ProfessorBainbridge.com

The Senate should ignore the American Bar Association's views on judicial nominees

They're back: The left-liberals who run the American Bar Association are once again declaring that conservative jurists are not qualified to sit on the federal courts. In my view, the Senate should join with President Trump and deny the ABA any institutional role in the nomination process.

As I explained back in 2005:

In today's WSJ ($), ABA member and section leader Joseph Smith argues that the American Bar Association's rating of SCOTUS nominee John Roberts:

... should be viewed no differently from an opinion expressed by any other special-interest group. Yet that is not how ABA ratings are received by the public or used by politicians. The ABA knows this and takes advantage of it. That's why when the ABA releases its rating on Judge Roberts, it will do so without acknowledging political motives.

Smith points out that over the last 15 years:

... the ABA has become even more stridently left-wing, yielding an organization that advances a vision more akin to Howard Dean's than James Madison's or even Bill Clinton's.

Smith therefore doesn't trust the ABA to give Robers a fair shake and points to history that bears him out:

If history is any indication, however, the ABA will struggle with the Roberts rating for a simple reason: He is conservative. For that sin, the nominee may earn a split vote or worse. That disservice was infamously done to Robert Bork in 1987, when President Reagan nominated him to the Supreme Court. Mr. Bork earned four "not qualified" votes from the ABA's 15-member committee -- an egregious insult.

In 1991, the ABA again let politics cloud its judgment when rating Clarence Thomas after the first President Bush nominated him to the Supreme Court. Two of the ABA's committee members branded him "not qualified" -- again an outrage, given his record. Some within the ABA acknowledge that the Bork and Thomas ratings were shamefully partisan. Others, however, still fail to appreciate that.

This is not just spin; nor were the Bork and Thomas episodes isolated cases. Northwestern law professor James Lindgren has documented a consisted pattern of ABA bias:

... it is an apt moment to look at the ABA's controversial judicial-evaluation process and consider whether it provides an objective, nonpartisan measure of a judicial nominee's qualifications. ...

What does the evidence show? I've just completed a statistical study of the ABA's ratings of appointees to the U.S. Courts of Appeals during the Clinton and first Bush administrations and can report that the facts don't support the ABA's claim of objectivity. The ABA may once have been objective, but it's not anymore.

I analyzed the credentials of the 108 nominees who were ultimately appointed to the federal appeals courts during the Clinton and Bush-1 administrations. The results? The ABA applied measurably different and harsher standards during President George H. W. Bush's administration than it applied during President Bill Clinton's tenure. In short, the Bush appointees got lower ABA ratings than the Clinton appointees.

And, no, it wasn't because Clinton nominated better judges:

A Clinton nominee with few of the six credentials I measured had a much better chance of getting the highest ABA rating than a Bush nominee with most of these credentials. For example: A nominee with an elite law school education, law review, a federal clerkship, and experience in both government and private practice would have only a 32% chance of getting the highest ABA rating if he were a Bush appointee, but a 77% chance if he were a Clinton appointee. A Clinton nominee with none or just one of these five credentials would still have at least a 45% chance of getting the highest rating.

It's bias, pure and simple. For that reason, neither the President nor the Senate should give the ABA's rating of Roberts any greater weight than, say, that of the People for the American Way. Indeed, one should give PFAW credit for at least being honestly liberal, while the ABA lies about its politics.

The leopard has not changed its spots.

From Forbes in 2009:

In a recent story in The New York Times, Adam Liptak reports that President Obama has restored the preferred position of the American Bar Association in evaluating the potential qualifications of potential judicial nominees on a pre-nomination basis. Liptak’s observation that the ABA might have a “liberal bias” in the critical evaluations strikes me, as it struck him, as perfectly consistent with the ABA’s current membership, which is not, to say the least, a random selection of members of the bar.

Liberals, of course, may praise Obama for letting the ABA burnish the resumes of nominees sympathetic to their cause. They can defend the bias on substantive grounds, but it is dangerous for them to deny its existence ...

From National Review in 2012:

The ABA’s glaring ideological bias has been noted by prominent commentators on the right and the left. Adam Liptak of the New York Times characterized the ABA as “a private trade association, not an arm of the government,” that “takes public and generally liberal positions on all sorts of divisive issues.” These include liberal positions on everything from same-sex marriage, gun control,and religious liberties, to even matters of national security.

But the ABA’s bias extends beyond liberal policy positions, and into the rating of a president’s judicial nominees. The Wall Street Journal just addressed this issue yesterday:

A 2009 study by the Midwest Political Science Association found that with all else equal, “nominations submitted by a Democratic president were significantly more likely to receive higher A.B.A. ratings than nominations submitted by a Republican president.”

