Alison Frankel has an interesting article on the issue and the apparently looming SEC crackdown.
Kevin Drum poses the titular question, noting that:
We all learned recently that sandwich shop Jimmy John's forces its workers to sign a noncompete agreement before they're hired. This has prompted a lengthy round of blogospheric mockery, and rightfully so. But here's the most interesting question about this whole affair: What's the point?
Laws vary from state to state, but generally speaking a noncompete agreement can't be required just for the hell of it. It has to protect trade secrets or critical business interests. The former makes them common in the software business, and the latter makes them common in businesses where clients become attached to specific employees (doctors, lawyers, agents) who are likely to take them with them if they move to a new practice. But none of this seems to apply to a sandwich shop.
Indeed. There is general agreement that "when you seek to enforce [a] boilerplate noncompete, will a Virginia court uphold the agreement? Probably not." Hillary J. Collyer, FAIRFAX COURT ISSUES SPLIT DECISION ON EMPLOYMENT CONTRACT, 22 No. 10 Va. Emp. L. Letter 2 (2010). Indeed, that can be true even in industries like IT where noncompetes can make sense.
As a result, the usual advice is that one "should not use the same 'boilerplate' noncompete agreement for everyone. For example, with respect to key employees, the agreement should be drafted to reflect that employee's individual job duties and circumstances." William G. Porter II & Michael C. Griffaton, Using Noncompete Agreements to Protect Legitimate Business Interests, 69 Def. Couns. J. 194, 199 (2002).
So why bother? Cynthia Estlund explains that:
Even a manifestly invalid non-compete may have in terrorem value against an employee without counsel. Some employers insert non-compete covenants as near-boilerplate in employment agreements for a wide variety of positions, with little regard to the particulars of the position or to whether employees are privy to protectible information. As far as the law is concerned, employers risk nothing with that sort of overreaching (though the market might sometimes exact a price), and they might succeed in keeping employees from leaving and moving to competitors when they are entitled to do so.
Cynthia L. Estlund, Between Rights and Contract: Arbitration Agreements and Non-Compete Covenants As A Hybrid Form of Employment Law, 155 U. Pa. L. Rev. 379, 423 (2006). She also notes (fn. 32) that "I recently heard of two law students who were required to sign non-compete agreements in pre-law-school jobs (not as high-level executives!). They did so either reluctantly or with little thought because they wanted the jobs, and then later felt compelled to reject attractive job opportunities that they feared might violate the terms of the non-compete agreement."
In sum, my guess is that somebody at Jimmy Johns figured "it can't hurt, it won't cost anything, and there might be some cases where it'll deter employees for leaving for a better paying job." Whether that is desirable and/or sensible is a question I'll leave for the reader.
My dear friend, Georgetown University Professor Anthony Arend interviewed on the legality of USA's strikes against ISIS (or ISIL or IS, as you prefer):
As always, clear and cogent.
Howard Wasserman blogs:
Many sites are talking about Wednesday's Seventh Circuit arguments in challenges to same-sex marriage bans in Indiana and Wisconsin. Judge Posner was in rare form in shredding the states' arguments in support of the bans, particularly in the Wisconsin case (several of the links have either the full audio or audio clips). As usual, there is the debate about whether this is Posner being a bully (Josh Blackman says yes) or Posner being Posner and attacking bad legal arguments and bad lawyering (in fairness to Josh's viewpoint, Posner does not give the lawyers room to answer in real detail).
But the argument highlights Posner's uniqueness as a conservative-but-iconoclastic judge. And sparks this question: What if Posner had been the nominee for the late Reagan/Bush I openings--Scalia, Kennedy (after Bork and Ginsburg both went down), or Souter (replacing Brennan, a fitting seat, since Posner famously clerked for Brennan)?
