Litigation and Trial - Max Kennerly

Fixing The Injustice of Ashcroft v. Iqbal

Maxwell Kennerly — Fri, 19 Mar 2010 08:13:03 -0500

Last week, Prof. Edward A. Hartnett (of Seton Hall University School of Law) posted Responding to Twombly and Iqbal: Where Do We Go from Here?

Hartnett's idea was eminently reasonable:

I also offer my own proposal, which focuses on the core issue at stake in debates about Twombly and Iqbal: should a plaintiff be able to obtain discovery in an effort to uncover evidence without which he or she cannot prevail?

Hartnett proposes amending Rule 12 of the Federal Rules of Civil Procedure to include:

Rule 12(j): Allegations Likely To Have Evidentiary Support After a Reasonable Opportunity for Discovery

If, on a motion under Rule 12(b)(6) or 12(c) that has not been deferred until trial, the claim sought to be dismissed includes an allegation specifically identified as provided in Rule 11(b)(3) as likely to have evidentiary support after a reasonable opportunity for discovery, the court must either (1) assume the truth of the allegation, or (2) decide whether the allegation is likely to have evidentiary support after a reasonable opportunity for discovery. In deciding whether an allegation is likely to have evidentiary support after a reasonable opportunity for discovery, the court must consider the parties‘ access to evidence in the absence of discovery and state on the record the reason for its decision.

If the court decides that the allegation is likely to have evidentiary support after a reasonable opportunity for discovery, it must allow for that discovery, under the standards of Rule 26, and deny the motion to dismiss. If the court decides that the allegation is not likely to have evidentiary support after a reasonable opportunity for discovery, the court must treat the motion as one for summary judgment under Rule 56, and provide all parties a reasonable opportunity to present all the material that is pertinent to the motion.

Again, eminently reasonable. Such an addition would immediately focus litigation on the real issues, thereby (1) enabling plaintiffs to conduct discovery into the most important areas while also (2) empowering defendants to have cases dismissed—prior to full discovery—if the plaintiff won't be able to prove an essential element of their case.

How could anyone think that was unfair?

The defense bar champions at Drug and Device Law tried to manufacturer an objection, but the argument degenerated into blather and insults. They barely even mention the details of Hartnett's proposal. Instead, they summarily dismissed him with:

Most of these proposals (except Professor Burbank's) actually go far beyond Twombly/Iqbal and would overrule all or most of the prior precedent we cited above. That strikes us as facially overkill and indicative of unexpressed (and in some cases, ulterior) motives at work.

...

We understand that a lot of academics feel that they have to help their students get jobs, or else eventually they won’t have jobs either. Thus, they tend to support anything and everything that results in more, rather than less, litigation.

Oh, snap.

Then again, an accusation of "ulterior motives" probably would have meant more if it didn't come from someone paid by the hour to ensure corporations pay as little as possible to the people and families they hurt.

Frankly, reading through the post, I can't help but wonder if Beck et al. indeed have some "ulterior motive" in misrepresenting how defense lawyers use Ashcroft v. Iqbal in their practice:

So when we get a complaint, we look to see whether, there’s at least one actual fact pleaded that supports each essential element of a cause of action. A plaintiff can plead more if s/he so pleases, but there has to be at least one – otherwise we’ll probably file a Twombly/Iqbal motion.

The implied concession there—that they won't file a motion to dismiss if "there's at least one actual fact pleaded that supports each essential element of a cause of action"—is rubbish. They don't run a charity over there at Dechert: if you file a case against one of their clients, they will come up with any argument they can to get it dismissed.

And that's where the problem with Twombly / Iqbal—really, just Iqbal—comes in. Every time a case is filed today, the defendant inevitably files a motion to dismiss claiming that the "actual facts" plead aren't "facts" at all, they're "conclusions," and so are not, under Iqbal, entitled to an assumption of truth.

What's the difference between a "fact" and a "conclusion?" Merriam-Webster says:

fact: an actual occurrence

conclusion: a reasoned judgment

Let me ask you, Dear Reader: who really won more votes in Florida in 2000, Bush or Gore?

Is your answer a "fact" or a "conclusion?" Do you know it as an actual occurrence, or did you make a reasoned judgment?

The problem with Iqbal is that it instructs courts—at the very beginning of the lawsuit, when they have nothing in front of them but a "short and plain" complaint—to perform a wildly subjective analysis about which allegations are merely "conclusions" and which of the non-conclusory allegations are "plausible."

There's nothing new about that problem. It's the same problem that prompted Rule 8—the Rule supposedly interpreted by Iqbal—to be enacted in the first place:

You used to have the requirement that a complaint must allege the “facts” constituting the “cause of action.” I can show you thousands of cases that have gone wrong on dialectical, psychological, and technical argument as to whether a pleading contained a “cause of action”; and of whether certain allegations were allegations of “fact” or were “conclusions of law” or were merely “evidentiary” as distinguished from “ultimate” facts. In these rules there is no requirement that the pleader must plead a technically perfect “cause of action” or that he must allege “facts” or “ultimate facts.”

Rules of Civil Procedure for the District Courts of the United States: Hearings Before the H. Comm. on the Judiciary, 75th Cong. 94 (1938) (statement of Edgar B. Tolman, Secretary of the Advisory Committee on Rules for Civil Procedure Appointed by the Supreme Court); quoted by p.4 of Professor Stephen Burbank's testimony before the Senate.

The whole point of Rule 8 was to ensure that the right to civil justice didn't turn on metaphysical word games.

And yet we're supposed to come full circle because, as Beck et al. continue,

Twombly/Iqbal are about reining in the cost of litigation; we might feel differently about Professor Hartnett's proposal if it required payment of all a defendant’s costs of “appropriate” (the Article's term) discovery – should designated allegations nonetheless turn out to be unfounded. But under the proposal as offered, there’s no penalty for over-designation. If it’s one thing that the fifty-year life span of Conley established, it’s that unrestrained pleading imposes huge discovery costs on defendants. Even Professor Burbank (who really tried hard) was reduced to relying upon a single study of tiny cases in which even then 25% of the parties believed the process was too expensive. The excessive cost of modern discovery is simply not a issue capable of dispute any longer.

At least Burbank actually cited something. Defense lawyers think they're entitled to assert the cost of discovery—a cost due primarily to their own practice of relentlessly frustrating discovery at every turn—is "excessive" through sheer ipse dixit.

Sounds like a "conclusion" to me, not an "actual fact."

Lawsuits Are The Primary Reason Cars Are Safer Today

Maxwell Kennerly — Wed, 17 Mar 2010 08:36:50 -0500

As always when a major corporation is caught killing, maiming or poisoning innocent people, the apologists have come out in full force in defense of Toyota. This time, they're blaming senior citizens.

You see, old people become confused. They don't realize when they're accelerating and when they're braking. At least that's what I've been told by the usual suspects.

Don't buy it:

In the 50-second tape, crash victim Chris Lastrella begins by telling the dispatcher: “We're in a Lexus ... we're going north (state Route) 125 and our accelerator is stuck.”

The dispatcher asks where they are passing, and Lastrella is heard asking someone in the car where they are. He exclaims: “We're going 120 (mph)! Mission Gorge! We're in trouble – we can't – there's no brakes, Mission Gorge ... end freeway half mile.”

The dispatcher asks if they can turn the car off.

Lastrella doesn't answer and says repeatedly: “We are now approaching the intersection, we're approaching the intersection, we're approaching the intersection.”

The last sounds heard on the tape are someone saying “hold on” and “pray.” Lastrella says: “Oh shoot ... oh ... oh” Then a woman screams.

Killed in the crash were CHP officer Mark Saylor and his wife Cleofe who were both 45, their 13-year-old daughter Mahala, and Lastrella, 38, who was Cleofe Saylor's brother. All four lived in Chula Vista.

So much for blaming the victims for being too old to understand how to drive a car. A California Highway Patrol officer in his prime couldn't stop one of those death traps, so he, his wife, his daughter, and his brother-in-law paid with their lives because, at Toyota, Safety Is Job #2.

That case conveniently didn't make it into any of the articles blaming elderly drivers for the crashes.

Here's something else the corporate apologists won't tell you: lawsuits are the primary reason that cars are safer today than they were in the past.

In the 1970s and '80s, litigation was watched keenly by manufacturers and regulators as a kind of early warning system on safety defects, said Kelley, now semi-retired and consulting on auto product hazards from his home in Pebble Beach, Calif.

Steered by lawsuits and safety standards set by the National Highway Traffic Safety Administration after its creation in the late 1960s, automakers corrected design defects that had exposed drivers to impalement on gearshifts and lacerations from shattered auto glass.

Also in the 1960s, seat belts became widely adopted by automakers and crash tests were refined into a serious science.

The 1970s provided automakers with a wake-up call in the Grimshaw vs. Ford Motor Co. case, in which a California appeals court ordered the carmaker to pay $125 million in punitive damages to the victims of one of the Ford Pinto's fiery explosions. The huge punitive damages award followed evidence showing that Ford knew of the defect but failed to recall the vehicles for what was estimated to be an $11 repair. The award was reduced to $3.5 million in a post-verdict negotiation but nevertheless was one that signaled to the auto industry that it would be harshly sanctioned for ignoring known defects.

Improved seat belts and seat backs emerged in the 1980s, spurred by lawsuits brought on behalf of accident victims. Before three-point restraints were made mandatory a decade ago, back-seat occupants were prone to paralyzing injury when frontal crashes caused their upper bodies to fly toward the impact, smashing into seats, doors or other passengers.

Fact is: money talks. If it costs Toyota less to shuttle a few families to an untimely demise than to fix the problem, Toyota won't do it.

Every time a car company today evaluates the safety of the car's gas tank and fuel system, an engineer, manager or lawyer at the company inevitably says,

Remember the Ford Pinto cases.

Then they check the gas tank and fuel system again. And again.

Next time a car company investigates reports of sudden acceleration, which would you prefer that engineer, manager or lawyer says,

Remember the Toyota cases.

Is it really worth issuing a recall?

Bruesewitz v. Wyeth: A Preemption Prelude To Autism Litigation?

Maxwell Kennerly — Tue, 16 Mar 2010 07:44:53 -0500

Last week, the Supreme Court agreed to hear Bruesewitz v. Wyeth. The case will decide:

Whether Section 22(b)(1) of the National Childhood Vaccine Injury Act of 1986 — which expressly preempts certain design defect claims against vaccine manufacturers “if the injury or death resulted from side effects that were unavoidable even though the vaccine was properly prepared and was accompanied by proper directions and warning” — preempts all vaccine design defect claims, regardless whether the vaccine’s side effects were unavoidable.

