ProfessorBainbridge.com

Alison Frankel on our brief in the US v. Newman insider trading case

Frankel:

I was intrigued by another amicus brief filed on the defendants’ behalf. Not the brief by onetime SEC defendant and billionaire sports team owner Mark Cuban, but the one by three professors as famous in the securities law biz as Cuban is in the rest of the world. Stephen Bainbridge of UCLA, Jonathan Macey of Yale and Todd Henderson of the University of Chicago argued in a brief docketed Thursday that the 2nd Circuit panel in the Newman and Chiasson case was exactly right on what constitutes a personal benefit to a corporate insider. (As it happens, the same three, along with Allen Ferrell of Harvard, also filed an amicus brief backing Mark Cuban when the SEC appealed the dismissal of its case against him to the 5th Circuit.)

Wait one second. How come Macey and Henderson got bold typeface but not yours truly? (Update: The squeaky wheel gets the bold typeface.)

The professors said that despite the SEC’s arguments in Dirks for the prohibition of all trades based on material, non-public information, the Supreme Court concluded blanket insider trading rules would “ultimately damage the overall health of the market, because they limit the incentives of market participants to seek out information on which to trade.”

Instead, the professors’ brief said, the Supreme Court came up with the “personal benefit” test, which was supposed to draw an objective line between tips passed by a corporate insider with an improper motive and information provided innocently. The Dirks opinion did say that an insider’s improper purpose can be to enrich a friend, but, according to the securities professors, the court “was not endorsing the proposition that an insider who discloses inside information to a ‘friend’ is therefore seeking a personal benefit.”

... The professors contend that the government interpretation – which the Justice Department and the SEC want the 2nd Circuit to enshrine in a reconsideration of the Newman and Chiasson decision – would undermine the free-market policy concerns at the heart of Dirks. They urged the 2nd Circuit to deny the government’s petition.

Bainbridge said in an email that he’s done about 10 such amicus briefs in his 25-year career and that the Newman filing reflects views he has been espousing on his blog, ProfessorBainbridge.com, for about a year. 

 

My law librarian responds in defense of the book

UCLA Law Librarian Kevin Gerson sent along some thoughts in response to my post the other day on law libraries:

Here are a few thoughts on print resources in law libraries:

1. The operating budget of the W&L library is increasing by 2%, but that doesn’t mean that the library isn’t continuing to cut print resources. Most online database costs increase at rates of about 5-10% per year.  A 2% budget increase will still require the cutting of print resources in order to maintain the digital resources.  Most law libraries continue to add digital resources each year.  
2. Perhaps surprisingly, some publishers require us to purchase the print in order to access the online version.  Similarly, many publishers routinely increase the online resource costs when print subscriptions are discontinued. 
3. It’s easy to find reports, mostly from firms, saying that print libraries are dead.  However, the 2014 ABA Legal Technology Survey Report (of 75,000 attorneys in private practice) reports that 44% of attorneys regularly use print materials for legal research (up from 41% in the prior year). Only 3% never use print materials. On the other hand, 11% never use Westlaw or Lexis.
4. The Social Law Library pointed out in a recent annual report that: “It’s an inconvenient truth that books and other expensive legal materials continue to be essential to legal research. Not everything is published electronically, at least yet and not by a long shot. The implications for legal research are clear. While research on primary law (cases and statutes) constitutes the bulk of basic research and can now be largely conducted online, once legal questions become novel or complex, researchers must turn to expensive treatises and secondary sources that are still overwhelmingly paper-based.”
5. Digital resources, especially secondary sources in aggregated packages such as Lexis and Westlaw, are notoriously unstable in that the resources are frequently removed from the database without any notice.  On the other hand, books are stable and self-preserving and can last for centuries with little attention.
6. Our faculty generally prefer reading monographs in a print format.  Professor Naomi Baron, in her new book Words Onscreen: The Fate of Reading in a Digital World, found in a survey of university students a near-universal preference for print for serious reading. This preference for print for in-depth reading is elucidated in 2013 Scientific American review article (Jabr, Why the Brain Prefers Paper).
7. In our library, we can measure the use of our print collection by the number of books we return to the shelves each year.  In the most recent year, we reshelved over 102,000 volumes, which is up from 97,000 in the prior year. In addition, we saw a 33% increase in the student use of our print reserve course materials.

