The Marshall Project reports that:
When a California judge handed down a six-month sentence to Brock Turner, a former Stanford swimmer convicted of sexually assaulting an unconscious woman, the relative leniency generated an indignant storm on social media and a petition to recall the judge. Perhaps the most extraordinary repercussion was a mutiny among prospective jurors, one that raises questions about the delicate relationship between jurors and judges.
In protest of his sentence in the Turner case, at least ten prospective jurors appearing in Santa Clara County Superior Court Judge Aaron Persky’s courtroom last week refused to serve on a panel in an unrelated new case he is trying, reports the East Bay Times. One after another, the judge thanked the candidates for their candor and excused them from duty. No judge or judicial or jury expert I spoke with can remember a similar episode in modern American history. And some were troubled by the development.
Indeed, as the report goes on to explain, a lot of high profile judges and law professors are having kittens over ordinary people deciding they've had enough. The legal beagle elites are claiming the refuseniks are just lazy bums trying to get out of jury duty and there may be some truth to that.
But maybe what's motivating the refuseniks is the same thing that is motivating the Trump phenomenon: ordinary citizens telling elites that we're mad as hell and we're not taking it any longer.
Some judge lets a privileged kid skate on three sexual felonies with a sentence that amounts to three months in protective custody, while we all know an underprivileged kid who did the same thing would be doing hard time in a real prison. And maybe some folks have had enough.
On top of which, with regard to the specifics of the case, jury duty's hard enough if some asinine judge is going to throw all of your hard work out the window with a grossly unfair and inadequate sentence.
So I don't blame the refuseniks. To the contrary, I applaud them. If that means lawyers and judges have to work a little harder, that's a small price to pay for the people speaking truth to power.
Alison Frankel reports that:
Common sense has prevailed at the 2nd U.S. Circuit Court of Appeals in litigation over an alleged conspiracy among 16 global banks to manipulate the London Interbank Offered Rate (Libor), a key interest rate benchmark. The appeals court held Monday that price-fixing collusion among competitors is a violation of antitrust law, even if it takes place in the context of an ostensibly cooperative rate-setting process.
The 2nd Circuit’s 61-page opinion, written by Judge Dennis Jacobs for a panel that also included Judges Reena Raggi and Gerard Lynch, vacated a controversial 2013 decision in which U.S. District Judge Naomi Reice Buchwald of Manhattan tossed classwide antitrust claims because the Libor rate-setting process is collaborative, not competitive. The ruling revives the banks’ exposure to potentially billions of dollars in damages from investors who say they were victimized by artificial Libor rates.
As I noted in an article on LIBOR:
Because a wide range of commercial loans and residential mortgages were set by reference to LIBOR, artificially low LIBOR rates benefitted borrowers who paid less on their loans than they would have in an honest market at the expense of banks who were not fully com- pensated for the risks they were bearing. [On the other hand,] artificially low LIBOR rates resulted in losses for many investors, “such as mutual funds that invest in mortgages and certain hedge funds that use derivative contracts tied to LIBOR.”
The trouble with litigation is that only the folks who were hurt are represented in the case. From a societal perspective, however, their losses were mitigated by the benefit to borrowers. But the judicial system is ill-suited to take that into account.
Should a plaintiff suing a public corporation be allowed to take a short position in the company's stock? Choi and Spier explore that issue in an interesting analysis:
With a long position, the plaintiff would benefit if the defendant’s stock price goes up, and with a short position the plaintiff would benefit if the defendant’s stock price falls. By selling the stock short, the plaintiff is actively betting against the firm, and will reap higher financial gains when the defendant suffers greater litigation losses. If the capital market is unaware of the lawsuit at the time that the plaintiff takes the short position, then the plaintiff can of course profit from the financial investment. If the capital market is aware of the lawsuit and has rational expectations, , the plaintiff does not capture any systematic, direct benefit from the financial position. However, the plaintiff can secure indirect strategic benefits because, by the time of settlement or trial, the initial expenditure the plaintiff has incurred in taking the financial position is sunk and the plaintiff has an interim incentive to maximize the aggregate return from both litigation and the financial position.