The relevant briefs and opinions are available at SCOTUSBlog.

There's an old saying that lawyers and judges bat around, "reasonable minds can disagree." (Of course, few people really believe that, but we all say we do.)

On the above question — in essence, whether Congress intended to wash away (i.e., "preempt") whole swaths of state-law product liability claims against vaccine manufacturers or if Congress merely intended to set up streamlined compensation for a certain class of rare but unavoidable vaccine-related injuries — the Georgia Supreme Court and the United States Court of Appeals for the Third Circuit reached expressly opposite answers less than one year apart from one another. The Georgia Supreme Court answered "no," while the Third Circuit answered "yes."

The Supreme Court will tell us which Court was right.

I'll leave the merits of the arguments to others. Obviously, if a state Supreme Court and a federal Court of Appeals reached opposite conclusions, then "reasonable minds can disagree." The Third Circuit's opinion is here. The Georgia Supreme Court's opinion is here. Judge for yourself.

What caught my eye was this portion of Wyeth's brief to the Supreme Court, part of their argument for why the Supreme Court should hear the case:

Today, a new litigation threat to the nation’s vaccine supply exists. Approximately 5,000 petitions are currently pending in the "Omnibus Autism Proceeding" in Vaccine Court. HRSA, National Vaccine Injury Compensation Program Statistics Report (Sep. 14, 2009, http://www.hrsa.gov/vaccinecompensation/statistics_report.htm. While the omnibus proceeding will decide for all of the pending cases whether there is a causal link between childhood vaccines and autism, that ruling will have no preclusive effect outside of Vaccine Court. 42 U.S.C. § 300aa-23(e). Each claimant may elect to file a civil action after proceeding through Vaccine Court. Over 350 civil actions have been filed against vaccine manufacturers in various courts with allegations that childhood vaccines caused the recipient to develop autism.

The potential deluge of post-Vaccine Court litigation could lead to the same dangerous situation that existed in the mid-1980s. The number of childhood vaccine manufacturers has not increased since the enactment of the Vaccine Act. In the United States market today, as in 1986, there is still just one manufacturer for the polio vaccine, one for MMR, and two for the DTP vaccine. Compare 1986 U.S.C.C.A.N. at 6348, with FDA/CBER, Thimerosal in Vaccines, http://www.fda.gov/CBER/vaccine/thimerosal.htm (last updated Aug. 31, 2009). Thus, what Congress said in 1986 is true today: "The loss of any of the existing manufacturers of childhood vaccines at this time could create a genuine public health hazard." 1986 U.S.C.C.A.N. at 6348.

Wyeth Brief, pp. 17-18.

At first blush, Wyeth's reasoning seems sound. The question presented by Bruesewitz v. Wyeth could determine the fate of more than 5,000 pending cases. That makes Bruesewitz v. Wyeth worthy of attention.

But that doesn't make the case necessarily worthy of the Supreme Court's attention. Outside of constitutional rulings, the Supreme Court's primary job is to interpret the laws passed by Congress, not to enact new laws or to fret over the consequences of old laws. To the extent upcoming autism litigation is a problem, that's an issue for Congress — not the Court — to address.

If, indeed, "the loss of any of the existing manufacturers of childhood vaccines at this time could create a genuine public health hazard," then Congress could step in and immediately terminate all of the pending cases by amending the National Childhood Vaccine Injury Act of 1986. Congress could, for example, amend to law to clearly preempt all civil suits brought for injuries arising from polio, MMR, or DTP vaccines.

Moreover, though 5,000 cases sure sounds like a lot, it's not really that much in the big picture. The Vioxx settlement involves ten times that many. And do you know how many cases it really turned into?

One.

Thanks to the Judicial Panel on Multidistrict Litigation, once litigation over a particular issue becomes too big, it can be consolidated into a single proceeding before a single judge. That's what happened to Vioxx, it's what's happening to Toyota, and it's what will happen to the Autism/Vaccine litigation. At this very moment, approximately 92,000 separate lawsuits arising from a wide variety of situations (ranging from asbestos poisoning to securities fraud) have been consolidated into a mere 310 MDL actions.

A "deluge" of one, I suppose.

And what will likely happen in that single case?

Probably the same thing that happened before the Special Masters and before the Court of Federal Claims: the plaintiffs will lose. Odds are good that the plaintiffs won't even get to a jury; all it takes is for the MDL court to find that plaintiffs' experts' theories do not satisfy Daubert and — poof — the cases are all over before a single witness testifies.

Consider this passage from the Cedillo opinion:

[...] Petitioners’ sequence of cause and effect depends upon a presence of persistent measles virus infection in Michelle’s body. However, the Special Master concluded that “the petitioners offered virtually no evidence concerning this necessary element in their proposed chain of proof– i.e., their claim that the measles virus, which they claim to persist in [autistic] children, is vaccine-strain measles virus.” Id. at *52. The Special Master also saw no logical sequence of cause and effect between the MMR vaccine and Michelle’s development of inflammatory bowel disease. Specifically, the Special Master found Dr. Krigsman’s theory that Michelle suffered from an MMR-induced inflammatory bowel disease to be factually incorrect because Michelle did not suffer from gastrointestinal inflammation, and Dr. Krigsman “gravely misunderstood the temporal history of Michelle’s gastrointestinal problems.” Id. at *114-15. The Special Master’s conclusion that Petitioners failed to demonstrate any relationship between the MMR vaccine and Michelle’s autism is eminently reasonable. He determined that they offered “virtually no evidence” to support their claim. See id. at *52.

That's a big problem. Given the amount of effort put into the case, it's hard to see the plaintiffs curing this problem down the road. Similarly, the primary study demonstrating a connection between the MMR vaccine and autism was officially retracted last month.

But we're getting ahead of ourselves with these details. The point is: if the Supreme Court agrees with the Georgia Supreme Court and finds that only claims arising from unavoidable vaccine injuries are preempted, the sky will not fall. Not even if the autism litigation goes forward.

Most likely, the sky won't even move at all.

And if it moves too much, then Congress can put it back, just like they did in 1986.

Trial Judges Are Not Umpires

Maxwell Kennerly — Thu, 11 Mar 2010 08:20:15 -0500

Via Sports Law Blog, I saw a new paper: Aaron Zelinsky, The Justice as Commissioner: Benching the Judge-Umpire Analogy, 119 Yale L.J. Online 113. [After writing this post, I saw the WSJ Law Blog covered it, too.]

Here's the abstract:

The judge-umpire analogy has become “accepted as a kind of shorthand for judicial ‘best practices’” in describing the role of a Supreme Court Justice. However, the analogy suffers from three fundamental flaws. First, courts historically aimed the judge-umpire analogy at trial judges. Second, courts intended the judge-umpire analogy as an illustrative foil to be rejected because of the umpire’s passivity. Third, the analogy inaccurately describes the contemporary role of the modern Supreme Court Justice. Nevertheless, no workable substitute for the judge-umpire analogy has been advanced. This Essay proposes that the appropriate analog for a Justice of the Supreme Court is not an umpire, but the Commissioner of Major League Baseball.

I agree with his argument regarding Supreme Court Justices. Given the Justices' policy-making focus and their practice of deciding cases based on the long-term consequences rather than the particular facts of the case, the umpire analogy makes little to no sense for them.

But that's not the whole story. The judges-as-umpires analogy does not work for trial judges either, because the analogy downplays the inherent uncertainty in the law and diminishes the significance and breadth of what trial judges do.

There are a handful of situations in which a trial judge, like an umpire, must draw upon their experience and intuition to quickly exercise discretion in applying a general rule, like when ruling upon evidentiary objections at trial.

Most of the time, however, trial judges have plenty of time to contemplate the issues before them, like when ruling upon motions to dismiss, motions for summary judgment, and motions for post-trial relief — the three most important dispositive motions.

In those instances, the judge is not merely called upon to decide whether or not a pitch was within the strike zone. Indeed, in many situations, the judge is not even asked to decide if the pitch really was within the strike zone (i.e., whether the allegations made by one side are true or false), because they are required to accept the truth of what one of the parties says or of what the jury found. (There are a handful of exceptions, like sentencing decisions, but those, too, are fraught with uncertainty.)

In most situations, the judge is asked to figure out where the strike zone should be. It is as if there were different strike zones for fastballs, breaking balls, and changeups, and the umpire had to determine — based on nothing more the players' arguments about the pitch (i.e., the briefs and the oral argument) — which rule should apply.

But that's not the hard part. In many situations, trial judges must decide not just which rule should apply based on imperfect and incomplete information, but what the rules even are.

Imagine there were different strike zones for different pitches, yet no one agreed what a sinker, curveball, slider, screwball, palmball, or knuckleball even was, and the umpires were supposed to decide which pitch was really used by reviewing dozens of calls by prior umpires, many of which seemed to reach contradictory results and none of which involved the exact same style pitch as the situation at hand.

Making matters worse, imagine, too, that the players themselves don't know for sure what the rules are, and that, after each pitch, the coaches run out to argue over what type of pitch it was.

Does that sound like baseball to you? It sounds like Calvinball to me.

And it sounds like a heckuva game to play.

The Problem With HR 4364, The Proposed Federal Anti-SLAPP Law

Maxwell Kennerly — Tue, 09 Mar 2010 08:30:56 -0500

Via Overlawyered, Eric Goldman and others favor HR 4364, the “Citizen Participation Act of 2009,” which would establish a federal anti-SLAPP law.

Around half the States have anti-SLAPP (i.e., Anti-"Strategic Lawsuit Against Public Participation") statutes which make it easier to dismiss suits allegedly filed to chill freedom of speech. If the lawsuit arises from the Defendants' exercise of their rights to free speech — which in the post-Citizens United era means virtually every time a corporation advances an agenda — then the Defendant can file, at the very beginning of the lawsuit, a "special motion" that requires the Plaintiff show concrete evidence proving each element of their claims.

The laws make sense, in theory. “The hallmark of a SLAPP suit is that it lacks merit, and is brought with the goals of obtaining an economic advantage over a citizen party by increasing the cost of litigation to the point that the citizen party’s case will be weakened or abandoned, and of deterring future litigation.” United States ex rel. Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963, 972-73 (9th Cir.1999). The purpose of anti-SLAPP laws is to ensure the prompt dismissal of “legally meritless suits filed in order to obtain a political or economic advantage over the defendant, not to vindicate a legally cognizable right of the plaintiff.” Condit v. Nat’l Enquirer, Inc., 248 F. Supp. 2d 945, 952 (E.D. Cal. 2002)(internal quotation omitted). “The paradigm SLAPP suit is an action filed by a land developer against environmental activists or objecting neighbors of the proposed development.” Id.