To wit, Goodwin Liu, the liberal darling from the University of California, Berkley, (a failed Obama nominee to the Ninth Circuit and now a justice on the California Supreme Court) received the ABA’s highest rating despite not meeting the group’s own written standards for qualification for the bench. As Ethics and Public Policy Center President Ed Whelan has noted, the ABA specifies that a nominee should “ordinarily have at least twelve years experience in the practice of law,” and be a veteran of the courtroom. Mr. Liu had neither, but still got the “well-qualified” nod from the ABA.

No such love was extended to the more conservative Frank Easterbrook, who earned a “qualified/not qualified” rating from the ABA despite having served as Deputy Solicitor General and argued 20 cases before the Supreme Court.

The 2009 study found that “the most liberal nominees had a 62.3% chance of receiving a ‘well-qualified’ rating from the ABA, as opposed to only a 35.5% likelihood for the most conservative nominees.” It also found that “nominees in the Clinton Administration were 14% more likely to get the ABA’s highest rating than the nominees of Presidents Reagan, George H.W. Bush and George W. Bush.” This bias is not just a function of a liberal review committee, but is embedded into the ABA’s criterion for judicial qualifications.

 

The Case for Disallowing the Necessity Defense in Climate Change Cases

 I got an email today from an outfit called Kent Com LLC, which states in part that:

I've been fascinated by the necessity defense since I read Cannibalism and the Common Law: The Story of the Tragic Last Voyage of the Mignonette and the Strange Legal Proceedings to Which It Gave Rise, which is a truly great sea/law story. Based on my recollection pf the law, I didn't see how this was a proper case for the necessity defense. After going back to the law, I think it should not be allowed.

Under Minnesota law:

A necessity defense defeats a criminal charge

if the harm that would have resulted from compliance with the law would have significantly exceeded the harm actually resulting from the defendant's breach of the law.

United States v. Seward, 687 F.2d 1270, 1275 (10th Cir.1982) (quoting State v. Marley, 54 Haw. 450, 509 P.2d 1095 (1973)), cert. denied, 459 U.S. 1147, 103 S.Ct. 789, 74 L.Ed.2d 995 (1983). In addition, the defense exists only if (1) there is no legal alternative to breaking the law, (2) the harm to be prevented is imminent, and (3) there is a direct, causal connection between breaking the law and preventing the harm. Seward, 687 F.2d at 1270.

State v. Rein, 477 N.W.2d 716, 717 (Minn. Ct. App. 1991).

The necessity defense has often been urged in civil disobedience cases, but only rarely successfully. See Nadia N. Sawicki, The Hollow Promise of Freedom of Conscience, 33 Cardozo L. Rev. 1389, 1420 (2012) ("In cases of civil disobedience, defendants are rarely able to satisfy the four prongs of the narrow necessity defense....").

In a case in which defendants raised the defense of necessity to justify trespassing on property of an abortion clinic, for example, the court pointed out that:

We also observe that the necessity defense claimed by appellants was principally premised on their aim to stop abortions generally, including those permitted by law. This theory of necessity is especially flawed because it involves no cognizable harm to be avoided. The courts do not recognize harm in a practice specifically condoned by law. United States v. Schoon, 939 F.2d 826, 829 (9th Cir.1991). Moreover, Schoon may have even greater impact. Arguably, appellants committed trespass to protest the lawfulness of abortions, constituting an act of indirect civil disobedience. Id. at 828 (contrasting direct civil disobedience, where the law being broken is the object of the protest). The Schoon court determined as a matter of law that the necessity defense is unavailable regarding acts of indirect civil disobedience.

State v. Rein, 477 N.W.2d 716, 718 (Minn. Ct. App. 1991). Might one not argue that the defendant valve turners committed their offense so as to protest the lawfulness of transporting and using fossil fuels? If so, does not Minnesota law preclude the necessity defense?

Similarly, a Minnesota court has also stated that:

Applying the analysis of Rein to this case, we conclude Wicklund is not entitled to the necessity defense. First, like the defendants in Rein, Wicklund had legal remedies without committing a trespass. Wicklund had access to the state legislature, courts, and law enforcement organizations. The necessity defense is not available to protestors where there are other legal remedies. Id.

State v. Wicklund, No. C8-96-620, 1997 WL 30857, at *1 (Minn. Ct. App. Jan. 28, 1997).

This prong of the defense has been a particular problem for civil disobedience criminals claiming necessity made them do it.  See, e.g., U.S. v. Maxwell, 254 F.3d 21, 29 (1st Cir. 2001) (“Without exception, the decided cases teach that a defendant's legal alternatives will rarely, if ever, be deemed exhausted when the harm of which he complains can be palliated by political action.”); U.S. v. Quilty, 741 F.2d 1031, 1033 (7th Cir. 1984) (“There are thousands of opportunities for the propagation of the anti-nuclear message: in the nation's electoral process; by speech on public streets, in parks, in auditoriums, in churches and lecture halls; and by the release of information to the media, to name only a few.”).