Somewhat counter-intuitively (at least counter to my intuition), they conclude that "the plaintiff’s optimal short position can actually benefit the defendant and lower the rate of litigation."
You'll need to go read the whole thing.
Let’s say a group of criminal defense lawyers kept a database of their confidential conversations with their clients. That would include clients charged with murder, robbery, DUI, drug abuse, and so on. In turn, a hacker would break into that database and post the information from those conversations on Wikileaks. Of course a lot of those conversations would appear to be incriminating because — let’s face it — most of the people who require defense attorneys on criminal charges are in fact guilty. When asked why the hack was committed, the hacker would say “Most of those people are guilty. I want to make sure they do not escape punishment.”
How many of us would approve of that behavior? Keep in mind the hacker is spreading the information not only to prosecutors but to the entire world, and outside of any process sanctioned by the rule of law. The hacker is not backed by the serving of any criminal charges or judge-served warrants.
Yet somehow many of us approve when the victims are wealthy and higher status, as is the case with the Panama Papers. Furthermore most of those individuals probably did nothing illegal, but rather they were trying to minimize their tax burden through (mostly) legal shell corporations.
Privacy only for the 99%? Is that the rule? And if so, how does that square with equal protection under the law? This leak should be criminalized.
A leader in the latest Economist contends that one lesson of the Panama Papers is the need to "regulate the law firms and other intermediaries that set up and husband offshore companies and trusts. They are supposed to know their clients, weeding out the dodgy ones. But too many are paid to act as buffers, offering an extra layer of protection against those who pry."
Regulate the lawyers? How? Implicit in the Economist's argument is the notion that lawyers function as gatekeepers. What does that mean you ask? As I have explained before:
A gatekeeper is someone—be it a person or entity—who, if they withhold their blessing, can prevent the corporation from effecting a desired transaction or from maintaining some desired status.
Often, a gatekeeper will be a reputational intermediary who provides certification services for investors. Auditors and rating agencies are good examples of this category. They have a lot of reputational capital. Indeed, it must be so, because their reputation is their stock in trade. Investors say “this must be a good investment, because it got a good rating from an agency I trust.”
In theory, they will not besmirch their reputation to benefit one client. Hence, they hold the gate between the corporation and the promised land of investor capital. Without the blessing conferred by the auditor’s letter or the rating agency’s evaluation, the corporation will have a more difficult time selling securities or remaining listed on a securities exchange.
Lawyers also are corporate gatekeepers, albeit of a different sort. To be sure, sometimes a very high profile general counsel or law firm partner might be able to give a client in trouble the benefit of the lawyer’s reputation for probity and upstanding ethics. Usually, however, we play a more behind the scenes role.
But while we may not function as reputational intermediaries, we too have a gatekeeping role. As counsel, we are well positioned to block the effectiveness of a defective registration statement or prevent the consummation of a transaction.
Most lawyers hate the idea that they should function as gatekeepers:
The relationship between lawyers and clients is often intensely personal. Former SEC Chairman Harvey Pitt went so far as to compare the lawyer-client relationship to that between priest and penitent in the confessional. Lawyers are zealously supposed to guard, defend and promote the interests of their clients. To do that, Pitt argued, clients must feel comfortable confiding in their lawyers. Efforts to turn lawyers from advocates into gatekeepers can infringe upon the willingness of clients to confide in their lawyers, and curtail their ability to receive the benefits that flow from an unfettered lawyer-client dialogue.
In my view, however, that argument pertains mainly to the lawyer representing a client in litigation. A lawyer acting in a transactional of advisory role faces a different dynamic with different incentives and concerns.