All well and good. Indeed, anti-SLAPP Acts are sometimes used to dismiss bogus suits in which one side really was trying "to obtain a political or economic advantage" over someone with inadequate resources to defend themselves. See Melius v. Keiffer, 980 So. 2d 167, 170 (La. Ct. App. 2008)(granting motion to strike complaint brought by owners of a bar against area resident who had opposed an expansion of the bar); Lamz v. Wells, 938 So. 2d 792, 794 (La. Ct. App. 2006)(dismissing case filed one week before election by one judicial candidate against another); Darden v. Smith, 879 So. 2d 390, 393 (La. Ct. App. 2004)(dismissing case filed by public official against individual who filed a complaint with the Louisiana Board of Ethics).

Goldman gives his own example where an anti-SLAPP motion allowed a party with limited legal resources to avoid the cost and burden of full-fledged litigation:

All too often, vendors use actual or threatened litigation to take down content that criticizes their offerings. The proposed federal anti-SLAPP law applies to those lawsuits. Thus, if enacted, the federal anti-SLAPP law will help consumers share their true feeling about marketplace offerings with less fear of meritless lawsuits from vendors who would rather fight in court than compete.

BoingBoing’s recent resolution of a lawsuit brought by MagicJack nicely illustrates the virtues of anti-SLAPP laws. BoingBoing blogged some criticisms of MagicJack’s offerings, and MagicJack unwisely responded to that post with a lawsuit. Fortunately for BoingBoing, MagicJack sued it in California, which has a robust anti-SLAPP law. As a result, BoingBoing was able to end the lawsuit early (BoingBoing won its anti-SLAPP motion less than 3 months from complaint filing) and get the court to order MagicJack to pay its attorneys’ fees of over $50k.

But it's not always David using anti-SLAPP laws against Goliath; it's often the other way around.

Consider the BoingBoing case. Let's assume that, instead of suing BoingBoing, MagicJack retaliated by secretly hiring a spam company to inundate BoingBoing and other widely-read blogs with hostile comments questioning BoingBoing's motives and favorably referring to MagicJack.

BoingBoing, having no other options, sues MagicJack.

Would those allegations show MagicJack's "acts" were "in furtherance of the right of free speech?" Sure; MagicJack has just as much a right as BoingBoing to talk about other companies. So the anti-SLAPP Act would be available.*

At the beginning of the case, then, BoingBoing would be required to prove — prior to conducting any discovery, since HR 4364 automatically stays all discovery — that MagicJack was behind the posts, that the posts were false, that the posts were capable of a defamatory meaning, and that MagicJack was at "fault" in publishing the comments (defined in many states as "acting with malice or reckless intent").

How could BoingBoing prove all that immediately after filing suit? Most of that information would be in MagicJack's possession.

Odds are, BoingBoing wouldn't be able to do it. Their case would be dismissed, and MagicJack could continue to harass BoingBoing at will.

The law of unintended consequences, as they say.

Put simply, the problem with HR 4364 is that it's an extraordinarily powerful device — one that substantially increases the costs of bringing meritorious cases and will undoubtedly result in the inadvertent dismissal of many meritorious cases — with few limitations on its use.

Often the only means that "David" has to challenge "Goliath" is through a lawsuit, like when ordinary individuals are powerless to repair the damage caused by sloppy or sensationalized journalism. Yet, if Goliath wants to use the Act to dismiss David's lawsuit, he can and will.

- - -

* Don't think that the "commercial speech" clause in HR 4364 would help remove the case from the Anti-SLAPP law. As a defendant in one of my cases argued, and as MagicJack would argue:

There is no authority for [plaintiff's] allegation at paragraph 81 of his complaint that “The defendants’ motives in writing and propagating the false allegations [...] are economic; therefore, this commercial speech does not qualify for the heightened protections of the First Amendment.” See Compl. ¶ 81. To the contrary, the Supreme Court has squarely rejected it. See Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 67 (1983) (“an economic motivation ... would clearly be insufficient by itself to turn the materials [in question] into commercial speech”); Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495, 501-02 (1952) (“That books, newspapers, and magazines are published and sold for profit does not prevent them from being a form of expression whose liberty is safeguarded by the First Amendment.”); see also New Kids on the Block v. News America Publishing, Inc., 745 F.Supp. 1540, 1544 (C.D.Cal. 1990) (“A profit motive ... is irrelevant to the inquiry of whether the content of ... speech ... is ... commercial [or otherwise]”). In sum, there is no support for [plaintiff's] suggestion that the article is not entitled the fullest protections afforded by the First Amendment.

I don't agree with the above analysis, but that's just my opinion. A judge could just as easily agree with every word.

A Detailed Look At The Hurt Locker Lawsuit

Maxwell Kennerly — Thu, 04 Mar 2010 16:29:48 -0500

The producers of the Oscar-nominated The Hurt Locker, which Roger Ebert* deemed the second best film of the decade, were just sued by Sgt. Jeffrey Sarver, a former explosive ordinance disposal technician with the 788th Ordinance Company, with whom journalist Mark Boal — the writer of The Hurt Locker — was “embedded” on assignment for Playboy Magazine.

The complaint, filed in the United States District Court for the District of New Jersey (where Sgt. Sarver lived during the relevant times), gives some examples of the similarities:

The title “The Hurt Locker” – Plaintiff originated this term and said it often around colleagues while in Iraq. Defendant BOAL took interest in this phrase and asked Plaintiff what the phrase meant. Because Plaintiff was told Defendant BOAL was collecting information for the sake of documenting a factual report about Army EOD in general, Plaintiff acquiesced with BOAL’s request, which he said often while during his deployment in Iraq;

“War is a Drug” – Another phrase Plaintiff used when talking to Defendant BOAL;

“Will James”, played by Jeremy Renner” – Mr. Renner is essentially the same age and height; to personate Sgt. Sarver, Renner’s hair was dyed blonde, and Renner impersonated Sgt. Sarver’s persona down to the smallest detail, including the replication of Sgt. Sarver’s West Virginia accent, dialect, expressions, mannerisms, personality, and even dress habits (i.e. rolling his sleeves in the exact same manner as Sarver); succinctly stated, Renner acts and behaves just like Plaintiff5 throughout the movie;

Same Military & Family Background – Just like Plaintiff, character “Will James” is a former Army Ranger who has a young son who lives with his ex-wife back home; Renner is also referenced as a “red neck” and “trailer trash”;

Same EOD Missions – Most of the EOD missions depicted in the movie are identical to Plaintiff’s, including the same camps where the EOD team was based (ie Camp Victory), and the same manner in which they were handled - as documented in the Playboy Article;

[…]

Renner struggles with personal, family relationships just like, and in the same manner as, Plaintiff;

Renner drinking alcohol after successful missions;

Renner setting the record for the most IEDs disarmed by any single soldier;

As THR, Esq. notes,

According to legal experts on this topic, Sarver will need to overcome First Amendment protections that give broad protections on speech. Just putting someone's life story up on screen may not be enough.

Sarver's claims may be stronger if he, himself, had written about his experience in Iraq. Had Sarver written about his war stories, he might have been able to pursue a copyright claim that producers of "Hurt Locker" had violated his expression.

Sarver's best case may actually be if producers of "Hurt Locker" got things wrong. Potentially, Sarver could claim that "Will James" is just a thinly veiled depiction of him, but that they had put him in false light and defamed him with dishonest treatment about his character. We have seen these types of "libel-in-fiction" claims come up recently.

Hence, the complaint continues:

Though the movie clings to the plaintiff’s likeness and personal circumstances throughout the movie, Plaintiff is also defamed in placed in a false light in several scenes, such as (1) the scene where Plaintiff explains to his young son that he essentially does not love him, and that the only thing plaintiff loves now is “war”. The movie ends by showing Plaintiff back in Iraq, starting another deployment mission; and (2) the portrayal of Plaintiff as a reckless, gung-ho war addict who has a morbid fascination with death which causes him to carelessly risk both his and his colleagues’ lives in the theater of war, simply to feel the thrill of cheating death.

The Complaint alleges seven counts:

Misappropriation of Name & Likeness
False Light Invasion of Privacy
Defamation
Breach of Contract
Intentional Infliction of Emotional Distress
Fraud
Negligent Misrepresentation

As far as I can tell, Sgt. Sarver will have little trouble meeting most of the elements of misappropriation, with one exception:

In order that there may be liability under the rule stated in this Section, the defendant must have appropriated to his own use or benefit the reputation, prestige, social or commercial standing, public interest or other values of the plaintiff's name or likeness. It is not enough that the defendant has adopted for himself a name that is the same as that of the plaintiff, so long as he does not pass himself off as the plaintiff or otherwise seek to obtain for himself the values or benefits of the plaintiff's name or identity. Unless there is such an appropriation, the defendant is free to call himself by any name he likes, whether there is only one person or a thousand others of the same name. Until the value of the name has in some way been appropriated, there is no tort.

Restatement of the Law, Second, Torts, § 652, cmt c (emphases added); see Jeffries v. Whitney E. Houston Acad. P.T.A., 2009 N.J. Super. Unpub. LEXIS 1895, at *9 (App. Div. Jul. 20, 2009)("the purpose of an appropriation of likeness claim is to vindicate the property interest the plaintiff has in his or her name or likeness."). Misappropriation claims typically arise from false endorsements; here, however, Sarver certainly was not represented as directly endorsing the film. The challenge for his lawyers will be arguing that the use of his life story is sufficient "likeness" that it constitutes a de facto endorsement of the story.

False light and defamation are highly similar claims, and often analyzed together. As THR, Esq. said, there’s precedent out there for “libel-in-fiction,” and Sgt. Sarver’s case seems similar to the The Red Hat Club case linked above: taking an already incredible, but nonetheless real, story and scandalizing it some more. It’s a little bit harder for Sgt. Sarver here, though, since it seems that anyone who recognized him from the film would also know the differences between him and the character, and the complaint admits that he already had substantial family troubles and that he broke military regulations, such as drinking after missions. Those issues, however, are typically issues for a jury, not a judge, to decide.

The remaining claims are intriguing, though none are a good fit to the facts. Regarding breach of contract, it doesn’t appear that Sgt. Sarver was an intended third-party beneficiary to Boal’s “embedding” agreement with the U.S. Department of Defense, though he might be an implied third-party beneficiary. Without the contract in hand, it’s hard to say what will happen here. (One of the commentators at THR, Esq., linked to some of the Department of Defense embedding guidelines, which don't seem to be as strict as the complaint implies.)