U.S. v. Dorrell, 758 F.2d 427, 431 (9th Cir. 1985), seems especially apt here, because the court explained plainly that protestors cannot create "necessity" through their own impatience with the "less visible and more time-consuming [lawful] alternatives," which is precisely what seems to have happened here.

As one (seemingly pro-civil disobedience) commentator summed up the majority view:

Courts have frequently denied the necessity defense in civil disobedience cases on grounds that legal alternatives were available to the protestors instead of violating the law, even if such efforts might well be futile. The U.S. Supreme Court gave a classic statement of this factor in holding that if there is “a reasonable, legal alternative to violating the law, a chance both to refuse to do the criminal act and also to avoid the threatened harm, *140 the [necessity] defense will fail.” Lower courts have seized upon this language as an automatic ground for excluding the defense in civil disobedience cases.

The courts have consistently said that activists are free to participate in the political process, distribute literature, make speeches, petition legislators, express their disagreement with government policy in electronic and print media, and so on.For example, “[t]here are thousands of opportunities for the propagation of the anti-nuclear message: in the nation's electoral process; by speech on public streets, in parks, in auditoriums, in churches and lecture halls; and by the release of information to the media, to name only a few.”

Sometimes courts will simply refer to the notion that the defendants had “legal alternatives,” but usually courts hold that this factor requires a showing that there were no reasonable legal alternatives.Courts have been unsympathetic to the argument that legal processes to redress grievances are inadequate or ineffective.The general attitude of courts in such cases is something like the following: You still had legal alternatives available; you could have continued to petition public officials to mitigate the harm with which you are concerned and engaged in other lawful political activity to induce a change in law or policy; you could have instituted litigation against the relevant political agency in an effort to show that the agency is violating international law or violating its own regulations, and have sought adjudication of your concerns in that manner.

John Alan Cohan, Civil Disobedience and the Necessity Defense, 6 Pierce L. Rev. 111, 139–40 (2007).

Like the defendants in Rein and these other decisions, the valve turners had "had access to the state legislature, courts, and law enforcement organizations," among other legal options. There being legal remedies available, necessity is not allowed.

As I understand Minnesota law, I thus fail to see why a judge would have allowed this defense. But an answer emerges when we go back to the email:

What we have here, I suspect, is a judge who wants to go down in the history books. Or, a judge who -- like former Judge Richard Posner, doesn't care what the law says.

Anyway, back to Wicklund, which provides yet more grounds on which the 

Second, as in Rein, there is no evidence demonstrating that animal research was actually prevented by the trespass. Third, because animal research is permitted by law, there is no cognizable harm to be avoided. The theory of necessity is “especially flawed” when there is no cognizable harm to be avoided. Id.

State v. Wicklund, No. C8-96-620, 1997 WL 30857, at *1 (Minn. Ct. App. Jan. 28, 1997). Because transporting fossil fuel is permitted by law, there was no cognizable harm to be avoided, and the necessity defense should be disallowed.

Further, Wicklund's act constitutes indirect civil disobedience, and therefore, as a matter of law, the necessity defense is not available to him. See id. (determining when the necessity defense is unavailable). Consequently, we conclude the district court did not err in not allowing Wicklund to introduce evidence on the necessity defense. 

In contrast, I think the climate change court did.

In any case, I will be following this case with great interest. 

PS: Buy the book!

Is a unified theory of fiduciary relationships possible?

There is a burgeoning literature that treats fiduciary obligations as a unitary subject and, accordingly, posits various unified field theories that explain all of fiduciary duties and relationships.

I am skeptical of the idea that law is amenable to unified theories. "Physicists have long sought a unified field theory, which would provide a single set of simple laws that explain the four interactions or forces that affect matter--i.e., the strong, electromagnetic, weak, and gravitational forces. To date, they have failed, which provides a strong cautionary tale for anyone seeking a unified field theory of social interactions among fallible humans, whose behavior is far harder to predict than is that of, say, an electron." Stephen M. Bainbridge, Executive Compensation: Who Decides?, 83 Tex. L. Rev. 1615, 1628 (2005).

Even director primacy, after all, has domains in which it works as an explanatory/justificatory theory and those in which is does not.

Instead, it seems to me, that lawyers ought to look not for grand theories that explain everything but for situation specific mini-theories that explain something.

Justice Felix Frankfurter may have this point in mind when he wrote that:

But to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?

Sec. & Exch. Comm'n v. Chenery Corp., 318 U.S. 80, 85–86, 63 S. Ct. 454, 458, 87 L. Ed. 626 (1943).

Sam Bray on National Injunctions

My UCLA colleague Sam Bray has posted Multiple Chancellors: Reforming the National Injunction (November 6, 2016). UCLA School of Law, Public Law Research Paper No. 16-54. Available at SSRN: https://ssrn.com/abstract=2864175 

In several recent high-profile cases, federal district judges have issued injunctions that apply across the nation, controlling the defendants’ behavior with respect to non-parties. This Article offers a new analysis of the scope of injunctions to restrain the enforcement of a federal statute or regulation. It makes two contributions.

