Thursday mega multi-post: Class actions, professionalism, Ken Lay and Sarbox, Blawg Review, Nigerian Scams for law profs
Good morning, sports fans. I've been paralyzed and unable to post- too many different ideas at once. Well, sometimes it's hard to concentrate on creating one separate lengthy post on a single issue. Here then are a number of pending post ideas I've had, separated and subdivided for your convenience.
So, here we go: Class actions, professionalism, Ken Lay, Sarbox, Blawg Review, and last but not least, Nigerian Scams for law profs.
Item number the Primus: Class actions.
George of
George's Employment Blawg posted an interesting rant a while back that
Class Actions Encourage Greed (Feb. 10, 2005)...
...and while I continue to agree that the solicitation he complains about is crass, I disagreed with the rant itself- that is, I chose to take an opposing position, because of my own training and inclination. I recommend reading his post, above, before reading my comment, which I repost here below.
I wrote
the following as a comment on his blawg:
I see...
- a free rider problem. injured persons who did not expend the search costs (or much of anything, really) to identify the problem, formalize a complaint, obtain lawyers, pursue a claim, and obtain a settlement can still collect.
- the possibility of fraud. uninjured persons who can plausibly claim to be injured might swindle their way in
- the danger of injustice. injured persons might for whatever reason not be able to or interested in collecting money, and so they don't benefit and the cost to the defendant is also unjust.
- fakework or makework by lawyers. by dredging deeply, the plaintiffs lawyers might locate additional injured or uninjured persons, thus increasing the amount of the pot that the lawyers collect.
I would think most of these problems are not problems at all, or ought to be solved by negotiation between the defendant and others. Is there really a danger of society being hurt? Did all those free-riders really scare the company into settling, or cause an unjust verdict?
That said, the notice still clunks, and it's perfectly fine to dislike its tone or its presence.
Eh N.
-----------------------------------------
I'd welcome further discussion of the merits of his rant or my response, since Class Actions will be a continuing interest of this blawg.
Item number Duo: Professionalism.
Following on with the topic of class actions, we come to the story of a Particularly Bad Day before an Appellate Panel. Sometimes oral arguments go well. Some days, you're the pigeon. Some days, you're the statute. [sic]
The news sources were
full of coverage the other day about the Wal-Mart oral argument before the Ninth Circuit on their appeal of the decision by the judge to permit the class to be certified. (L.A. Times, Aug. 9, free registration may be required)
The most exciting part of the argument (I gather) was ...
...when Judge Pregerson took the time to criticize appellate counsel Theodore Boutrous (of Gibson, Dunn & Crutcher) for certain aspects of Wal-Mart's brief. The brief, which complained (among other things) that certification of the class of over 1 million female employees made it practically impossible to defend (based on the variety of claims, Wal-Mart's inability to challenge specific plaintiffs due to a ruling by the trial judge, and presumably the Bet The Company nature of such a numerous and expensive class claim), and that Judge Jenkins' decision was wrong.
More than just wrong, in fact. Wal-Mart in its brief (which Mr. Boutrous may or may not have written, I can't tell from
Bob Egelko's column, available
all over) (I found it by doing a google search for: pregerson boutrous apology - that should also do it) whether Boutrous did or not) apparently accused the trial judge of being verbose and of
trampling on the constitutional rights of Wal-Mart. The brief itself is
here, thanks to
Sheridan: Con-Law for the link. In fact, his post is good in general.
I would follow on what Sheridan says: "Don't criticize the judge," even when his reasoning or conclusion is highly questionable. Argue that the reasoning our conclusion is wrong, but don't imply that the judge is guilty of dereliction of duty or worse. And try not to pick on writing styles of judges. They'll do the same to you the next time you're before them.
Most of all, though, this implicates
professionalism.
Wal-mart submitted a hard-hitting brief that in my opinion may have crossed over the line of poor judgment into actual professional discourtesy, risking the various lawyers' professional licenses, their good name, and their client's case in an effort to prove how zealous they were. Talking about whether your arguments are correct, while failing to note the Federal Judiciary's disapproval of your reckless tactics, is tantamount to professional tight-rope walking, in a stiff breeze, under the influence: Not Smart.
Pregerson suggested that Wal-mart owed the judge an apology for their comments, which he likened not to civilized adversarial advocacy but to a back-alley brawl.
There's something to be said about statistical proof, and it's not entirely positive. But Wal-mart's due process claims are a little over the top, and more importantly didn't win much favor from the panel in two of three cases. Being right's no consolation if the judges won't buy into your narrative. Also, less arrogance might be good.
Before I sign off on this area, I'd like to extend a pre-pology to Mr. Boutrous, who I pick on because of his cool name, and because this out-of-context quote bothered me: "We wrote a hard-hitting brief, and I think our arguments are correct," Boutrous said. Well, I reacted poorly, because he seemed to be excusing the inexcusable. In fact, he also said that no disrespect for the judge was intended, which is a much more salient response to an accusation of professional discourtesy.