 I stand corrected.

It happened again: Top law review that I can't crack as author asks me to referee an article

Back in 2011 I got a request from the Chicago Law Review to referee an article for them, which sort of pissed me off. Today I got one from the Yale Law Journal:

I hope this note finds you well. I am an Articles Editor for Volume 125 of the Yale Law Journal, and I’m writing to see if you might be willing to serve as a referee for a paper we are considering for publication in the Journal.

I can but repeat part of what I said back in 2011:

Either the student-edited format makes sense or it doesn't. The whole purpose of peer review is to get students OUT of the process, not to supplement a decision that would remain in the hands of second and third year law students. A pure peer review/edit system has several advantages. First, more informed and experienced decision makers should make better decisions. Second, one key function of peer review is to provide expert advice at a stage at which the authors can still tweak the paper. Hence, the advice should go directly from the reviewer to the author, rather than being mediated through students. Third, making the decision dependent on peer review provides a strong incentive for authors to heed the advice and to improve the paper. Giving students final say means the author is incented to make the students editors happy rather than the more knowledgeable reviewer. Finally, leaving the final decision in the hands of students means that the reviewer has less incentive to provide his/her best analysis, since his recommendations presumably will not be conclusive and may not even impact the final product. The proposed Chicago system being neither fish nor fowl, there is no reason to think it will combine the best attributes of peer and student journals. To the contrary, for the reasons just noted, I suspect it will combine their worst.

Plus, there's this consideration:

By the way, speaking of my twenty-odd years in legal academics without a [Yale Law Journal] publication, if 20 years worth of [Yale] boards have rejected everything I've ever submitted to them, why does this board all of sudden think highly enough of my standing in the field to ask for a review? ... Shouldn't they be selecting people they've published? Or are they admitting that all those boards were wrong to reject all those articles of mine?

If my occasional rants amuse you, go read the whole 2011 post. I think it is one of my better rants.

A missed opportunity (more later)

#SCOTUS denies cert in inside trader's appeal raising challenge to SEC authority to define crimes http://t.co/CKXAfCyCRX

— Alison Frankel (@AlisonFrankel) February 23, 2015

Technology and the future of lawyering and legal education

We're talking about work and labor in tonight's Catholic Social Thought and the Law seminar. One of the questions I posed to the students about the reading was:

Laborem Exercens suggests that it is through work that we realize our humanity. Laborem Exercens sees technology as an ally when it assists and augments work and improves its quality. Technology can become almost an enemy when the mechanization of work takes away all personal satisfaction and the incentive to creativity and responsibility. Discuss these two views of technology.

Several of the students had really interesting takes on the problem, but I was especially interested this observation from one of the students:

From a professional work point of view, the benefits of technology are even clearer. Doctors rely on ever-evolving technologies to improve their performance. A doctor is better able to provide accurate diagnoses with the aid of MRIs and biopsies, and certainly their patients are better off with improved technology.

Even lawyers are indisputably better off with technology. Research via Westlaw and Lexis is orders of magnitude faster and more comprehensive than paper research. Typing up briefs and memos on a PC (or even using speech recognition software) is much faster than writing by hand or using a typewriter. Without a doubt, technology increases a lawyer’s productivity. ...

We don’t really see technology taking away jobs in white-collar professions. To my knowledge, doctors were not laid off after the rise of MRI machines, nor was there a trend of lawyers losing their jobs when legal research moved online. Whatever costs imposed by technology in those fields are easily outweighed by the benefits to the workers and their customers – better medical treatment and presumably better legal representation. 

I'm going to tackle that claim in the seminar tonight, because I think technology has played a major role in the legal profession's problems in recent years. John McGinnis has a very good analysis of this issue in a recent post:

The most important cause of the decline in demand for legal services is technological shock. Technological change has reduced the demand for lawyers, at least at the price point law schools were delivering it. The technological shock has been of two kinds. First, machine intelligence is beginning to substitute for lawyers, particularly at the low end of the legal profession. Document discovery is moving from human to machines. Legalzoom and similar services are encroaching on the production of simple documents, like many wills and trusts. And once machines get into an area, they dominate over time.