First, it shows the causes of the current problem. The national injunction is a recent development in the history of equity, traceable to the second half of the twentieth century. But the forum-shopping and other problems associated with the national injunction depend on something older and more structural: the shift from one chancellor in England to many “chancellors” in the federal courts.

Second, this Article proposes a single clear principle for the scope of injunctions against federal defendants. A federal court should give what might be called a “plaintiff-protective injunction,” enjoining the defendant’s conduct only with respect to the plaintiff. No matter how important the question and no matter how important the value of uniformity, a federal court should not award a national injunction. The basis for this principle is traditional equity, in line with the rule that the federal courts must trace their equitable doctrines to that source. To put this principle into practice, several specific reforms are suggested, ones that the Supreme Court could adopt through an exercise of its supervisory jurisdiction.

Recommended.

This is fantastic paper by Sam Bray which I just assigned to my Remedies students--views on propriety on nat'l injunctions shift w/ new prez https://t.co/aQuF5aBgdX

— Rick Hasen (@rickhasen) February 8, 2017

Occupational licensing

Occasionally the LA Times stumbles into truth. A case in point is an op-ed they published today on occupational licensing:

Over the past several decades, occupational licensing laws in California – and across the country – have grown dramatically. In the 1950s about 5% of occupations were licensed nationwide. Today, roughly 25% of occupations require a state license, many for poor and middle-income professions, according to a recent White House study.

The Golden State’s occupational licensing laws are stricter than most. In fact, the Institute for Justice ranks California as “the second-most broadly and onerously licensed state.” California is one of seven states to license tree trimmers, one of 10 to license landscape workers, one of two to license still machine setters, one of two to license funeral attendants, and one of nine to license farm labor contractors. ...

On average, Californians seeking an occupational license will pay $300 in fees, lose 549 days to training requirements and have to take an exam. That’s just the average. Some of the burdens are far more cumbersome. For instance, a tree trimmer must complete 1,460 hours of training, pass two exams, and pay $851 in fees; a mobile home installer must also complete 1,460 hours, compared to the national average of 245; and a pharmacy technician must complete 730 hours in addition to meeting educational requirements, a bar that’s only as high in three other states. 

This not just burdens business and impedes job formation, but it contributes substantially to California's high recidivism rate:

Whatever the state’s intentions, however, its onerous licensing laws have the effect of keeping ex-convicts out of licensed occupations. After years behind bars, they don’t have the savings needed to enroll in training programs, much less pay licensing fees. To become a licensed security alarm installer, for instance, an individual must complete 933 hours of training, which can easily cost upwards of $1,200. Many of the training programs, moreover, require a high school degree, which two in five inmates nationwide never obtained, according to a 2003 U.S. Department of Justice study.

To stay out of prison, ex-convicts need a way to provide for themselves legally. With so many barriers to employment, it’s no wonder that states with abundant licensing laws experience a higher recidivism rate.

Analysis of data from the Institute for Justice, the Pew Center on the States and the National Employment Law Project reveals that states with the most burdensome licensing laws saw an average 9% increase in recidivism from 1997 to 2007. On the other hand, the states that had the lowest licensing burdens and no provisions excluding ex-convicts saw an average decline in recidivism by nearly 2.5%. 

On the other end of the law business spectrum, Gillian Hadfield muses on the way occupational licensing for lawyers raises the cost of hiring lawyers and increases the number of people who lack competent representation:

The rules that prohibit the “corporate practice of law” or any “fee-sharing” (otherwise known as profit- and revenue-sharing) with anyone who is not a lawyer–like investors or business managers or software engineers.  A small-scale practice–which is where we find the lawyers who provide services to individuals and small businesses–is hugely inefficient.  Lawyers don’t benefit from that inefficient scale.  But clients pay for it–and mostly, can’t pay for it and so can’t access services.

That’s the irony:  Lots of lawyers are actually willing to provide their legal help to the market in exchange for an average of about $35 an hour.  That deal could be struck with the millions of people who need some legal help and who could pay that price (but not $200 an hour) if the rules let lawyers work for and with the non-lawyer professionals and investors who can get us to the scale and technology needed to generate large-scale access.

Usha Rodrigues on America's Test Kitchen v. Kimball

Like Usha Rodrigues, I'm a big fan of Cook's Illustrated and the rest of the American test Kitchen family. Christopher Kimball, however, not so much. I always found him a bit too prissy and pretentious. In any case, Usha reports that:

 Christopher Kimball's divorce from the Vermontian empire he's created is big news, as is his new venture Milk Street.  Which was a leetle to close for comfort to the enterprise he left, according to ATK, which filed a suit alleging breach of fiduciary duties, corporate theft, interference with contract, and other goodies.  ATK has a site explaining Why we are suing Christopher Kimball.  Here's the WaPo with 6 takeaways. 