The intentional infliction of emotional distress claim will likely go nowhere. The complaint essentially admits there’s no evidence the producers of the film intended to cause Sgt. Sarver harm. See Ortiz v. Ocean County Prosecutor's Office, 2005 U.S. Dist. LEXIS 29274, at *15–16 (D.N.J. Nov. 22, 2005)("To sustain such a claim, the conduct at issue must be 'so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency and to be regarded as atrocious, and utterly intolerable in a civilized community.”).

Similarly, the fraud and negligent misrepresentations claims will likely be dismissed. Most courts require some degree of explicit economic loss for these claims. McClellan v. Feit, 376 N.J. Super. 305, 313, 870 A.2d 644, 648 (App. Div. 2005)("Negligent misrepresentation constitutes an incorrect statement, negligently made and justifiably relied on, which results in economic loss."). It might be morally wrong to trick someone into revealing their personal story, but it’s not legally compensable as fraud or misrepresentation unless they're also tricked out of some money.

An interesting case to watch. Depending on Sgt. Sarver’s goals / demands, I’d expect a somewhat prompt settlement, though perhaps not until after the inevitable motion to dismiss is decided.

- - -

* If you haven't yet read the profile of Roger Ebert in this month's Esquire, stop whatever else you're doing and read it now.

Why Was The "Reptile" Trial Advocacy Book Admitted Into A Wrongful Death Trial?

Maxwell Kennerly — Wed, 03 Mar 2010 08:31:56 -0500

At the Fulton County Daily Report:

For $95, plaintiffs lawyers can buy a book that teaches them how to appeal to jurors' basic survival instincts, those that emanate from humans' "Reptilian" brains. ...

But in a DeKalb County wrongful death trial last month, [Plaintiffs lawyer Don] Keenan found that defense lawyers will also buy the book, "Reptile: The 2009 Manual of the Plaintiff's Revolution" -- and use it against him.

Representing a movie theater and a security company accused of not doing enough to prevent a fatal gang shooting in the theater parking lot, W. Winston Briggs and Matthew G. Moffett read from the book and referred to it during closing arguments.

One of their PowerPoint slides read, "Let's see if we can scare them/It could have been anyone killed out there ... because it's a public danger there ... but if you give us $ that will somehow eliminate this danger/They call this their 'reptile' strategy."

The jury rendered a defense verdict.

Here's what I don't understand: how is a book written by the plaintiff's lawyer relevant to the facts of the case?

The Georgia Rules of Evidence provide:

Evidence must relate to the questions being tried by the jury and bear upon them either directly or indirectly. Irrelevant matter should be excluded.

The jury wasn't asked their thoughts and feelings about Mr. Keenan's advocacy methods. They weren't compelled, by force of the state, to leave their work and their families to render a verdict on the Reptile book. They were there because, as the article says, "21-year-old Jesus Silencio was shot to death in the parking lot of the Regal Hollywood 24 movie theater on Interstate 85" and his father, on Mr. Silencio's behalf, brought suit against the theater and its security company.

Reptile has nothing to do with those facts. If the book suggests lawyers do anything inappropriate, that, too, is irrelevant: if a lawyer uses improper advocacy methods at trial, the judge will give corrective instructions to the jury or, if need be, declare a mistrial.

The case was about, and should have remained about, Mr. Sliencio's claims against the theater. Somehow, it became a referendum on Mr. Keenan, and an unfair one at that. Was Mr. Keenan allowed to show the jury how many times the defense lawyers have been threatened with sanctions for spoliating evidence? Could he have copies of all the seminars at the Defense Research Institute that the defense lawyers attended? Was he allowed to introduce evidence establishing how insurance companies — including the Defendants' insurer, the real party at interest — spend millions every year on propaganda to taint juror's perceptions of the civil justice system?

Or were the defense lawyers allowed to cast stones from their glass houses?

* * *

I wrote the above before seeing Mark Bennett's post on the case. Bennett's right that, for lawyers representing clients, "the principle of putting a name on the adversary’s strategy—pulling back the curtain and naming the little man pulling the levers—is a sound one." But that doesn't mean the Court should allow a case about the parties to be transformed into a case about the lawyers.

How To Write An Unprofessional Email

Maxwell Kennerly — Mon, 01 Mar 2010 08:23:40 -0500

Scott Greenfield recently featured an email exchange between a student and a professor at New York University's Stern School of Business that's been making the rounds lately.

One email is polite and concise.

The other email is an unfocused ramble. Instead of sentence stress, the author emphasizes their points through profanity, sarcasm, ALL-CAPS, and scatological references. Instead of proper sentence construction, the author joins thoughts with ellipses.

I don't understand why the former author started the correspondence in the first place. Maybe the latter author is right about the issue at hand. Problem is, it's too hard to tell amongst the many distractions and it's psychologically harder to give credence to a person who is unable to maintain an appropriate tone for the situation.

Philip Howard's TED Talk: Who Needs The Constitution When You Have A Funny Anecdote?

Maxwell Kennerly — Thu, 25 Feb 2010 08:54:40 -0500

One of the true gems of the Internet is TED (Technology, Entertainment, Design), a nonprofit that invites luminaries from a wide variety of fields to give brief presentations about their signature ideas. A quick googling of "Best TED Talks" is well worth the hours of education and inspiration that will ensue.

I was thus disappointed to see that TED invited Philip K. Howard to talk about "Four ways to fix a broken legal system."

I have debunked Mr. Howard's work before (see my thoughts on his "Life Without Lawyers," his "health courts," and his claims about public support for tort reform). The bulk of his talk presents more of the same argument-by-anecdotes and generalized assertions that don't withstand a moment's scrutiny. Despite his claim around the 14:00 mark, I can safely assure my readers that we, as a society, do in fact still have seesaws, swingsets, and jungle gyms. Moreover, his overall argument that these problems are so insidious that you don't even notice them is, to me, unpersuasive.

About halfway through, Mr. Howard moves onto his four propositions, which are:

Judge law mainly by its effect on society, not individual situations
Trust in law is an essential condition of freedom. Distrust skews behavior towards failure
Law must set boundaries protecting an open field of freedom, not intercede in all disputes
To rebuild boundaries of freedom, two changes are essential: simplify the law and restore authority to judges and officials to apply law.

To call these propositions "vague" is an understatement.

That said, I generally agree with the first three. Indeed, it seems the irony of Mr. Howard's first proposition was lost on him; although his talk only mentions the former, for each funny story of a fishing lure with a warning label, there's a car manufacturer that bragged about avoiding a recall and ended up needlessly and carelessly endangering millions of people.

The fourth proposition, however, is where Mr. Howard and I diverge. It's not that I believe the law shouldn't be simple or that judges shouldn't apply the law; of course I do. I just don't believe it how he means it, which is to deny individuals the right to a jury trial.

But there's a bigger problem with his talk: the "authority to judges and officials to apply law" he claims should be "restored" never existed, and for good reason.

As part of his simplification argument, Mr. Howard gives, as an example, the United States Constitution. It's "only 16 pages" yet "worked well for over 200 years." Let's take a look at the Seventh Amendment thereto:

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.

(See the link for primary sources on the Amendment.)

I don't know what Mr. Howard thinks the words "common law" and "rules of the common law" mean there, but to the Framers of the Constitution, "common law" referred to hundreds of years of confusing — and sometimes contradictory — English court opinions.

So much for simplification.

But simplification isn't really what Mr. Howard wants; he wants to get rid of "the right of trial by jury."

That's not "rebuilding" freedom, nor is it "restoring" the way the Founders intended the civil justice system to work. It is a rescission of the freedoms guaranteed by the Seventh Amendment, which expressly preserved the same right to jury trial that was embodied in the Magna Carta and was recognized long before.

Indeed, the English "common law" of which the Framers were so enamored did not give judges any "authority" to usurp the fact-finding role of the jury. Mr. Howard claims that he wants to give judges the power "to apply law," but they have always had that power -- what Mr. Howard really wants is to give judges the power to determine facts, a power that the Framers of the Constitution expressly denied them.

Mr. Howard doesn't want to fix the legal system, he wants to break it.

Unanimous Supreme Court Resets "Principle Place Of Business" For Diversity Jurisdiction

Maxwell Kennerly — Wed, 24 Feb 2010 08:30:10 -0500

It's no secret: plaintiffs like state court and defendants like federal court.

The reasons include:

federal juries, by virtue of their larger geographic range, include fewer urban jurors and more rural jurors, and thus (according to lawyers' lore) will award lower verdicts;
the Federal Rules of Civil Procedure place express limits on the amount of discovery available;
federal courts are (and were even before Ashcroft v. Iqbal) more prone to grant motions to dismiss (and motions for summary judgment) than state courts.

Even if a plaintiff files their lawsuit in state court, the defendant can "remove" the case to federal court if the case could have been filed in federal court.

There are two ways a case 'could have been filed in federal court': first, if the claim arises under federal law; second, if all plaintiffs and all defendants are citizens of different states. The latter is called "diversity" jurisdiction, and it has a long history of being "disfavored" by federal courts. As I wrote before, in discussing one of the games defendants play to remove cases, "much like how we prefer federal courts preside over cases bringing federal claims, we prefer state courts preside over cases bringing state claims."

So how do we determine of which States a corporation is a "citizen?" 28 U.S.C. § 1332(c)(1) says, "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business."

Incorporation is simple enough; all corporations are incorporated in one, and only one, state, most commonly Delaware.

But where is the corporation's "principle place of business?"

The Supreme Court's answered that question yesterday in Hertz Co. v. Friend et al. Here's the facts from the opinion, with substantial edits for clarity by yours truly:

In September 2007, Melinda Friend and John Nhieu, two California citizens, sued the Hertz Corporation in California state court for violations of California’s wage and hour laws as part of a potential class action on behalf of other California citizens similarly-situated to them.

Hertz removed the case to federal court claiming that the plaintiffs and the defendant were citizens of different States, and thus the federal court had diversity jurisdiction over the claims. Friend and Nhieu, however, claimed that the Hertz Corporation was a California citizen, like themselves, and that, hence, diversity jurisdiction was lacking.

To support its position, Hertz submitted a declaration by an employee relations manager that claimed Hertz’s “principal place of business” was in New Jersey, not in California, because — though its California operations accounted for 273 of Hertz’s 1,606 car rental locations, about 2,300 of its 11,230 full-time employees, about $811 million of its $4.371 billion in annual revenue and about 3.8 million of its approximately 21 million rentals — the leadership of Hertz and its domestic subsidiaries is located at Hertz’s corporate headquarters in Park Ridge, New Jersey, where its core executive and administrative functions are carried out, except for some lesser, but still substantial, administrative operations in Oklahoma City, Oklahoma.