The mindset advocated by Chairman Pitt leads to fiascos like Enron:
I’ll quote Enron examiner Batson, who observed that Enron’s “attorneys saw their role in very narrow terms, as an implementer, not a counselor. That is, rather than conscientiously raising known issues for further analysis by a more senior officer or the Enron Board or refusing to participate in transactions that raised such issues, these lawyers seemed to focus only on how to address a narrow question or simply to implement a decision (or document a transaction).”
So I am fine with the idea that attorneys should function as internal gatekeepers. And if that's what the Economist wants to encourage, great.
But there is a huge difference between lawyers taking steps within a firm to discourage client misconduct and forcing the lawyer to publicly blow the whistle on a client. If the Economist wants lawyers to become whistle blowers who call in the SEC cops, that really would trash the lawyer-client relationship. It would throw centuries of respecting client confidentiality out the window. It would destroy lawyer-client trust. To be sure, there are some cases where incurring those costs is worthwhile: Where the lawyer knows that the client is about to commit a serious crime involving a substantial risk of serious harm to life, limb, or property.
In general, however, the idea that we should broadly promote a role for lawyers as external gatekeepers strikes me as a very bad idea.
In a leader to the latest issue of the Economist, the author calls for increased disclosure of the identity of a corporation's beneficial owners:
Cleaning up tax havens will not end graft. The prime responsibility for this lies with national governments, many of which should do more to make their finances transparent and their safeguards against cronyism stringent. But it would help if kleptocrats were less able to hide their stashes. Hence co-ordinated global efforts are required to crack down on corporate anonymity and to stop the middlemen who make it so easy for crooks to launder their loot.
Many schemes described in the Panama papers involve anonymous shell companies, whose real owners hide behind hired “nominees”. Such vehicles are known as the “getaway cars” for tax dodgers, launderers and crooked officials. It is time to untint their windows by creating central registers of beneficial ownership that are open to tax officials, law-enforcers—and the public. The penalties for lying when registering a firm should be stiff. Britain and a few smaller countries have led the way in this. Others should follow.
Wrong. We have been fighting this issue in the US for almost a decade (if not longer) and there are numerous legitimate reasons not to pursue expanded beneficial ownership disclosure:
Lots of other folks have thoughtlessly jumped on the disclosure bandwagon. One might have hoped that the Economist would devote a little more thought to the issue.
Some of these arguments will be reservation viewing for us corporate law folks:
The Delaware Supreme Court has entered a partnership with the Brooklyn-based technology company Livestream to offer this free service to the public and legal community. On days when the Delaware Supreme Court holds oral arguments in Dover, a live video broadcast of the argument can be viewed at https://livestream.com/DelawareSupremeCourt/. A link to the Court’s live stream is also available through the Delaware Courts website at http://courts.delaware.gov/supreme/
The Justices also hope that, in addition to the benefit to the legal community, that the live broadcast will provide an educational opportunity for students, schools and members of the public interested in learning about the Delaware Courts. ...
The Court will continue to archive video recordings of its non-confidential proceedings on its website for those who are not able to watch the live online broadcast. Recordings of arguments are usually posted within 24 hours.
I agree. But I can't help but observe how many of the people who hate Citizens United now think Apple has rights. https://t.co/jVxwhjy8X7— Stephen Bainbridge (@ProfBainbridge) March 17, 2016
Cory @doctorow hates Citizens United. But suddenly he thinks Apple CORPORATION has rights that must be defended at all costs. Consistent?— Stephen Bainbridge (@ProfBainbridge) March 17, 2016
Well said. https://t.co/aOzDqYWze4— Stephen Bainbridge (@ProfBainbridge) March 17, 2016
Zing. https://t.co/B8sXHfrNjl— Stephen Bainbridge (@ProfBainbridge) March 17, 2016
Some of Donald Trump's fans--and even staffers--have been getting rough with critics, which obviously is inexcusable. It turns out that Trump's also planning to use SLAPP suits to silence his critics:
Mr. Trump’s saber-rattling toward the media isn’t an idle threat. In 1984, he sued the Chicago Tribune and his chief critic at the paper, Paul Gapp, for $500 million based on an article declaring Mr. Trump’s plan to build the world’s tallest tower as “one of the silliest things anyone could inflict on New York or any other city.” The court ultimately tossed the suit by finding “that the statements contained in the Tribune article [were] expressions of opinion” that enjoyed full First Amendment protection. From the time the suit was filed, Mr. Trump seemed more interested in thumping his detractors than actually recovering damages with a weak legal argument.