Might make a good exam fact pattern. 

Is Hillary Clinton Embarrassed By Her Corporate Law Past? Surely not. Corporate Lawyers are the Salt of the Earth!

The WSJ reports:

The future presidential contender worked for 15 years as a corporate litigator at the Rose Law Firm in Arkansas’s capital, longer than any other position in or out of government. Her portrait still hangs in the firm’s downtown offices.

Yet that chapter in her life has been all but excised from the official Hillary Clinton story. She hardly ever mentions it on the campaign trail. Her husband skipped past it when telling of her life story at the Democratic National Convention. Until August, it wasn’t even mentioned on her campaign’s official biography....

In her 2003 book, Mrs. Clinton writes only briefly about her work at Rose. She highlights a couple of cases, including her first jury trial, where she defended a canning company sued by a man who found the rear end of a rat in his pork and beans. He claimed he couldn’t kiss his fiancée because every time he thought about the situation he would spit.

Mrs. Clinton argued the man hadn’t suffered any real damages and because the rodent part had been sterilized it would be considered edible in parts of the world. She said the plaintiff won “only nominal damages.” Mrs. Clinton didn’t identify the name of the man or the company involved. ...

[Heh.]

The bulk of her cases involved defending large corporations, a Wall Street Journal review of court records suggests. ...

“We hated seeing her on the other side of the table,” says Wade Rathke, founder of Acorn, who was friends with her husband at the time. “We had never been confronted with the reality of her as a corporate lawyer. But there she was and there we were. We didn’t win this one.”

So why doesn't Ms Clinton celebrate her past? After all, being a corporate lawyer is an honorable and highly socially beneficial career. As I wrote in Reflections on Twenty Years of Law Teaching:

Legal education pervasively sends law students the message that corporate lawyering is a less moral and socially desirable career path than so-called “public interest” lawyering. The corporate world is viewed as essentially corrupting and alienating, while true self-actualization is possible only in a Legal Aid office.

Our students get these messages not only in law school, of course, but also in the media. Films like “A Civil Action” or “Erin Brockovich” illustrate the general ill repute in which corporations—and corporate lawyers—are held, at least here in Hollywood.

In my teaching, I have chosen to unabashedly embrace a competing view. I tell my students about Nicholas Murray Butler, president of Columbia University and winner of the Nobel Peace Prize, who wrote that: “The limited liability corporation is the greatest single discovery of modern times. Even steam and electricity are less important than the limited liability company.”

I tell them about journalists John Micklethwait and Adrian Wooldridge, whose magnificent history, The Company, contends that the corporation is “the basis of the prosperity of the West and the best hope for the future of the rest of the world.”

There is no doubt that the corporation is now the key economic institution in Western nations. In the United States, for example, the corporation is the predominant form of business organization by every measure except sheer number of firms. According to recent census data, although corporations account for only about one fifth of all business organizations, they bring in almost 90% of all business receipts.

The corporation also has proven to be a powerful engine for focusing the efforts of individuals to maintain economic liberty. Because tyranny is far more likely to come from the public sector than the private, those who for selfish reasons strive to maintain both a democratic capitalist society and, of particular relevance to the present argument, a substantial sphere of economic liberty therein serve the public interest. Put another way, private property and freedom of contract were “indispensable if private business corporations were to come into existence.” In turn, by providing centers of power separate from government, corporations give “liberty economic substance over and against the state.” ...

The rise of the corporate form thus has “improved the living standards of millions of ordinary people, putting the luxuries of the rich within the reach of the man in the street.” The rising prosperity made possible by the tremendous new wealth created by industrial corporations was a major factor in destroying arbitrary class distinctions, enhancing personal and social mobility. Many of the wealthiest businessmen of the latter half of the 19th Century and the 20th Century began their careers as laborers rather than as scions of coupon-clipping plutocrats.

And so I put it to my students this way: You want to help make society a better place? You want to eliminate poverty? Become a corporate lawyer. Help businesses grow, so that they can create jobs and provide goods and services that make people’s lives better.

The goal isn’t just to make my students feel better about themselves. I firmly believe that too many of our students, when they get out in practice, may be more willing to act in ways that are ethically gray—to act as facilitators rather than gatekeepers—if they’ve been told repeatedly that they’ve already “sold out.” If more legal academics were to celebrate the pro-social aspects of corporate practice, perhaps our students would be better gatekeepers once they get out in practice.

It might help even more if a certain presidential candidate were to celebrate the pro-social aspects of her career as a corporate lawyer.