Item number Treo: Ken Lay and Sarbox
Two important things I became aware of after the round of scandals and stock devaluations and company bankruptcies and manager indictments resulting from the late-90s-early-2000s tech stock bubble:
Kenneth Lay. George W. Bush's friend and campaign donor "Kenny-Boy" Lay was the toast of Houston, until his company (Enron) became a synonym for "fraud" - now Kenny's almost toast himself, although the civil suits are still pending as far as I know and he has thus far escaped indictment on criminal charges. Although Enron itself went through a massive (but not the largest; others have followed in its ignominious footsteps) bankruptcy in late 2001, it was its accounting firm Arthur Andersen which was criminally indicted, and eventually the resulting conviction was overturned by the U.S. Supreme Court based on the jury instructions, which
I discussed in passing here. Ken Lay is popularly thought to be a sort of Pinochet, an Evil Man who has Escaped Prosecution because he has Powerful Friends, which may be unjust as to his character, as I'll discuss below.
Sarbanes-Oxley, known as Sarbox, or even SOx. The S-O Act was a "response," in the sense that the Spanish-American War was a "response" to the explosion of the Maine: it followed chronologically after, and was justified on the specious theory that one had to do with the other. In fact, Sarbanes-Oxley tightens up many areas of corporate governance and requires strict reporting and verification by CFOs and CEOs - but not necessarily in ways that would have prevented the Enron and Worldcom fiascoes.
Treo the first: Ken Lay
Larry Ribstein of Ideoblog (highly recommended) posts in "
Fleischer on Kirkendall" about misperceptions of the infamous Nigerian Barge subissue of the Enron debacle. As Larry points out, this quite questionable financial transaction, in which Enron was selling and then (possibly through an independent subsidiary) repurchasing a barge, which resulted in huge tax benefits for Enron, was probably not criminal
even if it was wrong. This is a favorite theme of Larry's, evident in his posts on the fiduciary breach case that just came out of Delaware- the Ovitz-Disney case, as a matter of fact, involving executive compensation, which is in turn a favorite hobby-horse of mine.
Larry's most interesting point, I thought, was that Ken Lay has been demonized. Maybe a "favorable story" is going too far, muses Larry. But I've seen a fairly positive piece, and it goes like this: Ken Lay does not deserve to be indicted, just broke. He blew it, and took actions which he knew or should have known would hurt his employees, who continued investing in Enron stock even while he himself knew the situation was likely dire.
But deluded's not the same as criminal. Ken Lay took a bath, financially speaking, when Enron came down. His personal wealth was pegged on Enron stock; he was betting heavily that Enron would recover, almost right to the end, when any rational actor would have stopped. But CEOs aren't rational actors; they are supremely confident leadership machines, and when they're wrong, or even just half right, they're not stars, they're gas giants (to continue to steal a phrase, from Spider Robinson).
So: blow a big call, lose your shirt. Fair enough. "He deserved to go broke for his own hubris" Larry writes, and I agree. But does he deserve to be vilified? By his former employees, sure. But to be called a devious manipulator by the press and the public? I'm not sure it's deserved. Self-delusion is not usually enough for criminal liability. By this standard, the President couldn't be tried for most of the things I think he's guilty of; he's honestly unable to understand why some of his actions are indefensible in my view. Which isn't a justification (making an action morally and legally right), but it's an excuse (giving a reason for the action, which means society might consider not holding the defendant responsible).
This is tied up with the business judgment rule, about which Larry has much to say... as does Delaware itself. Again,
Larry's post is a must-read.
Treo the second: Sarbox.
Professor Bainbridge (who accused various folks of "shooting from the hip" in their quick responses to the Disney case, an accusation which Larry Ribstein (see Treo the First, above)
denies here) weighs in on the Sarbox "debate" (which seems to consist mainly of SOx-bashing by professional managers and by interested law or economics professors).
In
Bartlett on Sox, Prof. B points out an interesting piece by Bruce Bartlett at Real Clear Politics, which accuses SOx of "holding back the market"...
...which is in my view stupid, but we'll discuss why I'm probably incompetent to hold that opinion shortly.
Prof B. opines in this short post that "he's right" [meaning Bartlett] and without further ado [although I'm sure that Prof B has explained why he says so, and has blogged and published his views elsewhere], encourages us to read the whole thing. Well,
please do, and get back to me with your reactions, if you would.
Here's my beef: SOx has costly reporting requirements. It costs billions (no exaggeration) a year to get together all the information necessary to be able to certify that your company is in compliance. And if you aren't in compliance, you're essentially out of business (for better explanations of what the legislation does and doesn't do, see
Wikipedia, which has an article which to my surprise is not marked as disputed. I guess everyone so far has agreed that the entry is non-POV (doesn't take on partisan view, just reports objective facts) and non-partisan.