Let's start with the big picture: this case has no business being in federal court. It's a class action brought solely by California residents alleging solely California-law claims against a company that has more business in California than anywhere else. None of the concerns underlying federal jurisdiction are present. There is no reason to believe that Hertz would be prejudiced by having the case heard by a California state court, and there are no federal issues in the case.

As the Supreme Court noted yesterday, two-hundred-and-one years ago, the Supreme Court, in a unanimous opinion by Chief Justice Marshall, scoffed at the very notion that a corporation was a "citizen" entitled to diversity jurisdiction: “the term citizen ought to be understood as it is used in the constitution, and as it is used in other laws. That is, to describe the real persons who come into court, in this case, under their corporate name.” Bank of United States v. Deveaux, 5 Cranch 91–92 (1809); see Slip op., p.5. If that was the law today, Hertz would not be entitled to remove any state-law case from any state court, since it would be a "citizen" everywhere.

But that was then, this is now. The statute we have today says Hertz is a citizen "of any State by which it has been incorporated and of the State where it has its principal place of business." If Hertz is sued anywhere else, it can remove the case to federal court. So where is its "principle place of business?"

Prior to the Hertz opinion yesterday, the answer depended upon the Circuit in which the case was brought. Friend's case was brought in the Ninth Circuit,

which instructs courts to identify a corporation’s “principal place of business” by first determining the amount of a corporation’s business activity State by State. If the amount of activity is “significantly larger” or “substantially predominates” in one State, then that State is the corporation’s “principal place of business.” If there is no such State, then the “principal place of business” is the corporation’s “‘nerve center,’” i.e., the place where “‘the majority of its executive and administrative functions are performed.’”

Slip op., p. 3. Other courts, like those in the Seventh Circuit, jumped straight to the "nerve center" approach.

Yesterday, the Supreme Court held that the "nerve center" test is the only test, that "the phrase 'principal place of business' refers to the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities." Slip op., p. 1.

The opinion is a classic example of Justice Breyer's methodology; long on "administrative simplicity" (p. 13), short on the plain meaning rule. I will leave, as an exercise for the reader, the question of whether the Court's unanimous opinion is consistent with the originalism and formalism pressed by four, sometimes five, members of the Court.

Judge Rakoff (S.D.N.Y.) Enjoins J.P. Morgan From Selling Loan To Telecommunication Company's Competitor

Maxwell Kennerly — Mon, 22 Feb 2010 08:14:32 -0500

Felix Salmon at Reuters caught something interesting:

[T]he facts of the case are pretty clear. The relationship between JP Morgan and Televisa goes back decades, and so JP Morgan was the natural choice for Televisa to turn to when it decided to buy a fiber-optic cable company called Bestel for $325 million, $225 million of which was to come from Televisa subsidiary Cablevisión.

JP Morgan intended to syndicate the loan, but the timing was bad: the deal closed in 2008, when credit markets were all but closed, and as a result JP Morgan ended up owning all of it. After an attempt by Televisa to help JP Morgan syndicate the loan fell through, JP Morgan then turned to Inbursa, Carlos Slim’s bank.

This was not an obvious choice from the point of view of serving one’s client. Slim and Cablevisión compete fiercely in the telecommunications space, where Slim is the dominant monopolist and Cablevisión is selling telephony and internet access in competition with him. And the rivalry is all the tougher due to the history between the two groups: Slim used to be a major shareholder in Televisa, and to this day Inbursa owns a 22% stake in Cablevisión.
Now there were two ways of selling this loan: JP Morgan could either assign it to Inbursa, which would require Cablevisión’s permission, or else it could participate it to Inbursa, which would not. At first, JPM tried to assign the loan, but unsurprisingly Cablevisión refused to grant their permission for that deal to happen.

You can imagine what happened next: JP Morgan dressed up the "assignment" as a "participation." As Judge Rakoff described it in his order,

JP Morgan, acting in bad faith, used the guise of a purported “participation” to effectuate what is in substance a forbidden assignment, with unusual provisions demanded by Inbursa that are calculated to give Inbursa exactly what the assignment veto in the Credit Agreement was designed to prevent. JP Morgan thereby violated, at a minimum, the covenant of good faith and fair dealing automatically implied by law in the Credit Agreement…

Televisa's request for a preliminary injunction halting the agreement was thus granted.

Salmon wonders what JPMorgan's response to all these allegations is:

So for JP Morgan’s side of the story, all I have to go on is their 40-page memorandum of law in the case, which is quite narrowly legalistic, which was roundly rejected by Rakoff, and which obviously can’t respond to Rakoff’s ruling since it was filed before Rakoff made his ruling.

Since JPMorgan moved for summary judgment pursuant to Fed. R. Civ. P. 56, they, like Televisa, were entitled to submit affidavits in support of their position, and it appears they submitted declarations from "Sheldon L. Pollock" and "Jaquelina Truzzell." Both declarations have been unsealed by Judge Rakoff's order, but neither is on the docket.

I doubt the declarations say much; JPMorgan's memorandum of law primarily references the Pollock and Truzzell declarations when discussing side matters, like telephone calls and Televisa's motives for opposing the assignment / participation. Truzzell apparently affirms there are "no side agreements" with Inbursa and that JPMorgan would not release "confidential" information, but that's it. There's nothing about how JPMorgan came to participation terms with Inbursa that, at least on their face, entitle Inbursa to a treasure trove of information about Televisa, far more than provided by JPMorgan's standard participation agreement.

Which I find telling. Though the standard response of most defendants is — for tactical reasons like avoiding getting pinned down to a particular version of events — to "deny and delay" rather than to come forth with an affirmative opposition, under the facts here, JPMorgan really needed to make a better showing. Here's the full quote (excerpted above) from Judge Rakoff's order:

In opposing a preliminary injunction, JPMorgan argues that the Participation Agreement is technically consistent with the Credit Agreement. Superficially, this may be correct. For example, with respect to Cablevisión’s concerns about confidential information, the Credit Agreement permits disclosure of information about the borrower, not just to assignees (who can be vetoed) but also to participants (who cannot), provided that such information is given on a confidential basis. Credit Agreement § 9.16(f)(i). This includes “all information received from the Borrower . . . relating to the Borrower, any of its Related Parties or their respective businesses.” Id. § 9.16. Similarly, there is no express restriction in the Credit Agreement on providing a participant with its pro-rata share of fees received by the lender or an option of first refusal for any further transfer of the loan. Finally, under the Credit Agreement, assignment of the loan without borrower consent is expressly permitted when there is an Event of Default. Id. § 9.04(b)(i).

But this narrow focus obscures the gist of Cablevisión’s argument, which is that JPMorgan, acting in bad faith, used the guise of a purported “participation” to effectuate what is in substance a forbidden assignment, with unusual provisions demanded by Inbursa that are calculated to give Inbursa exactly what the assignment veto in the Credit Agreement was designed to prevent. JPMorgan thereby violated, at a minimum, the covenant of good faith and fair dealing automatically implied by law in the Credit Agreement.

The Court agrees.

JPMorgan could have done more factually, rather than just legally, to rebut the appearance of bad faith. But they didn't; they just argued that they were entitled to do what they did, rather than show that their conduct with Inbursa was appropriate.

Such silence could be, in part, an attempt by JPMorgan to protect Inbursa's confidences, which arguably would have been appropriate. (I say "arguably" because the totality of the circumstances here — primarily Inbursa's attempt to negotiate terms more favorable than those typically provided by a participation agreement — imply that Inbursa has waived its right to keep those discussions confidential from Televisa.) But there's nothing on the docket reflecting an attempt to have Judge Rakoff review any pertinent materials in camera, and so there's no reason for us to speculate that JPMorgan's silence was a product of confidentiality.

It thus may be more appropriate to speculate that JPMorgan's silence was the product of not having a good defense. Again: facts win cases. "Technically consistent" legal arguments don't.

Why Cravath Will Prevail In The Airgas / Air Products Conflict of Interest Lawsuit

Maxwell Kennerly — Wed, 17 Feb 2010 08:22:21 -0500

[UPDATE: The WSJ Law Blog has copies of the letters submitted to the Delaware Chancery Court. Professor Hazard is undoubtedly one of the pre-eminent experts in the field, and he makes a compelling argument that Cravath violated the Rules of Professional Conduct. Yet, showing a violation of the Rules is not enough — to disqualify counsel under Chancellor Chandler's standard, Airgas will have to show the violation will "materially advance" Air Product's position or undermine the fair and efficient administration of justice. So far, I haven't seen anything demonstrating that. The vague references made so far to Cravath's insider knowledge of Airgas's finances isn't enough, since a firewall within Cravath can likely cure that problem.

UPDATE II: As predicted, the Eastern District of Pennsylvania declined to enter an injunction against Cravath, and the Delaware Chancery Court did not disqualify them.]

As has been reported all over the legal media,

Industrial gas producer Airgas filed suit against Cravath, Swaine & Moore on Friday over the firm's role as legal adviser to rival Air Products on that company's $5.1 billion bid for Airgas.

... Air Products filed a complaint on Thursday in Delaware's Chancery Court against Airgas, claiming that the smaller company improperly blocked its board of directors from considering previous Air Products takeover offers. Cravath litigation partners Francis Barron, David Marriott and Gary Bornstein are representing Air Products in the Delaware litigation along with local counsel Kenneth Nachbar (he of sports gambling notoriety) and Jon Abramczyk from Morris, Nichols, Arsht & Tunnell. (Click here for the Chancery Court complaint, courtesy of The Times' Dealbook.)

Airgas responded by retaining Cozen O'Connor chairman Stephen Cozen, litigation chair Jeffrey Weil and litigation partner Thomas Wilkinson Jr., for a civil suit against Cravath in state court in Pennsylvania. In the suit, Airgas claims that Cravath has a conflict of interest and breached its fiduciary duty by representing Air Products because it previously advised Airgas on several financings. According to Airgas' complaint against Cravath, the company has had a client relationship with the firm for 10 years and has paid Cravath about $2 million, including a $320,000 payment last October.

There's an obvious question dangling over the Pennsylvania suit filed by Airgas: what basis — or power — does a state court in Pennsylvania have to preclude a New York law firm from representing a Delaware-registered company in Delaware state court litigation against another Delaware-registered company?

Unsurprisingly, that's just what Philadelphia Court of Common Pleas (Commerce Court) Judge Albert Sheppard Jr. wondered before denying Airgas' petition for a temporary restraining order:

In essence, I would be saying to a lawyer you can’t go to Delaware and represent your client. I find that difficult. I don’t want to do that.