The Economist reviews 2 new books on white collar crime

The review reports that:

One thing right-wing populists and left-wing progressives can agree on is that society is too soft on white-collar crime. Conservatives abandon their admiration for business when it comes to “crooked bankers”. Left-wingers forget their qualms if locking up “corporate evil-doers”. Hillary Clinton’s line that “there should be no bank too big to fail but no individual too big to jail” would go down equally well at a Donald Trump rally.

But is society really soft on corporate wrongdoing? And would locking up bankers and businessmen and throwing away the key really solve any problems? Two new books try to inject reason and evidence into a discussion more commonly driven by emotion and hearsay: “” by Eugene Soltes, of Harvard Business School, and “Capital Offenses: Business Crime and Punishment in America's Corporate Age” by Samuel Buell, the lead prosecutor in the Enron case, who now teaches at Duke University. ...

The strongest populist argument is about double standards: it is wrong to let the rich get away with a slap on the wrist while poor youths are put in prison for possessing an ounce of cocaine. Messrs Soltes and Buell have clearly demonstrated that the rich aren’t getting away with a slap. But even if they were, this would argue for reforming criminal law for the poor rather than extending the lock-’em-up mentality to the rich. Society should by all means punish white-collar criminals if they have obviously committed crimes and imposed harm. But it should resist the temptation to criminalise new businesses testing the rules. And it should certainly resist the temptation to single people out for harsh punishment simply because they are rich and successful.

I agree that over-criminalization can be a concern. But it also would be a mistake to ignore the relationship between punishing corporations and their executives.

There is an argument for imposing civil liability on corporations and other institutions (i.e., legal persons) where their agents commit torts or breach contracts. A major function of civil liability, after all, is compensation of victims of malfeasance and misfeasance. The legal person will often have far deeper pockets than any of the natural persons amongst its stakeholders. Having one defendant rather than many, moreover, reduces tertiary costs for both parties and society. (Note, BTW, that because compensation is a key goal of civil liability, burning the place down would seem counterproductive.)

Having said that, however, I'm not completely convinced. In the first place, most major corporate misconduct implicates senior corporate officials, such that a regime of personal--rather than corporate--liability would provide them with incentives to cause the corporate entity to insure against the risk of such losses, which satisfies the goal of compensation.

More important, however, the role of compensation as a justification for corporate liability is more compliucated than one might think. 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.

UCLA School of Law announced two new scholarship programs

The School announces:

UCLA School of Law has announced the creation of two new scholarship programs, both of which will provide full tuition to recipients for the duration of their legal education.

Both programs are available for students applying now for the fall semester of 2017. The UCLA Law Distinguished Scholarships will be awarded to students with exceptional academic records who make a binding commitment to UCLA Law through an early-decision application process, with a January 1 application deadline. The UCLA Achievement Fellowships, which do not require an advance binding commitment, are open to talented, high-achieving students who have overcome significant hurdles such as disabilities, socio-economic hardship or educational disadvantages, or those who are the first in their families to pursue a graduate or professional degree. The application deadline for this program is February 1.

Go here for more information. 

What drives judges to decide cases the way they do?

The titular question is one I am currently pondering for a book chapter I'm writing and, happily, the eminent John O. McGinnis has a very thoughtful post up on the issue of whether elected judges are more likely to reach incorrect results:

I generally like Adam Liptak’s reporting on law, but a recent story poorly frames the question of the stakes in state judicial elections. Liptak reports on two studies that suggest that elected judges are less likely to rule in favor of rights for homosexuals and become harsher on criminal defendants the closer the proximity to an election. At the end of the article he suggests that making judges more accountable to the people is thus in tension with “the utmost fairness,” quoting Chief Justice Robert’s desideratum for the judicial system.

But I hope and believe that what the Chief Justice means by fairness are decisions that follow the law. It certainly should not mean decisions that the left likes. ...

Judges may want to skew their decisions to maximize their chances of reelection. But judges who do not face elections may also want to maximize personal advantages. And the most obvious objective to be maximized is their reputation and that reputation is decided by a subset of the people— lawyers and elites. I have already shown how elite universities shower recognition on one kind of Supreme Court justice—those who rule for the left-liberal side of the spectrum. Lawyers too are predominantly left liberal for a variety of reasons, including that legal change and unclear legal rules are generally monetarily advantageous to them. Thus, it is possible, even plausible, that in some judicial systems popular elections provide some counterweight to this elite pressure and we will get fairer, i.e. more accurate decision making as a result. For instance, elite pressures surely favored the recognition of same-sex marriage, regardless of whether that decision was correct as a matter of law.

Go read the whole thing.

What's life as a corporate lawyer like?

Interesting podcast.

