So, let's say that you are a very large defendant who is a repeat-player in the torts litigation arena.  You lose a very big case that sets a particularly bad precedent for you.  The payout is substantial, but doesn't affect your bottom line -- unless you multiply it by future cases that can rely on the bad precedent.  You appeal, and you're not sure which way the panel is going to decide.  This isn't the kind of case that would probably be granted cert by the Supreme Court, so whichever way the case comes down, you're stuck.  So, you make an offer to settle, maybe at an even greater amount than the trial court verdict.  But then you still have that silly federal district court decision for years to come, until the line of cases may or may not be reversed.  What do you do?

What if you could make a settlement offer and get the circuit court to remand the case back to the district court judge, who has agreed to vacate all of the opinions in the case, including his opinions that upheld the jury's verdict?  Who wouldn't love that, but what judge would do it?  Well, this judge apparently.

So, for all you Torts professors out there who would have loved a fun case on attractive nuisance, I hope you saved copies of the documents.  Lexis and Westlaw has agreed to remove all the opinions from their databases, standard procedure when cases are vacated.  (I don't know if the opinion is old enough to have hit the F. Supp. hard volume/index.)  In this case (Klein v. Amtrak), two teenagers (almost 18), climbed on a railcar owned by one defendant in the railyard owned by Amtrak.  Electricity was left on for the car for 4 days.  Although employees are trained in avoiding electrocution in wired cars (which seems trickier than I originally would have thought), no signs were posted.  They were trespassers, yet the presence of a large amount of graffiti in the railyard seemed to indicate that the frequent presence of trespassers was probably known by the landowner, Amtrak.  The jury returned a $24 million verdict for the severe injuries sustained by the plaintiffs, which was upheld by the district court judge.  The two defendants appealed, and the Third Circuit heard oral argument on what exactly is the state of the law as it applies to older teenage trespassers and railcars.  But, we'll have to wait to find out the state of the law for now.

UPDATE:  After looking around Westlaw (Klein v. National Passenger R.R.), I'm a little confused.  Most of the documents have no text anymore, except for one, which is the district court granting summary judgment to  Norfolk Southern Corp., the owner of the railcar, on all claims against it (2006 wl 1997369).  According to news reports, this defendant was involved in the trial, received a judgment against it, and argued on appeal.  So, I would think that the dismissal by summary judgment must have been overturned at some point.  However, I can't find a Third Circuit opinion (or citation) for that.  Could the settlement have vacated opinions against the defendants, but not opinions for them?

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My colleague Larry Ribstein has the details at Ideoblog.  Hopefully, this case won't become the West Coast equivalent of the futile repeat prosecutions of Frank Quattrone that ended with deferred prosecution before his third trial.  Surely in a world of finite resources, the DOJ could spend these millions elsewhere?

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David Law and I have been wondering why and how the Supreme Court uses legislative history to decide cases ever since Environmental Defense v. Duke Energy, which depended on it (I submitted a brief on behalf of a number of congressmen who wrote the 1979 amendments to the Clean Air Act in that case).  We've crunched the data from 1953 to the present, read the opinions, and considered what it tells us about the Court, and the statutes it has been interpreting.  Our paper is available here, and here is the abstract:

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Although Larry Ribstein portends broad ramifications from Jones v. Harris, he supports Easterbrook's lower court opinion and is unenthusiastic about the Supreme Court's involvement.  He cites with approval a good deal of Easterbrook's opinion, much of which Posner addressed in his dissent from denial of rehearing en banc.  Ribstein also focuses upon a few additional points with which I quibble here:

First, Ribstein emphasizes that different clients call for different commitments of an adviser's time (with the unstated assumption that therefore fees for individual clients are reasonably twice those of fees for individual shareholders).  Certainly, different clients call for different commitments of time, but if this is indeed the reason for the difference in fees, investment advisers should readily be able to prove this point in their favor.  Instead, they have vigorously avoided the question altogether in years of litigation.

Second, Ribstein emphasizes that pension funds have lower turnover (with the unstated assumption that therefore institutional clients call for a lower commitment of time).  In fact, internal emails between employees of advisers in the recent Eighth Circuit case Gallus v. Ameriprise and in Jones v. Harrissuggest that the advisers cannot prove any such differences in support of their pricing disparities.  Anecdata can certainly tell tales about the costs of maintaining web sites and toll-free numbers for individual clients, but large dedicated teams, individual client dinners, and sophisticated data requests for institutional clients could easily be just as expensive.  If advisers had proof that their higher fees were justified, surely they would not be shy about sharing it.

