Monthly Archives: February 2015

Governance by the Sword

Etiquette guides suggest that one has a year from the wedding to send a gift. I just read Larry Cunningham’s elegant article published precisely a year ago. So I’m on time to comment.

This piece addresses the explosion in the federal government’s use of deferred prosecution agreements (DPAs) in combatting corporate crime, a phenomenon that has increasingly become the subject of debate, at least in part because of the extraordinary fines that typically constitute a part of these deals. The corporate (or, as Larry corrects the record, partnership) death of Arthur Andersen, and enforcement in the pharmaceuticals industry (where conviction can lead to exclusion from federal health care programs to the detriment of patients) have made prosecutors sensitive to the collateral damage they can cause by indicting and trying (or obtaining guilty pleas from) corporations suspected of misconduct. Much of the literature focuses on the potential abuses inherent in the use of DPAs, which have a fitful history of prescribed guidelines and standards, and which present significant potential for prosecutorial abuse due to the one-sided nature of the bargain. (Among the abuses have been mandated—sorry, bargained-for—waivers on behalf of employees of work product and attorney-client privileges.) Further concern has been their secrecy, precluding interested corporations from tailoring compliance to address prosecutor’s concerns. While commentators see the utility of these agreements in avoiding litigation costs and achieving some measure of deterrence (in addition to avoiding collateral damage), much of the analysis has been negative.

Larry has taken a practical and sensible approach to the problem. DPAs can be useful, he tells us, but only if prosecutors approach the negotiation and structuring of an agreement as a governance problem. Ever since the 1996 Delaware Caremark decision, Delaware law at least formally has required that its corporations structure governance in a manner that discourages unlawful conduct and that makes it detectable when it occurs. Sarbanes-Oxley supplemented this approach with its own regulations. And who better to understand the governance of any particular corporation than its own board and executives? Yet, as Larry shows us, principally through his examination of the travails of AIG during the middle of the first decade of this century, prosecutors can be less than thoughtful about the appropriate, compliance-ensuring governance regime for any particular corporation. He rather convincingly demonstrates that AIG’s role in the financial crisis may well have been a direct consequence of the standardized “best practices” corporate governance regime imposed under Arthur Levitt’s supervision. (I point out that his knowledge of AIG is as a result of a book he co-authored with Hank Greenberg, who has a dog in this particular hunt, but Larry’s careful and scholarly approach give me confidence in the veracity of his reporting.) Continue reading "Governance by the Sword"

Privileged Delegations

Mila Sohoni, The Power to Privilege, 163 U. Pa. L. Rev. (forthcoming, 2015), available at SSRN.

When Associate Justice Ruth Bader Ginsburg visited Berkeley Law in 2013, she expressed surprise when students in my Civil Procedure class advocated the passage of the Open Access to Courts Act (which would have imposed the Conley “no set of facts” standard on Rule 12(b)(6) motions), even though she had dissented in Twombly and Iqbal. She asked: “You want Congress to change the Rules of Civil Procedure?” She would, I think, agree with Professor Mila Sohoni’s skepticism of allowing executive agencies to change the Rules of Evidence. Both laud the rulemaking process through the Judicial Conference instead.

Sohoni’s forthcoming article, The Power to Privilege, is a rare and insightful article that examines the intersection of the rules of litigation and the administrative state. The article takes a seemingly obscure and ignored provision of the Patient Protection and Affordable Care Act (ACA)—authorizing the Secretary of Labor to issue regulations that “provide[] an evidentiary privilege for, and provide[] for the confidentiality of communications between or among” a plethora of federal and state officials and organizations—and persuasively demonstrates the likely costs of such a delegation. Continue reading "Privileged Delegations"

Another Set Of Eyes: A New-Old Proposal To Combat Wage Theft

Matthew W. Finkin, From Weight Checking to Wage Checking: Arming Workers to Combat Wage Theft, Ind. L.J. (forthcoming), available at SSRN.

Matthew Finkin’s article, From Weight Checking to Wage Checking: Arming Workers to Combat Wage Theft, reaches back to the late nineteenth and early twentieth centuries for a solution to the very current problem of wage theft for low-wage workers. Finkin proposes a modern-day version of the “checkweighman” laws that enabled coal miners to select an independent checker to verify their wages.

Finkin begins by defining “wage theft” as a set of employer practices “that result in employees taking home less than they are legally entitled to under federal and state law.” Employers may pay sub-minimum wages, refuse to pay for “off the clock” time, fail to pay overtime at all or at the correct rate, steal tips, or fail to pay any wages whatsoever. Finkin summarizes the current research on wage theft, including now-DOL Wage and Hour Administrator David Weil’s valuable work on federal wage and hour violations and Annette Bernhardt, Trey Spiller, and Diana Polson’s excellent study of employment law violations experienced by low-wage, front-line workers in Chicago, New York, and Los Angeles. Drawing on this and other scholarship, Finkin concludes that wage theft is rampant, checked neither by government oversight nor by workers, who have too much to lose to take on the costly, risky proposition of suing their employers. Finkin thus characterizes wage theft as both feasible and attractive to employers; stealing wages from the workers who can least afford it has become—and likely always was—a good business proposition. Continue reading "Another Set Of Eyes: A New-Old Proposal To Combat Wage Theft"

Erasing the Lines Between Contracts, Gifts, and Wills

Adam J. Hirsch, Formalizing Gratuitous and Contractual Transfers: A Situational Theory, 91 Wash. U.L. Rev. 797 (2014).