Wooldridge on superstar companies--The role of regulation

Very interesting special report in last week's Economist on the growth of superstar companies--especially in tech--that dominate their sectors. In the lead article, Adrian Wooldridge observes that:

A small number of giant companies are once again on the march, tightening their grip on global markets, merging with each other to get even bigger, and enjoying vast profits. As a proportion of GDP, American corporate profits are higher than they have been at any time since 1929. Apple, Google, Amazon and their peers dominate today’s economy just as surely as US Steel, Standard Oil and Sears, Roebuck and Company dominated the economy of Roosevelt’s day. Some of these modern giants are long-established stars that have reinvented themselves many times over. Some are brash newcomers from the emerging world. Some are high-tech wizards that are conjuring business empires out of noughts and ones. But all of them have learned how to combine the advantages of size with the virtues of entrepreneurialism. They are pulling ahead of their rivals in one area after another and building up powerful defences against competition, including enormous cash piles equivalent to 10% of GDP in America and as much as 47% in Japan. ...

The McKinsey Global Institute, the consultancy’s research arm, calculates that 10% of the world’s public companies generate 80% of all profits. Firms with more than $1 billion in annual revenue account for nearly 60% of total global revenues and 65% of market capitalisation.

What's driving this development? Wooldridge suggests several forces are at work, which are complementary rather than competing. But the one I want to focus on is the role of regulation:

The most powerful force behind the rise of the new giants is technology. But two other forces are pushing in the same direction: globalisation and regulation. ...

The growth in regulation has also played into the hands of powerful incumbents. The collapse of Enron in 2001 arguably marked the end of the age of deregulation, which began in the late 1970s, and the beginning of re-regulation. The financial crisis of 2008 served to reinforce that trend. The 2002 Sarbanes-Oxley legislation that followed Enron’s demise the previous year reshaped general corporate governance; the 2010 Affordable Care act re-engineered the health-care industry, which accounts for nearly a fifth of the American economy; and in the same year the Dodd-Frank act rejigged the financial-services industry.

Regulatory bodies have got bigger. Between 1995 and 2016 the budget of America’s Securities and Exchange Commission increased from $300m to $1.6 billion. They have also become much more active. America’s Department of Justice has used the Foreign Corrupt Practices act of 1977 to challenge companies that have engaged in questionable behaviour abroad. The average cost of a resolution under this act rose from $7.2m in 2005 to $157m in 2014.

Regulation inevitably imposes a disproportionate burden on smaller companies because compliance has a high fixed cost. Nicole and Mark Crain, of Lafayette College, calculate that the cost per employee of federal regulatory compliance is $10,585 for businesses with 19 or fewer employees but only $7,755 for companies with 500 or more. Younger companies also suffer more from regulation because they have less experience of dealing with it. Sarbanes-Oxley imposed a particularly heavy burden on smaller public companies. The share of non-executive directors’ pay at smaller firms increased from $5.91 out of every $1,000 in sales before the legislation to $9.76 afterwards. The JOBS act of 2012 exempted small businesses from some of the more onerous requirements of the legislation, but the number of startups and IPOs in America remains at disappointingly low levels.

The complexity of the American system also serves to penalise small firms. The country’s tax code runs to more than 3.4m words. The Dodd-Frank bill was 2,319 pages long. Big organisations can afford to employ experts who can work their way through these mountains of legislation; indeed, Dodd-Frank was quickly dubbed the “Lawyers’ and Consultants’ Full-Employment act”. General Electric has 900 people working in its tax division. In 2010 it paid hardly any tax. Smaller companies have to spend money on outside lawyers and constantly worry about falling foul of one of the Inland Revenue Service’s often contradictory rules.

I think that analysis is spot on. I wrote about the role SOX and Dodd-Frank have played in retarding economic growth in my article, Corporate Governance and U.S. Capital Market Competitiveness (October 22, 2010), available at SSRN: http://ssrn.com/abstract=1696303, and which was published in The American Illness: Essays on the Rule of Law. In that essay I argued that:

During the first half of the last decade, evidence accumulated that the U.S. capital markets were becoming less competitive relative to their major competitors. The evidence reviewed herein confirms that it was not corporate governance as such that was the problem, but rather corporate governance regulation. In particular, attention focused on such issues as the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme.

Tentative efforts towards deregulation largely fell by the wayside in the wake of the financial crisis of 2007-2008. Instead, massive new regulations came into being, especially in the Dodd Frank Act. The competitive position of U.S. capital markets, however, continues to decline.

This essay argues that litigation and regulatory reform remain essential if U.S. capital markets are to retain their leadership position. Unfortunately, the article concludes that federal corporate governance regulation follows a ratchet effect, in which the regulatory scheme becomes more complex with each financial crisis. If so, significant reform may be difficult to achieve.

I'd also refer you to Chester Spatt's essay Complexity of Regulation, which cogently argues that:

Complexity in regulation leads to complexity in financial structures and systems, particularly in light of the efforts of market participants to mitigate the costs and complications induced by regulation, including attempts to engage in regulatory arbitrage. Consequently, much of the costs of regulation in my view are associated with its intricacies. It also is useful to recognize that complexity in regulation leads to huge entry barriers associated with the cost of regulatory compliance. Instead of addressing “too big to fail,” this can lead to maintaining “too big to fail” institutions. This is a connection that appears to be underappreciated by our financial regulators.