For the uninitiated, that type legal action is known as a strategic lawsuit against public participation (SLAPP). A SLAPP uses the legal process as a weapon against free speech. It isn’t designed to assert a claim likely to succeed on the merits. Instead, the plaintiff uses the cost, hassle and reputational damage associated with a lawsuit to force silence, avoid transparency or intimidate a defendant from expressing his views.
We’re currently operating under a patchwork of anti-SLAPP laws. Slightly more than a quarter of the states have some form of protection against SLAPPs. The laws serve two basic purposes: Creating a disincentive to file SLAPPs and providing a lower-cost litigation exit for defendants. Some of them, like Texas’ Citizens Participation Act, suspend the costly discovery process until the court rules on the anti-SLAPP motion.
Unfortunately, even those protections are in jeopardy when it comes to federal courts. As a general rule, substantive state laws apply in federal court, but procedural rules do not. Judges serving on both the District of Columbia U.S. Circuit Court of Appeals and the 9th U.S. Circuit Court of Appeals have suggested that state anti-SLAPP laws should be considered procedural prescriptions and ignored by federal courts.
Here at PB.com we are not fans of SLAPP suits and believe that existing laws need to be strengthened at the state level and that a federal anti-SLAPP law is long overdue. Accordingly, we abjure and condemn Trump's plans in this regard (not to mention, of course, the punching stuff too).
Links to earlier posts are embedded in the tweets that follow (use the bit.ly links):
Laurent Germain and Clément Lyon-Caen of Toulouse University have a new paper out on the titular topic:
We develop a model of corporate board including employee representatives in addition to shareholders and top executives. In line with the empirical literature, our model shows that low levels of employee representation may increase the shareholder value, even in the presence of a conflict of interest between employee representatives and other directors because employees hold specific valuable private information. We also show that a minority employee representation may cause the board to switch from a short-term to a long-term strategy. Such a strategy switch is always in the employees’ interest and can be beneficial or detrimental to shareholders as well as top executives. Thus, employee representation can be beneficial to shareholders as well as other stakeholders. However, employee representation may be harmful for firms whose shareholder base has a short time horizon such as venture capitalists.
Germain, Laurent and Lyon-Caen, Clément, Do We Need Employee Representation on the Board of Directors? (February 9, 2016). Available at SSRN: http://ssrn.com/abstract=2729708
Not being a mathematician but a mere lawyer, I won't try to critique their equations. Suffice it to say that if nothing has change in the 15 years since I last looked at this topic, I don't buy it. Back than, at least, neither the empirical evidence nor (narrative) economic theory supported board representation by employees, as I argued in Privately Ordered Participatory Management: An Organizational Failures Analysis (September 1997). Available at SSRN: http://ssrn.com/abstract=38600
American industrial enterprises long organized their production processes in rigid hierarchies in which production-level employees had little discretion or decision making authority. Recently, however, many firms have adopted participatory management programs purporting to give workers a substantially greater degree of input into corporate decisions. Quality circles, self-directed work teams, and employee representation on the board of directors are probably the best-known examples of this phenomenon.
These forms of workplace organization have garnered considerable attention from labor lawyers and economists, but relatively little from corporate law academics. This is unfortunate, both because the tools routinely used by corporate law academics have considerable application to the problem and because employee participation is ultimately a question of corporate governance.