Judge Sheppard only had it for two weeks, though, since Cravath, like virtually every out-of-state defendant, promptly removed the case to Federal court, i.e. the Eastern District of Pennsylvania, where it was assigned to Judge Eduardo Robreno (whose work in the Philadelphia Inquirer bankruptcy I've covered before).

Cravath (represented by a team at Conrad O'Brien*) has responded to the suit and has asked Judge Robreno to abstain from hearing the case at all:

First, whatever this Court may ultimately decide with respect to Airgas’s claim for money damages, Airgas’s request for a preliminary injunction is the functional equivalent of a motion to disqualify Cravath from appearing before the Delaware Chancery Court. With all due respect, Cravath submits that a motion precluding counsel from appearing in Delaware Chancery Court is more appropriately decided by Chancellor William B. Chandler III, who presides over the firstfiled Delaware litigation. Just as this Court has full authority over proceedings here, judicial comity warrants according Chancellor Chandler due authority over proceedings in his courtroom. ...

Second, the Delaware Chancery Court is aptly suited to decide the key issue presented by Airgas’s petition to this Court—whether Cravath should be disqualified. Indeed, the dispute concerning Cravath’s ability to represent Air Products is intertwined with the merits of the (firstfiled) Delaware litigation. ...

Third, whereas this Court’s ruling on Airgas’s petition for preliminary relief would be, by definition, provisional, the Delaware Chancery Court’s ruling on the question of whether Cravath should be disqualified will be a final decision on the merits.

(From Cravath's brief, available on RECAP.)

It's hard to argue with that; whatever the merits of the conflict-of-interest allegations, it seems they all relate to the Delaware litigation and so should be decided there.

Of course, there's a reason Cravath wants the case decided in Delaware's Chancery Court (and why Airgas wants it decided elsewhere). As Francis G.X. Pileggi notes:

[Airgas'] separate suit alleging a conflict was filed in Philadelphia. One might speculate that the suit was not filed in Delaware and it was not filed as a motion to disqualify, because the Delaware decisions recently have not granted many motions to disqualify. See, e.g., cases summarized on this blog here.

Indeed, one might speculate that. More on that in a moment.

Back in Delaware, it seems a war of correspondence has broken out:

Airgas (which has retained Wachtell, Lipton, Rosen & Katz) began the exchange of correspondence Monday, when it sent a letter to Chancellor William Chandler at Delaware's Court of Chancery ... In its Monday letter to Chandler, Airgas argues that a Pennsylvania courtroom is the proper place for the Cravath hearing. In response, Air Products and local counsel Kenneth Nachbar of Morris, Nichols, Arsht & Tunnell drafted their own letter to Chandler, urging him to decide on Cravath's fate in Delaware and accusing Airgas of trying to "circumvent" Chandler's authority by suing in Pennsylvania.

Airgas also has enlisted a legal ethics expert who has issued an opinion letter in which he claims Cravath was working under "a clear and serious conflict of interest" while it was helping Air Products formulate its takeover bid last fall, according to a copy of the letter obtained by The Am Law Daily. In his letter, Geoffrey Hazard Jr., a professor at the University of Pennsylvania Law School, says Cravath ... violated the so-called "hot potato" rule, which holds that a firm cannot get out of a conflict simply by dropping one client on short notice, Hazard wrote.

Like I wrote before, the hot potato rule lives. Here's a recent recitation of the rule:

Courts that have considered the issue have held that a firm will not be allowed to drop a client in order to shift resolution of the conflicts question from Rule 1.7 dealing with current clients, to the more lenient standard in Rule 1.9 dealing with former clients.

El Camino Res., LTD. v. Huntington Nat'l Bank, No. 1:07-cv-598, 2007 U.S. Dist. LEXIS 67813, at *39–40 (W.D. Mich. Sept. 13, 2007).

On the surface, that's not good for Cravath — if Chancellor Chandler applies a similar analysis, then Cravath will be evaluated as if it was simultaneously representing Airgas and Air Products on both sides of the litigation, which is expressly prohibited by the Delaware, Pennsylvania and New York rules.

But the final analysis is a practical one:

The finding of an ethical violation, however, does not automatically require disqualification. The court should order disqualification only where some specifically identifiable impropriety has actually occurred and the balance of relevant factors requires vindication of the integrity of the legal profession over defendant's interest in retaining counsel of its choice.

Id.

Returning again to why Cravath wants the issue decided in Delaware by Chancellor Chandler, it bears mention here that Chancellor Chandler took a strongly disqualification-unfriendly view in a similar case a year ago, in which Dow Chemical attempted to disqualify Wachtell from representing Rohm and Haas:

I am not persuaded that Wachtell’s access to this information will materially advance Rohm and Haas’s position or undermine the fair and efficient administration of justice. Dow’s defense to specific performance is that conditions in the market and within Dow have changed significantly since December 2008 and that it is no longer feasible for the merger to close. Dow has failed to convince me that the information Wachtell had access to regarding Dow’s strategies and asset values in 2006 and 2007 will substantially advance the interest of Rohm and Haas in this litigation. Additionally, Wachtell has assured the Court that its attorneys who obtained confidential Dow information have not and will not share Dow’s client confidences with the Wachtell attorneys working on this matter. While Dow is correct that the ethical rules impute knowledge of one attorney to other attorneys in the firm, the issue before the Court is not whether there was a violation of the ethical rules. To justify disqualification, the Court must find that allowing the representation to continue would threaten the fair and efficient administration of justice, a threat that is greatly reduced by a credible representation to the Court that the firm will ensure that the attorneys working on this matter do not have access to Dow’s client confidences. Dow has failed to point to information or confidences obtained by Wachtell in its 2006-2007 work for Dow that will have a material influence on the proceedings before me today.

Rohm and Haas Co. v. Dow Chem. Co., No. 4309-CC, 2009 WL 445609, at *3 (Del. Ch. Feb. 12, 2009)(also courtesy of Pileggi).

Truth be told, there's not much distinguishing the Rohm and Haas v. Dow situation from the present case with Cravath, except for the "hot potato" rule aspect, given how Cravath's work for Airgas was much more recent than Wachtell's work was for Dow. Indeed, it seems Cravath's work for Airgas unambiguously overlapped its work for Air Products.

As noted above, though, a mere violation of the rules isn't enough; the question is what prejudice the former client will suffer and if that prejudice can be avoided. Cravath's work for Airgas was comparatively small, and if Cravath sets up an ethical firewall that keeps the former Airgas attorneys away from the Air Products lawsuit, that will likely be enough to satisfy Chancellor Chandler.

- - -

* True story: when I interviewed at Conrad O'Brien, they took me to a nearby fancy seafood restaurant, where I was served a shrimp étouffée with a staple hidden in it. The following exchange ensued me and an attorney who was 'of counsel' with the firm:

Of counsel: Did you bite down on it?

Me: No, I noticed something was wrong and spit it out.

Of counsel [with a grin]: You know, I used to represent personal injury plaintiffs. So let me ask you again: did you bite down?

Other than the joke, however, all we got out of the experience was a free round of a coffee from the restaurant.

Four States Join False Claims Act Whistleblower Suit Over Substandard PVC Pipes

Maxwell Kennerly — Mon, 15 Feb 2010 08:05:37 -0500

As The Recorder reported,

Four states and dozens of California cities and water districts have joined a qui tam lawsuit, unveiled this week, seeking millions of dollars in damages against a company for allegedly supplying customers with substandard PVC pipe.

The suit, brought against J-M Manufacturing Co. and its former parent company, Formosa Plastics Corp., alleges that J-M sold PVC pipe that had tensile strength below industry standards, and that the company deceived customers by choosing stronger samples for independent certification of its product. The suit also contends that under the company president, Walter Wang, it "implemented a series of 'cost-cutting' measures that undermined the quality of J-M's PVC pipe products," including filling supervisory positions with less experienced managers.

In one corner, we have the Defendants:

"At JM Eagle, we stand 100 percent behind the quality of our products," said spokesman Marcus Galindo. "Any claim that Mr. Wang or anyone at JM Eagle sacrificed the quality of our product for profit is ludicrous. We're a company that cares about more than just the bottom line."

According to the complaint, Hendrix was fired a week after he wrote a memo informing management that the tensile strength of the PVC pipe was below the standard required by independent certification agency Underwriters Laboratories Inc.

Galindo discounted that claim, saying outside agencies make unannounced visits to the company's plants to perform regular audits of its products.

Further, Galindo noted, over the three years that the federal government investigated the claim, it "never stopped purchasing pipe from us. They have decided not to move forward and intervene in this case."

In the other corner, we have Phillips & Cohen LLP's press release:

Nevada, Virginia, Delaware, Tennessee, San Diego, Sacramento, San Jose, the Los Angeles Department of Water and Power and 39 other California municipalities and water districts have joined a whistleblower lawsuit seeking millions of dollars in damages from JM Eagle and its former parent company, Formosa Plastics Corp. (USA), for supplying their water and sewer systems with pipes that JM knew were substandard. ...

"The decisions by so many states, cities and water districts to join this case show just how serious these allegations are," said Mary A. Inman, a San Francisco attorney with Phillips & Cohen LLP, which represents the whistleblower, the Commonwealth of Virginia, the State of Tennessee and 25 California cities and water districts. "With government entities struggling to meet their budgets, it's particularly important for them to recover their losses from any fraud."

As a result of the investigation into the quality of PVC pipe that JM Eagle has provided, the Nevada Department of Public Works, the cities of San Diego and Sparks, Nevada, as well as at least three water districts in Nevada and California (Truckee Meadows Water Authority, North Marin Water District and Alameda County Water District) have removed JM products from their approved-products lists for purchases.

In a case of this size, a government's decision to intervene or not is more political than legal. I don't mean that in a pejorative sense: when a government brings a multi-million-dollar lawsuit against one of its major suppliers, there's a lot more at stake than a settlement or judgment.

It's thus hard to read the tea leaves on the differing federal and state decisions. I'm sure the plaintiff's lawyers are quick to remind that the federal government usually does not intervene, and that the non-intervention is likely a product of limited resources and the federal government's belief that the state intervention (and the experience of the plaintiff's counsel) will ensure the claims are prosecuted in a diligent and thorough manner.

On the flip side, I'm similarly sure the defendants' lawyers consider the state interventions nothing more than cash-strapped states looking for "jackpot justice" from a profitable business.

An interesting one to watch, not least because the plaintiff's claims are predicated entirely upon violation of third-party standards and codes (e.g., Underwriters Laboratories, American Water Works Association, American Society for Testing and Materials, and FM Approvals) that are incorporated into the government contracts.