Second, machine intelligence is reducing the agency costs from which lawyers have benefited, General counsel, for instance, can keep better track of exactly what their outside counsel are doing, cutting down on slack. The information age reduces the information asymmetry between lawyers and many of their clients.

This technological shock has been good for the economy by reducing the transaction costs constituted by lawyers. But it raises a grave challenge to law schools. Since the cause of the decline in applications is structural, the applicants are not likely to come back in anything like previous numbers. Because the structural change is technological, it also may intensify as computation becomes ever more powerful.  In a subsequent post, I will discuss how law schools can respond to these challenges.

My bottom line is that all of us who work are subject to technological shocks and that Catholic Social Thought provides a relevant framework from which to analyze appropriate societal responses.

Why is W&L increasing its law library budget while cutting everything else?

Brian Leiter quotes a Washington & Lee announcement that the law school is undergoing major changes. They are slashing lots of stuff, but increasing the law library budget:

• The current student-faculty ratio (9:1) will be preserved, but with smaller enrollments the allocation for faculty compensation will be reduced by about 20 percent (equivalent to six positions) and will be achieved through attrition over the four-year period. In addition, some senior faculty salaries will have a one-time salary reduction of 2 percent with salaries frozen for all faculty during the three-year period.... 
• Operating budgets will be reduced by 10 percent in 2015-16 with the exception of the library budget, which will grow by 2 percent.

I know libraries face major budget pressures, especially with escalating journal subscription fees. But aren't law libraries also facing obsolescence? A Pacific Business Journal article reports:

Traditional libraries are becoming obsolete at some Hawaii law firms as technology and online access provide more efficient ways to keep up with legal issues.

But some firms say they’re not quite ready to toss away those big leather-bound books.

... Lexis and WestLaw, do provide most of the manuals needed by attorneys. And, they are more efficient to use, said Daniel Chen, a litigator with Rush Moore LLP, which recently converted from books to digital.

“We had a law library for a long time, but it was an expense to continue to update it,” Chen said. “Every year there are supplements you have to order for the books. Plus, with most of the manuals available online, you pay twice if you have the hard copy too.”

Goodsill Anderson Quinn & Stifel recently tossed its law library for the same reasons. Partner Randy Steverson, head of the firm’s technology committee, agreed with Chen that it didn’t make sense to continually update hard copies of manuals that are available online.

Meanwhile a report of Iowa informs us that:

The once-busy Black Hawk County law library is being dismantled as the Internet provides information once available only in law books.

The library on the third floor of the courthouse used to be heavily used by judges and lawyers, but it’s now rarely used.

The Board of Supervisors voted last week to let the district court dispose of the law books and legal publications that fill high shelves. Officials are offering the books to the Waterloo Public Library, local governments and attorneys.

Ultimately, they could be given to recycling centers.

Assistant County Attorney Pete Burk says, “nobody wants them.”

UCLA's law library is fabulous and our reference librarians are a wonderful resource. But I haven't set foot in it for years. Almost of my research is done online, supplemented by office copies of a few books. If we got rid of the books tomorrow neither my teaching nor my research would take a major hit (probably not even a minor one).

Granted, the law school library can be a useful study hall for the students, but that doesn't mean that their budgets should be going up while everything else is getting slashed.

The Faculty Lounge: What’s The Return On Equality? A Conversation About Board Diversity

Efforts to encourage greater corporate board diversity are now nearly universal.  Though different jurisdictions employ different methods – from reporting to quotas to more informal public, market, or government pressure – the drive to diversify the boardroom is being felt around the world.  But why?

The Faculty Lounge will host a special mini-symposium on corporate board diversity with guest experts in the field.  What methods are different jurisdictions using to promote board diversity and with what effect?  More importantly, what do board diversity advocates hope to achieve with these changes?  Finally, what do our panel of experts believe will be the ultimate result of these efforts? 

Join us in the Lounge as our panel of experts address these and other issues on March 23-27. 

via www.thefacultylounge.org

Should be interesting.