Perish the thought. I for one am very glad he didn't make it to the SCOTUS for reasons I've blogged several times over the years:
Who runs the world’s most lucrative shakedown operation? The Sicilian mafia? The People’s Liberation Army in China? The kleptocracy in the Kremlin? If you are a big business, all these are less grasping than America’s regulatory system. The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company. ...
... The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame. Since the cases never go to court, precedent is not established, so it is unclear what exactly is illegal. That enables future shakedowns, but hurts the rule of law and imposes enormous costs. Nor is it clear how the regulatory booty is being carved up. Andrew Cuomo, the governor of New York, who is up for re-election, reportedly intervened to increase the state coffers’ share of BNP’s settlement by $1 billion, threatening to wield his powers to withdraw the French bank’s licence to operate on Wall Street. Why a state government should get any share at all of a French firm’s fine for defying the federal government’s foreign policy is not clear. ...
... When America was founded, there were only three specified federal crimes—treason, counterfeiting and piracy. Now there are too many to count. In the most recent estimate, in the early 1990s, a law professor reckoned there were perhaps 300,000 regulatory statutes carrying criminal penalties—a number that can only have grown since then. For financial firms especially, there are now so many laws, and they are so complex (witness the thousands of pages of new rules resulting from the Dodd-Frank reforms), that enforcing them is becoming discretionary.
This undermines the predictability and clarity that serve as the foundations for the rule of law, and risks the prospect of a selective—and potentially corrupt—system of justice in which everybody is guilty of something and punishment is determined by political deals . America can hardly tut-tut at the way China’s justice system applies the law to companies in such an arbitrary manner when at times it seems almost as bad itself.
The article goes on to offer an excellent analysis of the issue of corporate versus individual liability, which I highly commend to your attention.
In the meanwhile, it strikes me that this analysis is apt to the discussion I've been having about Leo Strine's new law review article. You will recall (I trust) that Leo Strine and Nicholas Walter's new article, Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United (August 1, 2014), available at SSRN: http://ssrn.com/abstract=2481061, argues that:
Because Citizens United unleashes corporate wealth to influence who gets elected to regulate corporate conduct and because conservative corporate theory holds that such spending may only be motivated by a desire to increase corporate profits, the result is that corporations are likely to engage in political spending solely to elect or defeat candidates who favor industry-friendly regulatory policies, even though human investors have far broader concerns, including a desire to be protected from externalities generated by corporate profit-seeking. Citizens United thus undercuts conservative corporate theory’s reliance upon regulation as an answer to corporate externality risk, and strengthens the argument of its rival theory that corporate managers must consider the best interests of employees, consumers, communities, the environment, and society — and not just stockholders — when making business decisions.
In an initial post, I suggested that:
... it seems entirely plausible that corporate political spending does not erode labor and environmental protections but simply slows the rate at which new regulations are piled onto the mountain of laws to which corporations are already subject. Indeed, maybe such expenditures provide a pro-social service by creating incentives for regulators to take the costs of their rules into account.
In other words, corporate political spending may be purely defensive, as a response to the over-criminalization of business. If so, it seems to me that Strine and Walker's argument is significantly weaker. Their argument depends on corporate political spending being offensive rather than defensive (I think).
BTW, I have decided to write that article entitled "Corporate Social Responsibility in the Night Watchman State" as a response to Strine and Walker. So no swiping my title!
There are a lot of problems with big-ticket settlements like the one the DoJ recently enetered into with Bank of America. First and foremost, they punish the wrong people; namely, BoA's shareholders. BoA shareholders did not make the decisions for which the government prosecuted BoA, but the fine comes out of the company's bottom line and thus out of the shareholders' return. It's unfair and plain bad policy, for reasons we have frequently discussed on this blog before.
But another key problem is that liberal prosecutors frequently divert substantial parts of such settlements to left-wing activist groups. Eliot Spitzer was notorious for doing so (when he wasn't screwing escorts) back when GuvLuv was NY attorney general:
[T]o a host of Empire State charities and well-connected law-school deans, the crusading New York attorney general is acting a lot ... like Santa Claus.