 

Related articles

How Regulators Destroy Markets

Dodd Frank Invades Canada

Mahoney on Why Securities Regulation Fails

The rise of the superstars

A research opportunity in the federalization of corporate governance by deferred prosecution

Back in 1982 Roberta Karmel published a classic article book, Regulation by Prosecution, the way the federal SEC was using prosecutions to regulate American business. As Mark Sargent summarized her argument:

Karmel concludes that this exaggerated emphasis on investor protection and corporate governance (each to be achieved primarily through prosecution of individual offenders) diverted the SEC from its other major task, the encouragement of capital formation.

Karmel expounds this general critique through case studies of the SEC's role in the corporate governance movement, its approach to the evolving national market system, its jurisdictional expansionism, and its tendency to erode materiality as a prerequisite to mandatory disclosure. Although a full summary of each of these case studies is be- yond the scope of this review, some of her specific criticisms deserve attention.

For example, Karmel's analysis of how the SEC used its control over the proxy rules to promote reforms in corporate governance, in overseas selling practices, and, generally, in the corporate sense of so- cial responsibility, points clearly to one unresolved contradiction in the agency's conduct. Specifically, the SEC would bring or threaten to bring enforcement actions against corporations which had paid foreign officials to secure contracts from their governments on the ground that such payments had not been adequately disclosed to the stockholders in a proxy statement or annual report. The corporation would ordinarily agree to a consent injunction through which the SEC would cause a restructuring of the board of directors or would apply other, ever more novel, forms of ancillary relief. The SEC would bring all of this about in the name of investor protection. The contradiction, however, is that most shareholders of those companies were not concerned with the illegality or immorality of foreign payments. Rather, those shareholders, like most shareholders, were primarily investors interested in tapping the corporation's income stream, thereby receiving a return on their investment. Thus, the relatively small amounts paid by management to receive lucrative foreign contracts were not matters of information material to the shareholders and, Karmel concludes, should not have been a basis for SEC action.

In addition, as Sargent recounts, Karmel objected to the SEC's creeping federalization of state corporate governance law:

The SEC's attempt to force preemption of state tender offer statutes would perhaps be more defensible if it had been the result of a careful, thorough, and open analysis of the regulatory alternatives, and not, as Karmel emphasizes, ad hoc litigation. The SEC's behavior in this episode appears even more reprehensible once it is realized that the tender offer statute ad- ministered by the SEC (the Williams Act) was not the product of careful study and policy formulation by the agency, but was an expedient political compromise. The SEC's preemptive strike on state takeover regulation thus seems more and more like institutional self-aggrandizement coupled with utter disregard for the effects of its actions on the traditions of federalism.

The more things change ....

Jennifer Arlen and Marcel Kahan have posted an interesting article on the latest twist in this story, which is the use of fevered prosecution agreements:

Over the last decade, federal corporate criminal enforcement policy has undergone a significant transformation. Firms that commit crimes are no longer simply required to pay fines. Instead, prosecutors and firms enter into pretrial diversion agreements (PDAs). Prosecutors regularly use PDAs to impose mandates on firms creating new duties that alter firms’ internal operations or governance structures. DOJ policy favors the use of such mandates for any firm with a deficient compliance program at the time of the crime. This Article evaluates PDA mandates to determine when and how prosecutors should use them to deter corporate crime. We find that the current DOJ policy on mandates is misguided and that mandates should be imposed more selectively. Specifically, mandates are only appropriate if a firm is plagued by “policing agency costs” — in that the firm’s managers did not act to deter or report wrongdoing because they benefitted personally from tolerating wrongdoing or from deficient corporate policing. Moreover, only mandates that are properly designed to reduce policing agency costs are appropriate. The policing agency cost justification for mandates that we develop thus calls into question both the extent to which mandates are used and the type of mandates that are imposed by prosecutors.

Arlen, Jennifer and Kahan, Marcel, Corporate Governance Regulation Through Non-Prosecution (September 2016). University of Chicago Law Review, Forthcoming; NYU School of Law, Public Law Research Paper No. 16-38; NYU Law and Economics Research Paper No. 16-31. Available at SSRN: http://ssrn.com/abstract=2833902

 

What the Arlen & Kahan article lacks, however, is a focus on the federalism issues raised by the use of these agreements to impose mandates that effectively federalize some aspect of corporate governance traditionally within the state's purview. Somebody ought to write that article.

The Anonymous Law Professor mocks Judge Richard Posner to a fare thee well

And it is very, very good.

"Should Jurors Refuse to Serve with the Judge in the Brock Turner Case?" Why not?

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.