor is in jail, could he file a civil lawsuit against Superman for assault? In "The Law of Superheroes," James Daily and Ryan Davidson unpack this—and many other—important questions. ...

"The Law of Superheroes" fits two bills nicely; it's both a highly readable survey of basic legal theory and an entertaining exploration of the comic book canon.