We apparently can add Eric Holder to the list of liberal Santa Clauses:
Radical Democrat activist groups stand to collect millions from Attorney General Eric Holder's record $17 billion deal to settle alleged mortgage abuse charges against Bank of America.
Buried in the fine print of the deal, which includes $7 billion in soft-dollar consumer relief, are a raft of political payoffs to Obama constituency groups. In effect, the government has ordered the nation's largest bank to create a massive slush fund for Democrat special interests. ...
The more we learn about this settlement, the more it stinks.
I recommend a new paper:
Davidoff, Solomon and [Zarig] have put together a paper on the litigation between the government and the preferred shareholders of Fannie Mae and Freddie Mac. Do give it a look and let us know what you think. Here's the abstract:
The dramatic events of the financial crisis led the government to respond with a new form of regulation. Regulation by deal bent the rule of law to rescue financial institutions through transactions and forced investments; it may have helped to save the economy, but it failed to observe a laundry list of basic principles of corporate and administrative law. We examine the aftermath of this kind of regulation through the lens of the current litigation between shareholders and the government over the future of Fannie Mae and Freddie Mac. We conclude that while regulation by deal has a place in the government’s financial crisis toolkit, there must come a time when the law again takes firm hold. The shareholders of Fannie Mae and Freddie Mac, who have sought damages from the government because its decision to eliminate dividends paid by the institutions, should be entitled to review of their claims for entire fairness under the Administrative Procedure Act – a solution that blends corporate law and administrative law. Our approach will discipline the government’s use of regulation by deal in future economic crises, and provide some ground rules for its exercise at the end of this one – without providing activist investors, whom we contend are becoming increasingly important players in regulation, with an unwarranted windfall.
Very interesting new paper by Friedman, Hershey H., The Art of Constructive Arguing: Lessons from the Talmud (July 27, 2014). Available at SSRN: http://ssrn.com/abstract=2472735:
In the highly competitive age of the Internet and globalization, an organization has to be creative to prosper. This means that people have to work together and learn how to have productive meetings. Today’s U.S. Congress is a prime example of what happens when people have lost the ability to argue in a productive manner. The American public has no respect for Congress and refers to it as being worthless and dysfunctional. It is interesting to note that the Talmud which took shape after the destruction of the Temple in 70 CE consists of thousands of disagreements regarding Jewish law yet served as a device to keep the Jewish people united. For example, Abaye and Rava had hundreds of arguments about law in the Talmud yet were the best of friends; they are even buried together in the same cave. Talmudic arguments did not lead to ugly battles but were seen as the way to clarify the law as well as answer philosophical questions. This paper will explore the lessons we can learn from the Talmud about constructive arguing. Nine rules that can be used to ensure that arguments are productive are provided
Naturally, I find myself unable to resist adding this bell and whistle:
My friend and colleague Sung Hui Kim has a very interesting new paper on the parri passu clause in sovereign debt deals (which has featured prominently in the Argentinean debt litigation):
As the ongoing court battle between the Republic of Argentina and NML Capital, Ltd. illustrates, the meaning of pari passu in sovereign debt contracts remains highly contested. This article presents what might be the clearest historical evidence of what the pari passu clause was understood to mean in the pre-war period. It examines Nazi Germany’s defaults of the Dawes and Young Loans during the 1930s. According to this historical evidence, the parties believed that the clause promised parity in payment across different creditor groups (in this context, the various tranches representing nationals of different countries) considered to be part of the same general undertaking. This article reports no evidence to support what may be the most commonly offered interpretation for the clause today — that the pari passu clause was intended to prohibit the sovereign from passing laws that would have the effect of involuntarily subordinating certain creditors. This article also finds no evidence to suggest that the pari passu clause was understood as entitling the aggrieved creditor to a unilateral right to block payments to bondholders who assented to a government’s restructuring proposal.