Third, Ribstein emphasizes that mutual funds are just like other products (with the unstated assumption that mutual funds should not receive heightened judicial scrutiny or, alternatively, that if they do, then this case might unhappily trigger judicial scrutiny of those products too).  In a similar argument, Easterbrook asserted that courts have no business reviewing the purchases of automobiles and thus shouldn't being doing so for mutual funds.  But unlike automobiles or any other products, Congress specifically (a) designated mutual fund purchasers as shareholders with the rights, privileges, &c. appertaining thereto and (b) imposed a particular fiduciary duty upon advisers with respect to the receipt of compensation.

The distaste that Easterbrook, Bainbridge, and Ribstein appear to share for judicial review of this issue appears to involve a bleeding of positive analyses of this litigation into normative ones.  One cannot eliminate judicial review in cases such as these without ignoring the express language of Section 36(b) of the Investment Company Act.  Congress wrote that provision presumably because it believed that mutual funds, which unlike automobiles and other widgets (even expensive ones) lie at the heart of retirement funds, require heightened protections.  Certainly, one can argue that Section 36(b) is a bad idea and that Congress ought to repeal it, but so long as it remains in effect, courts that allow for the possibility that the fiduciary duty may have been breached are hardly being paternalistic or activist.

Perhaps the most interesting thing about the posts of Oesterle, Bainbridge, and Ribstein is their agreement that the case is primarily about executive compensation.  I certainly believe that it is as well, but it's also a case about reevaluations of behavioral and classical economic theory, the Court's ability to evaluate competing econometric analyses, and of course mutual funds.

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Dale Oesterle, Stephen Bainbridge, and now Larry Ribstein have all recently weighed in Jones v. Harris, the upcoming Supreme Court case that has drawn attention and increased press coverage in the past few days.

Oesterle suggests that the case “will have ripples across the governance of companies countrywide.”  Ribstein concurs, predicting that the “ramifications of this case potentially extend well beyond the Court’s holding, whichever way it goes.”  I agree with both and believe that this case will have profound consequences for a number of major corporate law issues, including fiduciary duties, executive compensation, and more.

Bainbridge dissents about any such ripple effect, however, citing a terrific article by Donald Langevoort in which Langevoort argues that we must be cautious in drawing comparisons between mutual funds and corporations.  What Bainbridge does not emphasize, however, is that Langevoort’s goal was to disabuse those who would sanguinely assume that the robust protections of corporate governance extend to far weaker and differently structured mutual funds.

But the fact that an analogy is inapt in one direction does not necessarily doom conclusions that operate in the other direction.  Even if one agrees that the benefits of corporate governance do not apply with equal vigor to mutual funds, one might very reasonably wonder whether problems that afflict mutual funds – excessive managerial compensation, for instance – similarly infest corporations.  So Langevoort’s arguments will not necessarily contain the ripples, waves, or other effects that might follow from a decision in this case.

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Along with thousands of others this month, I made a contribution to the Law Review Submission Gods.  My latest article, "The Windfall Myth," has been labor of love for awhile, but it was time to let it fly.  Here is the abstract:

Currently, decrying others’ profits as windfalls is popular among journalists, policy makers, law makers, industry participants, and the public at large. Once an economic gain is spotted that seems suspiciously large or too easily earned, then like the 'pod people' in Invasion of the Body Snatchers, the observer must point and alert the public that this “windfall” gain deviates from an acceptable baseline. If laws are not in place to prevent this gain, then regulators should step in and correct this loophole by promulgating new laws tailored to the situation that produced the unlawful windfall. The law may prohibit the transaction altogether, constrain the terms of any future transaction, or tax the windfall gain so as to deprive the windfall recipient of all or part of the benefit and redistribute the benefit to the larger public. Currently, legislation has been introduced both to create a 'Wall Street Windfall Profits Tax' to limit or create negative tax implications for executive compensation and to revive a windfall profits tax on crude oil, natural gas, and other products of the energy industry. This Article argues that this type of legislation finds its impetus not in sound economics, but in more base feelings of outrage, indignation and envy.