According to conventional academic wisdom, perceptions of procedural justice are important to corporate efficiency. Employee voice promotes a sense of justice, increasing trust and commitment within the enterprise and thus productivity. Workers having a voice in decisions view their tasks as being part of a collaborative effort, rather than as just a job. In turn, this leads to enhanced job satisfaction, which, along with the more flexible work rules often associated with work teams, results in a greater intensity of effort from the firms workers and thus leads to a more efficient firm.
Although this view of participatory management has become nearly hegemonic, the academic literature nevertheless remains somewhat vague when it comes to explaining just why employee involvement should have these beneficial results. In contrast, my article presents a clear explanation of why some firms find employee involvement enhances productivity and, perhaps even more important, why it fails to do so in some firms. Despite the democratic rhetoric of employee involvement, participatory management in fact has done little to disturb the basic hierarchial structure of large corporations. Instead, it is simply an adaptive response to three significant problems created by the tendency in large firms towards excessive levels of hierarchy. First, large branching hierarchies themselves create informational inefficiencies. Second, informational asymmetries persist even under efficient hierarchial structures. Finally, excessive hierarchy impedes effective monitoring of employees. Participatory management facilitates the flow of information from the production level to senior management by creating a mechanism for by-passing mid-level managers, while also bringing to bear a variety of new pressures designed to deter shirking.
Welcome to the Legal Minefield Laid by Obama and the Feds: How many criminal laws are there? Nobody knows. https://t.co/eImd8oRHJd— WSJ Editorial Page (@WSJopinion) February 17, 2016
A friend sent along this email comment:
Grynberg v. Kinder Morgan Energy Partners, L.P. concludes that a Master Limited Partnership, which is a publicly traded type of firm used in the oil and gas business, should be treated for purposes of federal diversity jurisdiction as a collection of individual investors (and "aggregate") rather than as an entity. That may be consistent with legal doctrine in your field but it defies common sense. The court offers the following argument:
"Second, even if we consider the MLP’s characteristics, they do not support treating an MLP like a corporation for diversity jurisdiction. MLPs and corporations are publicly traded, centrally managed, and have freely transferable interests. But the similarities end there. MLPs are formed as unincorporated entities under state law, and Carden reaffirmed the dichotomy between corporations and unincorporated entities."
This certainly deserves the famous observation, "I understand everything but the therefore."
To which I responded: It may be that the common law is an ass, but until UPA (1997) changed the law in this area, partnerships were regarded by PARTNERSHIP LAW itself as an aggregate not an entity. Hence, partnerships have long been viewed as a collection of the partners for purposes of diversity. The rule has been extended to LLCs, by the way:
Notwithstanding LLCs' corporate traits, however, every circuit that has addressed the question treats them like partnerships for the purposes of diversity jurisdiction. See Gen. Tech. Applications, Inc. v. Exro Ltda, 388 F.3d 114, 120 (4th Cir.2004); GMAC Commercial Credit LLC v. Dillard Dep't Stores, Inc., 357 F.3d 827, 828–29 (8th Cir.2004); Rolling Greens MHP, L.P. v. Comcast SCH Holdings LLC, 374 F.3d 1020, 1022 (11th Cir.2004); Handelsman v. Bedford Village Assocs. Ltd. P'ship, 213 F.3d 48, 51 (2d Cir.2000); Cosgrove v. Bartolotta, 150 F.3d 729, 731 (7th Cir.1998). This treatment accords with the Supreme Court's consistent refusal to extend the corporate citizenship rule to non-corporate entities, including those that share some of the characteristics of corporations. Carden, 494 U.S. at 189, 110 S.Ct. 1015 (treating a limited partnership as having the citizenship of all its members); Great S. Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 456–57, 20 S.Ct. 690, 44 L.Ed. 842 (1900) (refusing to extend the corporate citizenship rule to a “limited partnership association” although it possessed “some of the characteristics of a corporation”).