"Conan's 'Tonight Show' contract revealed" - A Lesson In The Importance of Defining Terms In Contracts

Maxwell Kennerly — Wed, 10 Feb 2010 08:45:11 -0500

Matthew Belloni at The Hollywood Reporter, Esq., has a copy of the 'Tonight Show' contract that's been the subject of much speculation over the past few weeks. He can't post the contract itself (I asked), but he described with considerable detail the parties' positions:

[W]e've finally tracked down a copy of the O’Brien contract, and -- lo and behold -- NBC did define “Tonight” as the series that airs at 11:35 as far back as 2002. However, what may have emboldened NBC to move the program anyway was the absence of that key language from later amendments to the deal.

Read the whole piece for more.

As Belloni continues,

Insiders familiar with settlement negotiations say NBC jumped on that fact to argue that the "operative" deal was silent on the timeslot issue and even contained some NBC profit-participation boilerplate allowing NBC discretion to move shows as it chooses.

One problem with that argument: Any lawyer worth his 5% commission knows you've got to read an amended contract in the context of all other prenegotiated elements. O'Brien's 2004 deal incorporated by reference and ratified all the terms of his prior deals -- including the "Tonight Show" definition -- and says any conflicts between NBC's standard terms and the negotiated terms are governed by what's been negotiated.

Fact is, an amendment is still an amendment, not a new deal, even if you also call it a separate agreement. NBC's argument that the amendment — which specifically incorporated the old deal — was nonetheless actually a wholly-new deal would have been charitably described as "novel," which in the law is often synonymous with "bad." I don't doubt that O'Brien's lawyers saw right through NBC's argument and held firm throughout the negotiations.

Most importantly, congratulations to O'Brien and his lawyers for keeping their eye on the ball for all these years: they contracted for — and this is the language in the contract — the "Tonight Show" defined as the "series that airs at 11:35," more specifically the "second network series after the end of primetime."

As I wrote in Time-Tested Advice For Young Lawyers About Contracts Which They Should Ignore,

In certain circumstances -- like some real estate transactions -- there is language used so frequently that it has become the standard against which all other grammar and syntax is measured. Any deviation will likely be interpreted against the person who suggested it.

If you have one of those situations, be sure you know what the "standard" language is. Otherwise, focus on making the text of the written agreement reflect the reality of the parties' understanding, not on adding in "gobbledygook" to make it look lawyerly.

O'Brien's lawyers realized that and didn't contract just for a particular name or for a bunch of legal gibberish, they contracted for a particular slot in the evening lineup. They understood the client's goals, recognized the potential risk, and dealt with both in the contract in a clear, unambiguous manner that withstood a serious challenge.

Crack open a bottle of champagne, Patty Glaser and Leigh Brecheen, and charge it to Conan's account. You earned it.

Texas Lowers The Medical Malpractice Bar Again, Tries To Imprison Nurses For Reporting Dangerous Doctor

Maxwell Kennerly — Mon, 08 Feb 2010 08:41:30 -0500

All the signs were there:

[Dr. Rolando G. Arafiles Jr. had] a pattern of improper prescribing and surgical procedures — including a failed skin graft that Dr. Arafiles performed in the emergency room, without surgical privileges. He also sutured a rubber tip to a patient’s crushed finger for protection, an unconventional remedy that was later flagged as inappropriate by the Texas Department of State Health Services. ...

Dr. Arafiles was sending e-mail messages to patients about an herbal supplement he sold on the side. ...

The hospital administrator, Stan Wiley, said in an interview that Dr. Arafiles had been reprimanded on several occasions for improprieties in writing prescriptions and performing surgery and had agreed to make changes. Mr. Wiley, who said it was difficult to recruit physicians to remote West Texas, said he knew when he hired Dr. Arafiles that he had a restriction on his license stemming from his supervision of a weight-loss clinic.
In a surprise inspection last September, state investigators found several violations by Dr. Arafiles ...

Most doctors are competent and diligent professionals who, over the course of their careers, might breach the standard of care in a manner that causes significant harm to patients only a handful of times.

As I have written before, however, "Fact is, there is a small minority of doctors who are simply terrible at their jobs." The nationwide malpractice settlement numbers don't lie:

A few physicians were responsible for a large proportion of malpractice payment dollars paid: The 1 percent of physicians with the largest total payments in the NPDB were responsible for about 11.7 percent of all the money paid for physicians in malpractice judgments or settlements reported to the NPDB. The 5 percent of physicians with the largest total payments in the NPDB were responsible for just under a third (31.4 percent) of the total dollars paid for physicians. Eleven percent (11.6 percent) of physicians with at least one malpractice payment were responsible for half of all malpractice dollars paid from September 1, 1990 through December 31, 2006.

It looks like Dr. Arafiles was among the bottom-of-the-class physicians who shouldn't practice medicine at all.

At least that's what Anne Mitchell, the hospital's compliance officer, and two other nurses (one of them the hospital's quality improvement officer) thought, so they, as Texas law requires them to do, filed an anonymous complaint with the Texas Medical Board.

And what did they get in return for reaching out — through the appropriate, confidential, state-required channels — to protect patients?

They were fired then criminally prosecuted:

When she was fingerprinted and photographed at the jail here last June, it felt as if she had entered a parallel universe, albeit one situated in this barren scrap of West Texas oil patch.

“It was surreal,” said Mrs. Mitchell, 52, the wife of an oil field mechanic and mother of a teenage son. “I said how can this be? You can’t go to prison for doing the right thing.”

But in what may be an unprecedented prosecution, Mrs. Mitchell is scheduled to stand trial in state court on Monday for “misuse of official information,” a third-degree felony in Texas.

I wish I could say I was surprised, but I'm not: Texas is perhaps the most patient-unfriendly state in the union. Just last year, the American College of Emergency Physicians gave Texas an "A" for tort reform and an "F" for access to emergency care. That's no surprise: as tort reform goes up, care goes down.

Tort reform wasn't enough, though. The doctors in Texas are apparently so bad they need not just special civil protections from patients and their lawyers, but also the threat of criminal prosecution looming over nurses and hospital compliance / quality improvement officers.

Third Circuit Splits Itself On MySpace First Amendment Cases -- Or Does It?

Maxwell Kennerly — Fri, 05 Feb 2010 08:30:45 -0500

As Howard Bashman reports (along with many others, such as The Legal Intelligencer), yesterday two separate panels on the United States Court of Appeals for the Third Circuit simultaneously issued opinions in separate cases in which public-school students created prank MySpace pages about school administrators, were disciplined, and then brought suit alleging violations of their free speech rights.

The opinion in Layshock v. Hermitage School District is here. The opinion in J.S. v. Blue Mountain School District is here.

In Layshock, the District Court granted summary judgment in favor of the student. In J.S., the District Court granted summary judgment in favor of the school district.

On appeal, Layshock still won, J.S. still lost.

So how did that happen?

Different facts.

Both panels worked off the same law. In Tinker v. Des Moines Indep. Cmty. Sch. Dist., 393 U.S. 503, 513 (1969), the Supreme Court held that student expression may not be suppressed unless school officials reasonably conclude that it will “materially and substantially disrupt the work and discipline of the school.” In Bethel School District No. 403 v. Fraser, 478 U.S. 675, 678, 683 (1986), the Court upheld the school’s suspension of a high school student for delivering a nominating speech at a school assembly using “an elaborate, graphic, and explicit sexual metaphor” because "[t]he schools, as instruments of the state, may determine that the essential lessons of civil, mature conduct cannot be conveyed in a school that tolerates lewd, indecent, or offensive speech."

At the Third Circuit, the Layshock panel noted:

At the outset, it is important to note that the district court found that the District could not “establish[] a sufficient nexus between Justin’s speech and a substantial disruption of the school environment[,]” Layshock, 496 F. Supp. 2d at 600, and the School District’s does not challenge that finding on appeal.

That killed the School District's argument. Layshock held that, without the nexus, the District had no authority to punish the student.

The J.S. panel described the distinction between its opinion and Layshock:

A separate appeal dealing with school discipline of a student who created a MySpace profile of his principal was filed simultaneously in our Court. See Layshock v. Hermitage Sch. Dist., Nos. 07-4465 & 07-4555, slip op. (3d Cir. Feb. 4, 2010). However, upon review of the holding in that case, as set forth in that panel’s opinion, we find the two cases distinguishable.

Unlike the instant case, the school district in Layshock did not argue on appeal that there was, under Tinker, a nexus between the student’s speech and a substantial disruption of the school environment. Id. at Part IV.A.1. This nexus, under Tinker, is the basis of our holding in the instant case. Rather, the Layshock panel held that the school district failed to establish that a sufficient nexus existed between the student’s creation and distribution of the profile and the school district so that the district was permitted to regulate the student’s conduct. Id. at Part IV.A.2. That panel also held, under Frazer, that the student’s speech could not be considered “on-campus” speech just because it was targeted at the Principal and other members of the school community and it was reasonably foreseeable that school district and Principal would learn about the MySpace profile. Id. at Part IV.A.3.

In litigation and trial, "winning on the law" is important. It's necessary to win the case.

But winning on the law isn't sufficient by itself to win a case.

Facts win cases. Layshock won the facts. J.S. didn't.

Law Is Made On A Lawyer's Desk: Thoughts On The Supreme Court's Pending "Judicial Taking" Case

Maxwell Kennerly — Wed, 03 Feb 2010 08:35:14 -0500

Back in December, the Supreme Court held oral argument on Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection. Though the case raises several issues, the primary question is:

The Florida Supreme Court invoked “nonexistent rules of state substantive law” to reverse 100 years of uniform holdings that littoral rights are constitutionally protected. In doing so, did the Florida Court’s decision cause a “judicial taking” proscribed by the Fifth and Fourteenth Amendments to the U.S. Constitution?

(See the summary at SCOTUSWiki for more.) "Judicial taking" is in quotes for a reason: the claim has never been recognized by any Federal court.

The founder of our firm, James E. Beasley, Sr., used to say "law is made on a lawyer's desk."

Let me explain.

Brown v. Board of Education was not a simple change of heart by the Supreme Court. It was the culmination of a century of litigation challenging the treatment of African Americans in education.

Even the reasoning of Brown v. Board of Education — striking down Plessy v. Ferguson by holding "separate but equal" was inherently unequal — was born not in the Supreme Court's chambers in 1954, but on Charles Hamilton Houston's desk in the 1930s. Whole books have been written on the strategy and the years of internal debates within the NAACP as to how to best frame the issue for a favorable Supreme Court opinion.

Courts do not, and cannot, change the law on their own. Federal courts in particular need a "case or controversy" to act at all.