This Article employs both a theoretical framework to create a taxonomy of windfalls and an empirical study of the use of the word 'windfall' in the New York Times, the Wall Street Journal, state law cases and congressional history to analyze the rhetorical power of the term in popular and legal discourse. Though the term 'windfall' originally referred to fruits literally falling off trees due to the vagaries of the wind and no action on the part of the recipient, the term windfall is currently commonly used to refer to marketplace gains between freely negotiating parties. In addition, courts sparingly use the term 'windfall' to refer to double recoveries and recoveries where no underlying loss has occurred. In popular discourse, however, speakers employ the term to convey a sense that a marketplace gain of another is undeserved somehow. This overuse of the term 'windfall' reflects a misunderstanding not only of what a windfall is, but also a misunderstanding of the appropriateness of law to rewrite existing bargains and to limit private parties’ abilities to freely bargain without other considerations. Any defensible argument that redistributing luck by redistributing windfalls falls apart once the so-called windfall gains are the product of industry, innovation, ambition and bargaining. This Article argues against the temptation to label private gains as windfalls that are subject to recapture.

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The WSJ law blog has some nice research on the relationship between Colonial Bank and Auburn University, through its recently resigned CEO, the most powerful sports booster in America.  He hired and fired every football coach and president at the university since 1983.  He used his private jet for recruiting trips.  He has an oppo blog.  And, as the WSJ's cheeky chart comparing football wins and asset bases, Auburn's best two years, when it finished ranked 9th and 4th, were in 1993 and 1994, the years that Colonial reported its largest number of total assets (though the numbers look weird - Colonial blew up those two years, then shrank rapidly, and didn't really recover until the housing boom).  But the CEO was so involved in Auburn that the university was put on probation by an accrediation agency, and the team isn't doing well any more.  Perhaps the financial crisis - Colonial was sold by the FDIC to BB&T on Friday - will free Auburn of a micromanaging booster who might make it easier to higher a Nick Saban-like coach.  And then, who knows, triumph in the Iron Bowl might just await.

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A flurry of publications in the past 48 hours highlights a particularly fascinating corporate law case on the Supreme Court’s upcoming docket: Jones v Harris.

First, Wall Street Journal columnist Jason Zweig published a piece over the weekend which opened by noting that unlike typical high court fare, this case will “hit you right in the pocket.”  Then this morning, New York Times correspondent Adam Liptak emphasized that this case may hit the pockets of fund advisers even harder, characterizing the case as one focused on executive pay.  Finally, the Supreme Court itself today scheduled the oral argument: Monday, November 2, 2009, at 10:00 a.m.  My own take on the case is forthcoming in this law review article.

Both Zweig and Liptak are right – this case is going to cost either you (i.e., the 93 million individual mutual fund shareholders) or the investment advisers who manage mutual funds (e.g., Fidelity, Vanguard, et al.) billions of dollars.  Specifically, the Court will be called upon to give content to the fiduciary duty imposed upon investment advisers by Section 36(b) of the Investment Company Act on the question of mutual fund fees.  If the Court establishes a standard that requires a more robust duty, advisers may have to lower their retail fees.  In an industry with $10 trillion in assets under management, from which advisers take home $100 billion in annual profits, even a modest recalibration could shift billions of dollars between the pockets of advisers and shareholders.

For an overview of this case, the competing opinions of Judges Easterbrook and Posner in the Seventh Circuit below, and the practical and theoretical implications of a Supreme Court ruling, here is a five-part series of posts I wrote when certiorari was granted a few months ago:

  Will the Supreme Court Save our Savings?

  Chief Judge Easterbrook and Classical Law & Economics

  Judge Posner and Behavioral Law & Economics

  Practical Implications of a Supreme Court Ruling in Jones v. Harris

  Theoretical Implications of a Supreme Court Ruling in Jones v. Harris

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A few months ago, I participated in a survey on working moms and work-life balance.  The authors of the survey, Becky Beaupre Gillespie and Hollee Schwartz Temple, are using the data for a book entitled "Good Enough is the New Perfect:  Why Modern Moms are Aiming Lower -- Yet Reaching New Heights."  To kickoff the project, the authors have a blog.  Both of the authors have journalism backgrounds, and Hollee Schwartz Temple is a law professor at West Virginia University.  The blog's subtitle "An Inside Look at a Balanced Life" seems very aspirational to me!  I would never claim a balanced life.  My life is very imbalanced -- my trick is to overcompensate the other direction and so on and so forth so I never quite topple over!