RUPA adopts the “entity” theory of partnership as opposed to the “aggregate” theory that the UPA espouse[d]. Under the aggregate theory, a partnership is characterized by the collection of its individual members, with the result being that if one of the partners dies or withdraws, the partnership ceases to exist. On the other hand, RUPA's entity theory allows for the partnership to continue even with the departure of a member because it views the partnership as “an entity distinct from its partners.”
Republic Properties Corp. v. Mission W. Properties, LP, 391 Md. 732, 744, 895 A.2d 1006, 1013 (2006). See UPA (1997) Section 201. Partnership as entity: "(a) A partnership is an entity distinct from its partners."
As a corporate lawyer, the VW emissions scandal interests me mainly as an example of how large corporations run by supposedly smart people can make incredibly dumb decisions. But, as a lawyer, I will be following the class actions suits with interest.
Alison Frankel speculates on the various possibilities as lawsuits against VW proliferate:
Six jurisdictions have been floated so far by different lawyers for car owners. (VW has not yet signaled whether it agrees the cases should be consolidated and, if so, where.) ...
The more compelling candidates for the VW MDL are Los Angeles; Newark, New Jersey; and Alexandria, Virginia, all of which have also been proposed in filings with the MDL panel. New Jersey, which is backed by Lieff Cabraser and Seeger Weiss, is Volkswagen’s state of incorporation in the U.S. and is the home of the company’s U.S. engineering and environmental office as well as other VW corporate operations. New Jersey is also easily accessible to air travelers from Germany, where Lieff and Seeger Weiss assert the supposed emissions-evading scheme was devised and executed.
The “rocket docket” of Eastern Virginia was proposed by Burns Charest, which can’t be accused of hometown chauvinism because it is based in Dallas. Virginia is the headquarters for the U.S. operations of Volkswagen and Audi, making it “their nerve center and the center of their decision-making process,” the Burns firm said. (Clearly, the plaintiffs will have to do some digging to figure out which continent was actually the site of VW’s fateful emissions-rigging decisions.) Burns Charest also points out that Alexandria is a mere 200 miles from Morgantown, West Virginia, where researchers from University of West Virginia first exposed VW’s manipulation of the cars’ emissions. (For however much that is worth.)
VW sold more clean diesel cars in California than any other U.S. state, and more class actions by car owners have been filed there than anywhere else, according to a brief filed Wednesday at the JPML by Bernstein Litowitz Berger & Grossmann. Federal judges in Los Angeles, in particular, have already handled sprawling products liability litigation against Kia and Hyundai, which were accused of misrepresenting their fuel efficiency, and against Toyota in the sudden acceleration litigation.
Of course, picking the court will just be the opening round of a litigation morass that is likely to drone on for years.
The WSJ reports that:
An EPA cleanup crew on Aug. 5 accidentally triggered a breach in an abandoned gold mine in the southwestern part of Colorado, releasing an estimated three million gallons of toxic, mustard-tinted sludge through a river system that also spans New Mexico and Utah. The sludge, which flowed down the Animas River and emptied into the San Juan River in New Mexico, contains such contaminants as lead and arsenic from the Gold King Mine, north of Silverton, Colo., one of thousands of abandoned mines across the western U.S. ...
“The EPA’s initial response to this point has been slow and insufficient,” Sen. Michael Bennet (D., Colo.) said in an emailed statement. ...
“Nobody is going to take the attention away from EPA’s incompetence on this,” [Sen. Cory Gardner (R., Colo.)] said. “If this was a private company, all hell would be breaking loose.”
Indeed, as BP employees and shareholders can attest.
Obviously, you can't throw a government agency in jail, while fining one would simply circulate money through the government. But what if we applied the responsible officer doctrine to the government officials at fault and held them civilly and criminally liable for this sort of gross misconduct? Maybe the government would become a lot more efficient.