Imagine that I asked your opinion about a dispute concerning the purchase of a new car; or whether I was entitled to a necklace my friend promised to give me; or about the devise of land by my father. You would likely analyze each transaction against the rules of contracts, gifts, and estates and trusts, respectively. Was there a signed contract for the purchase of the car? Was the necklace delivered? How many witnesses signed the will? As Adam Hirsch’s Formalizing Gratuitous and Contractual Transfers: A Situational Theory points out, however, the laws of contracts, gifts, and estates and trusts are all fundamentally about transfers. And perhaps we could considerably simplify the law if we abolished doctrinal categories and instead focused on the circumstances under which transfers occur.

At present, each doctrinal category has its own set of requirements for a valid transfer. Broadly speaking, contracts must comply with the statute of frauds; gifts must be delivered, and wills must be written, signed, and witnessed. But each of these formal requirements has exceptions. Lots and lots of exceptions, as well as inconsistencies, and Hirsch details most of them. These exceptions have sprung up over time, as legislatures and judges try to account for the varying circumstances under which transfers occur. Continue reading "Erasing the Lines Between Contracts, Gifts, and Wills"

Making Courts Attractive to Plaintiffs

Daniel M. Klerman & Greg Reilly, Forum Selling (December 31, 2014), available at SSRN.

Have you read Supreme Court cases on personal jurisdiction and wondered about the utilitarian basis for restricting the power of a court to assert jurisdiction over the parties in a case? The court opinions have often left me wondering what problem jurisdictional restrictions are designed to address. Finally, someone has provided an answer.  Dan Klerman (USC Law School) and Greg Reilly (California Western Law School), in their recent working paper, “Forum Selling,” provide a theory of inefficient jurisdiction grabbing by courts. If courts have a tendency to grab jurisdiction excessively under certain conditions, as Klerman and Reilly argue, then society’s welfare could be enhanced by restricting their power to assert jurisdiction.

The authors note that limitations on jurisdiction would probably not be necessary if all legal disputes arose out of contracts. The parties to contracts have incentives to choose the courts that optimize the value of their contracts, provided both sides to the contract are reasonably sophisticated. An accurate, fair, and efficient court enhances the joint value of the contract, leaving more surplus to be divided between the parties. To be more specific, sophisticated contract parties will choose the court that maximizes the difference between the joint governance benefits of the contract and the dispute resolution costs. Thus, there is little basis on social welfare grounds for preventing sophisticated parties from forum shopping through contract. The same can be said when the parties jointly agree on the dispute resolution forum, because if a forum gets a reputation for being too one-sided in favor of plaintiffs or defendants, few parties will jointly choose it as a place to resolve disputes. Continue reading "Making Courts Attractive to Plaintiffs"

Law Learning from Medicine

Evan D. Anderson & Scott Burris, Educated Guessing: Getting Researchers and Research Knowledge into Policy Innovation, Temp. U. Legal Stud. Res. Paper No. 2014-10, available at SSRN.

The Society for Empirical Legal Studies (SELS) was created less than a decade ago to create a forum for scientific research on the law itself, and the Society has grown each year, with now hundreds of submissions from all over the world for its annual conference and flagship journal. Although there are many strands of such research, a primary research question is whether any particular law works to achieve its end, and if so how? Does the death penalty reduce crime? Does medical malpractice reform promote patient safety or lower costs? Do restrictions on the practice of medicine promote health?

Even before SELS was created, scholars in many fields were looking at the law as an independent variable, and looking at various dependent variables that could be used to access their success or failure. Health outcomes present an obvious dependent variable, given its importance for overall welfare and given the rich data available in this sector. Five years ago, the Robert Wood Johnson Foundation created the Public Health Law Research Program (PHLR), and appointed law professor Scott Burris as its director. PHLR is dedicated to “building the evidence base for laws that improve public health. PHLR funds research, improves research methods, and makes evidence more accessible to policy-makers, the media, and the public.” PHLR has helped to create a rich multidisciplinary field of scholars and practitioners engaged in this sort of research to understand the impact of law on health.

This empirical turn in legal scholarship—drawing other scholarly disciplines into the law and developing empirical capacities among legal experts—creates a wonderful opportunity to improve the law itself. As the methods become more rigorous and the breadth of the work grows, it will be possible for lawmakers to make more intelligent decisions about which laws to enact and which to repeal, based on the empirical evidence as to whether they in fact work. In this way, evidence can supplant ideology in the law, just as evidence has supplanted superstition in medicine. In the grand scheme of things, this approach begins to fulfill the aspirations of philosophers like Francis Bacon, Jeremy Bentham, John Dewey—who all sought to bring intelligent evidence into the domain of social policy.

With this background, I turn to the excellent new work of Evan Anderson and Scott Burris. In this paper, Anderson and Burris begin to explore the question of how empirical evidence can feed into the lawmaking process. Assuming that the science has been performed, and that it is good, how can policymakers incorporate those findings to actually improve the laws on the books and the laws as enforced? This inquiry is analogous to the question of “translation” in medicine, the movement of scientific findings from the bench to the bedside. Continue reading "Law Learning from Medicine"