Of course, blogging about this today I'm reminded of yesterday's NYT article in the Style Section about Stefanie Wilder-Taylor, author of Sippy Cups are Not for Chardonnay and Naptime is the New Happy Hour.  These books, and her blog BabyOnBored, were embraced as a fun backlash to being the perfect mom.  Unfortunately, there may be a dark side to the "Bad Mommy" movement.  Ms. Wilder-Taylor, a former stand-up comedian, announced two months ago that she was going on the wagon -- that her answer to livening up a playdate was actually masking a much more serious drinking problem.  Assuming that her announcement is genuine (she does have a new memoir released this summer), I can imagine that her announcement was very difficult to make; among the many rationalizations a person can make for not acknowledging any addiction, I'm sure the fact that you make a lot of money and a lot of people happy being the chardonnay-sipping homeroom mom is a pretty good one.  But, she does have this new memoir coming out. . . .

I'm not a huge fan of the bad mommy club because it makes me feel nerdy and boring, like high school.  But, so far I'm a huge fan of the Good Enough is the New Perfect blog!

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• Judges behaving badly?  Joe Nocera on the recalcitrant types in the Southern District of New York.  My favorite line?  Where he notes "the oddity of seeing lawyers on opposite sides, who are supposed to be antagonists, acting in near desperate concert, as they tried to persuade the judges to go along with their deals."
• Environmental law professor Amanda Leiter finished her first year on the tenure track by getting appointed to argue a case in the Supreme Court.  Not bad, right?  Here's how it happened.
• A good, solid eight years after publication, I've gotten around to listening to the John Adams audiobook, and once again, David McCullough and Edward Hermann are an amazing combination.  So were Adams and his wife.  They don't write letters of that quality any more - I was ROFL at the wit and shared affection. :)

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Here's a neat little time-elapse map of U.S. bank failures since the start of the Financial Crisis.  The map records 97 bank failures since the beginning of the crisis in early 2008.  Notice the concentration of failures in and around Atlanta and Los Angeles, my two most recent mailing addresses.  I don't think I had anything to do with it, though.

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I have forced hundreds of people to sit through presentations of my paper on windfalls (due out tomorrow, no matter what).  Some people, like Gordon, have seen it twice.  And none of my geeky Com-Con friends bothered to tell me about Windfall, aka Wendy Gordon, doomed tragic heroine and member of The Outsiders?  Sigh.

Not being limited by reading the actual comics, I'm fascinated by Windfall.  She lived a life marked by huge swings in fortune, enduring tragedy and trauma at times, and being part of a superhero team at other times.  She also brings swings in fortune to others -- saving some, asphyxiating others.  Windfall can control the wind.  Yes, she can fly!

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It's quite a piece of proposed legislation.  First, there's the creation of OTC markets for standardized derivatives.  Which may  be useful, may not be.  Second, there's "comprehensive regulation" of OTC dealers and major market participants. Which I must think the former investment banks and hedge funds are going to fight.  The devil will be in the details; I'll be interested to see whether Congress ends up taking a crack at defining those covered by the regulatory bit of the statute, or whether it delegates that task to an agency.  The current draft would have the CFTC and SEC do the defining, and requires rules implementing the statutes and filling out the terms like "market participant" within 180 days of passage.  It also requires that the rules be uniform across the agencies and - and I like this bit - lets Treasury come in and make the decision if the SEC and CFTC can't agree.  You can find the text of the legislation proposed here.

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• The blogs are thrumming with praise for David Wessel's book on the crisis, and I must add my voice to the choir.  It's a tick-tock, and I'm a bit tired of those - would it kill reporters to have themes?  Do you really want to know what time the final phone call on the AIG bailout ended?  But so many excellent details (Vikram Pandit exclaiming "this is really cheap capital!" when told what he'd be getting from the TARP, Mark Thoma has a list of others), really astonishing reporting.  And best of all, like Economics of Contempt says, it seems accurate.  Book of the crisis so far, and I've consumed many of them.

• One thing Wessel's book does do is make Sheila Bair look very uncooperative, and obsessed with mortgage relief, though usefully inclined to a hard line with Wall Street when it comes to a bailout.  Maybe Wessel is sexist, like all the other men involved in crisis; Moe Tkacik's subtle analysis is here, via Ezra Klein.  Here's Ryan Lizza's profile of Bair if you haven't seen it.

• Welcome to the blogosphere, Policy Court!  Which delivers opinions on economic policy Supreme Court style.  It has a nice, clean design.

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The National Law Journal is reporting that the Department of Justice is looking for a "rock star" to lead the fraud section of the Criminal Division.  Along with the rock star, the DOJ is also looking to fill 10 other spots in the section. 

I'm not going to sit by the phone. . . .

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