To make new law, Federal and state courts need lawyers who can envision how the law should change before even filing suit, lawyers who can carefully guide the case — from the factual record to the preservation of arguments — through the trial courts and to the Supreme Court with the issue properly framed for judicial disposition.

All of that happens on a lawyer's desk.

Back to Stop the Beach Renourishment, Inc. How do you get a court to recognize a claim that has never been recognized before?

First, you argue that precedent has implicitly supported the claim all along:

This Court’s prior cases provide a sound doctrinal basis for adopting a judicial takings doctrine. Specifically, this Court should adopt the judicial takings test articulated by Justice Stewart in Hughes that a state judicial decision effects a taking under the U.S. Constitution when it “constitutes a sudden change in state law, unpredictable in terms of relevant precedents.” See Hughes v. Washington, 389 U.S. 290, 296 (1967) (Stewart, J., concurring).

This Court has expressly held that the Equal Protection and the Due Process Clauses apply to state judiciaries. The Takings Clause should apply to state courts as well. Without such a doctrine, a state is free to clothe one of its agents with the power to violate the U.S. Constitution. Ex Parte Virginia, 100 U.S. 339, 346 (1879).

Merits Brief, pp. 17–18.

Second, you argue why recognizing the claim is a good idea anyway:

First, nothing in the text of the Fifth Amendment suggests that it applies to one branch of government and not others. ... Second, the Takings Clause is founded upon basic notions of fairness and justice. ... Third, this Court’s takings jurisprudence provides no basis for distinguishing between action of a state’s court and those of its legislative or executive branches. ... Fourth, if state courts are free to reorder property rights insulated from the Takings Clause’s requirement to pay compensation, then the legislative and executive branches will no longer change the law themselves (and pay for it); rather they will encourage the judiciary to make the change so that the state does not have to pay compensation. ... Fifth, the stability of property rights is the foundation for a healthy economy.

Id., pp. 44–47.

Finally, you address why recognizing the claim will not 'open up the floodgates' to further litigation:

Despite suggestions to the contrary, a judicial takings doctrine based on Justice Stewart’s test is workable and will not result in a flood of litigation. Lower courts have had little trouble recognizing a sudden and dramatic change in property law. ... Moreover, the proposed ad-hoc test can be applied easily just like other ad-hoc tests this Court has developed.

Id., p. 48. Whoever is opposing the claim will inevitably argue that your claim will "open the floodgates," so it is essential that you use some form of the "flood" metaphor. (Don't believe me? Here's all 101 times in the last two years the "floodgates" metaphor has been used in briefs filed with the Supreme Court.)

Will it work? It's hard to tell. Justice Stevens, a Florida property-holder, recused himself, creating the possibility of a 4-4 split, which would leave the Florida Supreme Court's opinion intact and would not create new law.

Moreover, the Supreme Court is typically hesitant to second-guess a state Supreme Court's interpretations of its own laws (unless, of course, the case is Bush v. Gore). Property law, in turn, is purely a creation of state common law, unmoored from even the canons of statutory construction, much less Federal constitutional principles.

If new law is made by this case, it will have been made not in the chambers of the Supreme Court, but rather on the desk of the many lawyers who developed the theory of "judicial taking" over the years and the lawyers filed Stop the Beach Renourishment's petition back in 2004.

E.D.Pa. Refuses To Dismiss RICO Act Claims Against Title Insurers On Enterprise "Distinctiveness" Grounds

Maxwell Kennerly — Tue, 02 Feb 2010 12:32:54 -0500

The Racketeer Influenced and Corrupt Organizations Act ("RICO") is not all that complicated.

Section 1962(c) provides:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.

In case you think "racketeering activity" is too vague, don't worry — the RICO Act defines it specifically. If the plain meaning rule was applied as strictly as courts say it should be, then we would see these claims prevail in every case involving a systematic fraud.

Instead, over the years defense lawyers and activist courts have imposed a broad swath extra-statutory requirements on RICO claims, such as two separate requirements of "distinctiveness." A plaintiff alleging RICO claims must allege that the "enterprise" at issue is "distinct" from the "persons" in the enterprise, and must allege that the "enterprise" has a "distinct" structure separate from the racketeering.

Of course, if we applied the dual "distinctiveness" requirements the way defense lawyers say we should, then Al Capone and his organization couldn't be prosecuted for racketeering, because Capone's organization was not "distinct" from itself and because Capone and his organization had no structure "distinct" from the racketeering itself.

Thankfully, after a handful of recent Supreme Court cases recognizing the broad language of the RICO Act (e.g., the Cedric Kushner and Boyle cases) , common sense is beginning to prevail again in the federal courts:

In a major setback for several title insurers, a federal judge has refused to dismiss a trio of class action consumer RICO suits that accuse the companies of engaging in a pervasive pattern of overcharging for title insurance by systematically ignoring entitlement to statutory discounts.

Although title insurers have been battling a wave of consumer litigation in recent years, the three decisions by U.S. District Judge Joel H. Slomsky mark the first time that a court has green-lighted RICO claims.

Defense lawyers had urged Slomsky to dismiss the RICO claims, arguing that the plaintiffs failed to plead a proper RICO enterprise since an insurer and its agents cannot be considered legally "distinct."

Slomsky disagreed, saying "plaintiffs have satisfied the minimum 'person' and 'enterprise' distinctiveness requirement because the combination of Commonwealth Land and the title agents constitute a single 'enterprise' separate and distinct from the 'person' of defendant Commonwealth Land and this combination is permissible under RICO jurisprudence."

The opinion is a victory for common sense. Will the plaintiffs prevail? Beats me. But a plaintiff who can marshal plausible allegations of systematic mail and wire fraud should not have the courthouse doors closed to them on grounds of sophistry.

Skin In The Game: "Why Investment Bankers Should Have (Some) Personal Liability"

Maxwell Kennerly — Mon, 01 Feb 2010 09:00:34 -0500

Warren Buffet often gets credit for coining the phrase "skin in the game" — even though it's not his — and his definition is, shall we say, on the money. "Skin in the game" makes a difference:

Mutual funds whose directors have "skin in the game" significantly outperform their competitors, according to a study by Syracuse University Prof. David Weinbaum. His results confirm the commonly held belief that directors who are invested in the funds that they oversee act as better stewards than directors who don't have any money on the line.

It's not the first time Prof. Weinbaum has shown that.

I'm a big believer of "skin in the game" — virtually all of my clients are on a contingent fee — and have written before about how contingency fees reduce frivolous litigation and how third-party investment in lawsuits can level the playing field against well-funded defendants.

So I was happy to read Why Investment Bankers Should Have (Some) Personal Liability at The Harvard Law School Forum on Corporate Governance and Financial Regulation:

We have written a short paper for a symposium on the work of Adolf Berle in which we advocate reintroducing some measure of personal liability for bankers, as was the case in Berle’s day, and indeed up through the 1980’s. We describe in our paper the broad outlines of a proposal to impose some measure of personal liability for a bank’s debts on the most highly paid bankers. The proposal would revive two mechanisms that imposed personal liability in an earlier era: general partnership, which was common for investment banks prior to the 1980s, and assessable stock, which was relatively common in corporations including some commercial banks through the 1930s.

It is difficult to imagine the investment banking business returning to the partnerships of old. General partnership – with the illiquidity and liability it imposes on general partners and the constraints it imposes on a bank’s ability to raise capital – probably will not be considered a viable option. It is also difficult to imagine corporations in the financial services industry issuing assessable stock to all of their shareholders or regulators seeking to require them to do so.

Our objective is to design another way to impose some of the risks of unlimited liability on the most highly compensated managers and other decision makers at investment banks and other financial services and trading firms. We seek to do so without requiring the firm itself to switch to general partnership form or to make any other change in its organizational or capital structure. We discuss below two alternatives, each one based on historical precedent.

We could argue all day about whether the theoretical incentives investment bankers have are good enough to keep them from crashing the whole financial system — a whole cottage industry has developed in the pages of the Wall Street Journal, Forbes and Business Week to do just that. But the facts are undeniable: our banking industry is broken, dangerously so.

I don't see how we can fix that without giving the bankers some "skin in the game."

Why Are Taxpayers Criminally Investigating Shepard Fairey For Lying In A Civil Lawsuit?

Maxwell Kennerly — Wed, 27 Jan 2010 21:57:17 -0500

Shepard Fairey, creator of the iconic "Hope" poster during Obama's Presidential campaign, is not perfect.

After the Associated Press claimed that Fairey's use of one of their images for the poster required authorization, Fairey — represented by the Fair Use Project at Stanford University — pre-emptively sued to establish (by way of a declaratory judgment action) that his transformation of the original image constituted "fair use" and thus did not infringe on their copyright.

Frankly, I thought he had a good case, but the suit hasn't gone well: last October, Fairey was forced to admit he spoliated and fabricated evidence:

"Throughout the case, there has been a question as to which Mannie Garcia photo I used as a reference to design the HOPE image," Fairey said. "The AP claimed it was one photo, and I claimed it was another."

New filings to the court, he said, "state for the record that the AP is correct about which photo I used...and that I was mistaken. While I initially believed that the photo I referenced was a different one, I discovered early on in the case that I was wrong. In an attempt to conceal my mistake I submitted false images and deleted other images."

You may be shocked to learn that people sometimes lie in civil litigation.

It's true. Just this week, I received a big stack of documents that the defendant in one of my cases thought I'd never see. Sure enough, they prove the defendant repeatedly lied under oath.

But no one outside of the case itself will care. If I take it to the U.S. Attorney's office, they will tell me to take it up with the judge in my case.

Unless, apparently, the Associated Press is involved:

Fairey sued the AP last February, asking a judge to declare that Fairey's artwork does not infringe any copyrights held by the AP. A month later, the AP countersued, saying the uncredited, uncompensated use of one of the news cooperative's photos violated copyright laws and signaled a threat to journalism.

The U.S. Attorney's office had a grand jury begin an investigation after Fairey said he erred about which AP photo he used as the basis for "HOPE" and had submitted false images and deleted other images to conceal his mistake.

Last I knew, the U.S. Attorney's office in every district had an unwritten policy of ignoring perjury in civil cases. Though such restraint often pains me — as the plaintiff's lawyer, I'm often the one who was lied to — I understand it. They have better things to do (e.g., prosecuting human trafficking), and the civil justice system already has methods for dealing with evidence tampering.

Which makes the investigation, at taxpayer expense and at the cost of valuable prosecutorial time and resources, all the more disturbing. Is the Associated Press more deserving of justice than my clients and the thousands of other litigants who every day endure the indignity of watching their adversary lie under oath? Doesn't the U.S. Attorney's Office for the Southern District of New York have something better to do?