At least at GW, old fart professors keep publishing

Which will surprise people who think old law professors just drift off sit around sipping mint juleps and collecting their pay checks:

Law faculty productivity over time http://t.co/DfduojqYF6 Orin Kerr finds that at GWU productivity does not decline with age

— Stephen Bainbridge (@ProfBainbridge) February 19, 2015

I win! Who was the Ford Motor Co. shareholder who was also a lawyer in Dodge v FMC?

Congrats to Stephen Bainbridge @ProfBainbridge (UCLA Law) and Cyril Moscow (Honigman Miller et al, LLP, in Detroit). pic.twitter.com/QUmdV6XGi1

— The Green Bag (@GB2d) February 19, 2015

The Green Bag's Dodge v Ford Motor Co Quiz

Our quiz pic.twitter.com/MAnp4lFyhU

— The Green Bag (@GB2d) February 16, 2015

I'm pretty sure the answer I submitted is correct, but we'll have to wait until Wednesday to be sure.

I must have this

Yasssss! pic.twitter.com/AgC2JVOqjd

— Ryan (@alwaysonoffense) February 14, 2015

Harvey Goldschmid, RIP

Alas, @ColumbiaUniversity professor, former SEC Commissioner Harvey Goldschmid dies at 74 via @KaraScannell

— John Coates (@jciv) February 12, 2015

I frequently disagreed with Professor/Commissioner Goldschmidt, but I had great respect for his vast knowledge and remarkable expertise. On the few occasions we met, he was invariably courteous and friendly.

The WSJ's obit reads in part:

“He will go down in history as one of the giants of the SEC,” said Arthur Levitt, who was SEC chairman while Mr. Goldschmid was a senior staffer there. Mr. Goldschmid was “the personification of the qualities of patriotism and scholarship,” Mr. Levitt said.

Mr. Goldschmid was the SEC’s general counsel in 1998-99, a special senior adviser to Mr. Levitt in 2000, and an SEC commissioner from 2002 to 2005. He was sworn in as a commissioner the day after President George W. Bush in 2002 signed the Sarbanes-Oxley corporate-reform law and helped with many aspects of its implementation, including the creation of the Public Company Accounting Oversight Board, the government’s auditing regulator. ...

And from the Reuters obit:

"Harvey was in a class by himself in terms of understanding the securities laws," said Joel Seligman, the president of the University of Rochester and a leading expert on securities law.

Seligman, who authored a tribute to Goldschmid in a 2006 Columbia Law Review article, described him as the most influential SEC commissioner in history who never rose to become chair.

I understand that Harvey is survived by his wife, Mary, and his children, Charles, Paul and Joseph. Although I never met them, I extend my condolences anyway. He was one of the good guys.

A price? What's a price?

Hayek created the best written explanation of the price system, but @ATabarrok made the best internet video: http://t.co/nhhV8mHQvc

— Chris Myers (@C_W_Myers) February 12, 2015

Winery of the Year: Smith-Madrone Vineyards & Winery

Congratulations to our friends at Smith-Madrone Vineyards & Winery, one of our favorite boutique producers in Napa, for having been named Winery of the Year by The Daily Meal.

 

Lawrence Cunningham channels Warren Buffet re Shareholder Activist Splitters

Cunningham writes that:

Shareholder activists are pursuing large corporations, questioning those with multiple revenue streams and pejoratively labeling anything resembling a conglomerate a historical anachronism. In the world the activists envision, Jay and Robert Pritzker would not have been allowed to build the Marmon Group nor could Warren Buffettand Charlie Munger have created Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) Inc. (NYSE:BRK.A) (NYSE:BRK.B). That would be a huge loss for corporate America.

Activists such as Carl Icahn oppose corporate diversity because they say it is too hard for them to understand a complex business. Nelson Peltz is hectoring E I Du Pont De Nemours And Co (NYSE:DD)’s managers to split the chemical maker up because he says it is easier to grow a small company than a large one. Both urge handing cash over to stockholders in the process, rather than reinvest it in the business.

True, for some organizations size can be a drag. Bloat can prevent acting quickly and it is harder to move the needle at a massive company. But the splitters overlook how tremendous long-term value resides in corporate cultures that are built through steady, gradual, growth over long periods of time.

It's a valuable and effective counter to the pro-plotter arguments one usually gets from corporate law academics (at least those in Cambridge). Kindly go read the whole thing.