Kim, Sung Hui, Pari Passu: The Nazi Gambit (April 28, 2014). Forthcoming, Cap. Mkts. L. J. (2014); UCLA School of Law, Law-Econ Research Paper No. 14-09. Available at SSRN: http://ssrn.com/abstract=2430588
The death penalty is back in the news and the news is not good:
For more than 20 years, the prosecutor who convicted Cameron Todd Willingham of murdering his three young daughters has insisted that the authorities made no deals to secure the testimony of the jailhouse informer who told jurors that Willingham confessed the crime to him.
Since Willingham was executed in 2004, officials have continued to defend the account of the informer, Johnny E. Webb, even as a series of scientific experts have discredited the forensic evidence that Willingham might have deliberately set the house fire in which his toddlers were killed.
But now new evidence has revived questions about Willingham’s guilt: In taped interviews, Webb, who has previously both recanted and affirmed his testimony, gives his first detailed account of how he lied on the witness stand in return for efforts by the former prosecutor, John H. Jackson, to reduce Webb’s prison sentence for robbery and to arrange thousands of dollars in support from a wealthy Corsicana rancher. Newly uncovered letters and court files show that Jackson worked diligently to intercede for Webb after his testimony and to coordinate with the rancher, Charles S. Pearce Jr., to keep the mercurial informer in line.
My views on the death penalty have evolved a lot over the years, but I've finally come to a full abolitionist position. Given that there is no humane way to execute someone and a high probability of error (not to mention prosecutorial misconduct), I see no moral justification for the death penalty absent incredibly unusual circumstances (somebody like a Hitler or Bin Laden against whom imprisonment alone may not be enough to protect society). In short, I stand with the Blessed John Paul II:
... the nature and extent of the punishment must be carefully evaluated and decided upon, and ought not go to the extreme of executing the offender except in cases of absolute necessity: in other words, when it would not be possible otherwise to defend society. Today however, as a result of steady improvements in the organization of the penal system, such cases are very rare, if not practically non-existent.
Alison Frankel has a very insightful post about how the looking Argentine debt default illustrates the limits of US courts to manage sovereign debt litigation:
... the hedge fund litigation with Argentina has laid bare the limits on the power of U.S. courts, the borderline between litigation and foreign policy. Thanks to Argentina, bond investors are now on notice that they might not be able to enforce U.S. judgments against foreign sovereigns. They’ll have to factor that risk into investment decisions.
But at least investors know. U.S. courts fulfilled their duty. They heard all sides, rendered decisions and reconsidered those decisions on appeal. They laid down the law. They just can’t get Argentina to follow it.
If Argentina manages to successfully evade the US courts' orders to repay the bondholders in question, it could have a significant impact on the ability of all sovereign debtors to borrow. One thus continues to think it would be in the interest of sovereign borrowers to establish some sort of international regime akin to bankruptcy reorganizations. All of which takes me to one of my first law review articles, Comity and Sovereign Debt Litigation: A Bankruptcy Analogy. Maryland Journal of Int'l Law and Trade, Vol. 10, No. 1, 1986. Available at SSRN: http://ssrn.com/abstract=302009:
On repeated occasions in the post-war period, the cumulative effects of policy mistakes, recessions, inflation, and other economic problems have made it difficult for sovereign debtors to service their external debt. Unlike a domestic U.S. private debtor, who may resort to formal bankruptcy procedures in the event of insolvency, a defaulting sovereign debtor has no formal mechanism for triggering a restructuring of its debt.
In some cases, sovereign debtors have resorted to a moratorium on debt payments. This article argues that U.S. courts ought to give effect to such moratoria under the international law principle of comity. Using standard game theory methodology (the so-called "creditors dilemma" variant of the famous "prisoners dilemma"), the article argues that creditors of such debtors would agree in advance to give effect to such a moratorium provided it neither repudiated the sovereign's debts nor gave preference to certain creditors. A legal test for granting comity to sovereign debt moratoria is therefore proposed.