But Bruce whines (as do many CEOs and CFOs, he's not alone) that the Economy is doing just fine, or would be, but that the stock market is being artificially depressed by the "intangible costs" of SOx. There are legitimate criticisms of Sarbox; see the Wiki article, or Bruce's reference to Yale Lawprof Roberta Romano, which calls out Congress for doing what it always does:
- waiting until a visible scandal to do anything
- throwing together a mess of unrelated proposals which have been stewing for years
- enacting them without forethought or adequate comment, and without understanding whether they will have any impact on
the scandal at hand
- applauding itself for a timely intervention, and then going on holiday.
Compliance is costly, in terms of both money and time; it took companies over a hundred million person-hours to get in compliance last year, by one estimate, and that's not a trivial cost. The Sun Microsystem CEO had a lovely sabotage-related image: "throwing buckets of sand into the economy." Well, news flash for CEOs and professors: the economy is not a finely tuned watch, with gears meshing ever so neatly. It's a great rollicking machine, with steam and bells and whistles and, oddly enough, a raquetball court.
The intangible cost: the undermining of federalism. I can hear you all sighing in despair. Well, come along with me: in this national economy, with coast-to-coast ownership of companies and foreign investment and the nation's interests riding on trust in the market, isn't it important that federalism be paramount? Shouldn't we have a race to the bottom in terms of regulation? Can't we just find a way to allow companies to pull frauds on the market?
Short answer, no, we can't, and there's no intangible value of federalism. There are only tangible gains or losses based on federalist values in conflict with nationlist ones. Here's one area where I don't know very much about business and local regulation, or regulation in general for that matter. Call me ignorant, I'm certainly naive, but don't try to pull the federalism argument this time.
SOx may have been poorly enacted, without justification, without connection to the situation at hand. But tighter reporting requirements, _if effective at preventing crime_, have tangible benefits that are _hard to measure_. How can you calculate the cost of a disaster that is averted? By guessing, that's how. Enron and Worldcom and Global Crossing and Healthsouth and many others that I can't name, but that others can, were warnings. Big flashing red lights. Shareholders took notice. The government took notice, including the Justice Department. So'd the SEC. With any luck, forcing CEOs and CFOs to personally sign off on financial statements will prevent some of the problems we've seen, with Three Little Monkeys (Didn't see a problem, didn't hear a problem, couldn't say there was a problem) at the wheel.
Item number the Quattro: Blawg Review.
I have less to say, thankfully, on this subject.
Blawg Review is a rotating Carnival, in the Blog sense: a different host has it each week, and you can tell who had it when, who hosted last, and who's up next at
www.blawgreview.com.
I support Blawg Review; look to the left side of my blog, notice my blogroll (permanent list of noteworthy blogs). It's on there, under its descriptive name, the Carnival of the Blawgers. Blog carnivals are a fascinating topic which I will cover some other time. For now, let me just point out the page itself, and highly recommend #18, hosted at the Common Scold, which is a tour de force and uses a fun geography/ baseball theme to do the job: collecting some of the best and most interesting posts of the last week by blawgers. There are links to previous episodes (issues? iterations? incarnations?) of Blawg Review, submission guidelines, and a fun little tool called the Google Guest Map, which uses the same technology as Google Map plus a very picky pushpin interface to let you (if you're careful enough) mark the exact location, at the street level, you are blogging or reading from.
Blawg Review also hosts reviews (get it?) of blawgs, written by - well, you, if you want. Read some of the past reviews to get an idea of what they're after.
The links down the right side of the BR page are highly useful; they explain what a blog carnival is, and have links to some of the better or more famous ones.
Also, a note of clarification: this is not
"the blawg review" (blueblanket.net) which is about _law reviews_ and is technically a blog, and therefore is a blawg. Same name. Big difference.
Item number the last: Nigerian Scams for Prawfs.
A Prawf is of course a law prof, by analogy with blawg = law blog. See prawfsblawg for more on that. :)
A hilarious post on
Congomerate (theconglomerate.org) involves an enterprising person,
claiming to have a J.D. (law degree) willing to write publishable articles for professors, for money. Also, they are willing to Blue Book, meaning cite check (verify accuracy and form of all the citations) for $150-$1000. This reminded some of us of
Nigerian scams, which are concisely described, with examples, at Snopes. See David's hilarious take on the offer, and my (hopefully amusing) response, in the comments. I swear to you, all my typos really were intentional that time.
As always, I can promise certain things about the future:
- the Scalia megapost is still in the works! Projected completion date: when it's done.
- I've got other posts in the works, on Oaths [update: it's now available] and on Gay Marriage, although the first is more fleshed-out than the second.
- I will be posting in the future about Class Actions (I haven't squeezed that stone dry yet), about Linguistics (much more coming here; in fact, one post on the ugly word Niggardly might be up soon), and about Other Things. As always, remind me if I haven't come through with a promised post, and I'll get back on it.
- Finally, I will shortly lay out the actual purpose of this blawg, what my project is, and why you should care. Right now this thing is fairly undirected, and you may not be able to see what I'm getting at. There is rhyme to the unreason.
As always, my former blawg can be found at
Unused & Probably Unusable (mark one) and
its index is also available.