Remember Senior District Judge Richard George Kopf who told the SCOTUS to STFU? Apparently one of his keepers screwed up and let him near a computer, because he's back and, instead of responding on the merits to any of the folks who took him to task, the dummKopf has the balls to tell me to "grow up." This from the idiot who is a self-confessed "dirty old man" who blogged about how much he appreciated an attractive female lawyer who "wears very short skirts and shows lots of her ample chest."
I still think the judge needs to take his own advice and STFU.
Update: And I have the same advice for the judge's left-liberal groupies who have been trolling my email and twitter feed.
Update 2: And now the judge is attacking Rick Hasen, one of the best bloggers I know.
Update 3: Althouse points out that the Judge's attack is not well grounded:
The "florid" post of Bainbridge's accused Kopf of "(thinly veiled) anti-Catholicism," which (understandably) irked Kopf. Kopf says Bainbridge cited no evidence, but the evidence was Kopf's own statement that all the Justices in theHobby Lobby majority are Catholic. That's some evidence, but not enough to meet the burden of proof in the courtroom Kopf has no knowledge of Bainbridge ever stepping into if somehow the question of Kopf's anti-Catholicism were an issue.
I'd say it's pretty damned good circumstantial evidence.
Update 3: The good judge has announced that he will be ignoring me from now on out. And it was just getting fun.
In a post prompted by Hobby Lobby, Judge Richard George Kopf comments:
In the Hobby Lobby cases, five male Justices of the Supreme Court, who are all members of the Catholic faith and who each were appointed by a President who hailed from the Republican party, decided that a huge corporation, with thousands of employees and gargantuan revenues, was a “person” entitled to assert a religious objection to the Affordable Care Act’s contraception mandate because that corporation was “closely held” by family members. To the average person, the result looks stupid and smells worse.
There you have. Proof once again that (thinly veiled) anti-Catholicism is the last acceptable prejudice among the elites.
What would have happened if the Supreme Court simply decided not to take the Hobby Lobby cases? What harm would have befallen the nation? What harm would have befallen Hobby Lobby family members who would have been free to express their religious beliefs as real persons? Had the Court sat on the sidelines, I don’t think any significant harm would have occurred.
What harm, the dummKopf asks? Forcing the owners of a family-owned business to act against their beliefs is no harm?
Back to Kopf:
Next term is the time for the Supreme Court to go quiescent–this term and several past terms has proven that the Court is now causing more harm (division) to our democracy than good by deciding hot button cases that the Court has the power to avoid. As the kids say, it is time for the Court to stfu.
Which brings me to my question. Would Judge Kopf have told the Supreme Court to shut up after Lawrence v. Texas? Roe v. Wade? Windsor v. US? Engel v. Vitale? Employment Division v. Smith? Why is it to people like this dummKopf that cases in which liberals win turn out to what Kopf calls "those rare 'fate of the nation' cases"?
I've got a suggestion for Judge Kopf: Why don't you STFU?
Update: I just learned that Judge Kopf is the same dummKopf who blogged about what one lawyer called the judge's "fondness for looking up the skirts and down the blouses of female attorneys who appear before him."
Here's what Judge Kopf wrote on that subject:
I have been a dirty old man ever since I was a very young man. Except, that is, when it comes to my daughters (and other young women that I care deeply about). And that brings me to the amusing debate about how (mostly) young female lawyers dress these days.
Editorial comment: Perhaps his proclivities as a dirty old man explain the intensity of his desire that Hooby Lobby provide its employees with all forms of contraceptives? After all, if there's a Hobby Lobby in his town, the Supreme Court decision narrows his targets.
Back to the dummKopf:
Around these parts there is a wonderfully talented and very pretty female lawyer who is in her late twenties. She is brilliant, she writes well, she speaks eloquently, she is zealous but not overly so, she is always prepared, she treats others, including her opponents, with civility and respect, she wears very short skirts and shows lots of her ample chest. I especially appreciate the last two attributes.
He goes on to offer some unsolicited advice as to how to avoid being deemed an "ignorant slut."
Dude, you really need to STFU.
The U.S. Supreme Court on Monday rejected Argentina’s appeal in a high-stakes case stemming from its historic 2001 default, a major blow for the country in its lengthy battle with holdout creditors.
The court, without comment, left in place a lower-court ruling that said Argentina can’t make payments on its restructured debt unless it also pays holdout hedge funds that refused to accept the country’s debt-restructuring offers.
Background from SCOTUSblog explains that when Argentina sold bonds here in the USA, it "made promises to win over investors who were wary because of that nation’s financial past — a history that one U.S. court would disparage as "a diplomacy of default.'"
One promise was that any dispute would have to be settled under New York law. And another was a so-called “equal treatment” guarantee. That second promise goes by a Latin phrase, pari passu. Loosely translated, it means that everybody gets treated the same when it comes to investors’ rights. It is a standard part of almost all international borrowings by governments.
Meanwhile, even as Argentina went on refusing to pay back any of the investors holding the defaulted bonds, it had twice asked those holders to swap those bonds for new ones, and something like three out of every four of those investors had agreed to those deals. It was the holdouts who didn’t, and it was the holdouts who sued in U.S. courts.
One of the legal strategies of the holdouts’ lawyers was to treat their complaint as a simple issue of living up to one’s promises. Argentina, they contended, had promised to treat investors in the 1994 bonds equally with all other overseas investors in Argentine debt, and yet that country was regularly paying back the investors who agreed to the 2005 and 2010 swaps, while paying nothing to the holders of the 1994 paper.
Ultimately, a federal judge in New York City, Thomas P. Griesa (in time, fully supported by a higher court, the U.S. Court of Appeals for the Second Circuit), ruled that if Argentina made any more payments to the swap participants, it had to pay what it owed to the holdouts — that is $1.33 billion. That, Judge Griesa said, is what pari passu means.
And that's the ruling that has been left intact.
In addition, the Supreme Court (7-1) issued a decision that, as the NY Times explains, allows "the bondholders to issue subpoenas to banks in an effort to trace Argentina’s assets abroad."
The pari passu issue is an obscure one, but potentially fascinating. My friends Mitu Gulati and Robert Scott have published a book on the clause, The Three and a Half Minute Transaction: Boilerplate and the Limits of Contract Design, which argues that:
Boilerplate language in contracts tends to stick around long after its origins and purpose have been forgotten. Usually there are no serious repercussions, but sometimes it can cause unexpected problems. Such was the case with the obscure pari passu clause in cross-border sovereign debt contracts, until a novel judicial interpretation rattled international finance by forcing a defaulting sovereign—for one of the first times in the market’s centuries-long history—to repay its foreign creditors. Though neither party wanted this outcome, the vast majority of contracts subsequently issued demonstrate virtually no attempt to clarify the imprecise language of the clause.
Using this case as a launching pad to explore the broader issue of the “stickiness” of contract boilerplate, Mitu Gulati and Robert E. Scott have sifted through more than one thousand sovereign debt contracts and interviewed hundreds of practitioners to show that the problem actually lies in the nature of the modern corporate law firm. The financial pressure on large firms to maintain a high volume of transactions contributes to an array of problems that deter innovation. With the near certainty of massive sovereign debt restructuring in Europe, The Three and a Half Minute Transaction speaks to critical issues facing the industry and has broader implications for contract design that will ensure it remains relevant to our understanding of legal practice long after the debt crisis has subsided.
I can understand a minimalist dress code for jurors, but a coat and tie as the Middle District of Florida requires? Frak that.
Sometimes I think judges like to make jury service as miserable as possible. Maybe they're all sadists. Or maybe they resent their low salaries.
But dress codes that go beyond "cover the stuff that needs to be covered" just add insult to injury.