Biggest Attorneys' Fee Award Ever?

Mattel asserted a copyright claim that was stunning in scope and unreasonable in the relief it requested. . . . MGA’s successful defense ensured that well-resourced plaintiffs cannot bend the law to suit their pecuniary interests. For these reasons, and pursuant to 17 U.S.C. § 505, the Court awards MGA $105,688,073.00 in attorneys’ fees and $31,677,104.00 in costs.

From here.

The issue at trial regarding the question of whether an MGA line of fashion dolls similar to those of Mattel were copyright infringing, when the line of dolls was invented by a Mattel employee, arguably on his own time, who took the idea to MGA that invested in it and made it a great success through their marketing efforts.

I simply cannot fathom how either side could run up that amount of attorneys' fees in a single copyright infringement case. Actually, I can. I'm sure that a huge amount of money was spent on discovery and expert witness fees. But, there is no way it would have had to cost that much if the case management had been better.

This is a case where the big picture conceptual issues on how the idea was developed and how similar it was to the Mattel idea dwarf the fact intensive details when it comes to liability and where both parties would have had sophisticated managerial accounting systems that would have made damages relatively workable to discern in great detail.

This is a case that could have been litigated quite adequately between two less flush parties for hundreds of thousands of dollars each, instead of hundreds of millions.

Mattel asked for $1 billion in damages but was awarded about $10 million by a jury. The judgment was reversed on an interlocatory appeal and they ended up losing the case.

I don't have great sympathy for either party in this case, and the 10th Circuit's contract interpretation that was central to a defeat for Mattel was somewhat strained. But, it is a symptom of a grossly flawed court process that it is possible to reasonably spend that kind of money on this kind of case.

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The Tax Code's Merger Ratchet Drives Harmful Economic Decisions

Corporate tax law students, but very few other people, spend vast amounts of their time learning how to understand the Internal Revenue Code's corporate reorganization provisions. Being tax law, this task leaves you knee deep in detail and you can lose the forest for the trees. But, in the big picture, the corporate reorganization provisions of the tax code may do more to encourage our economy's tendency to create systemically risky too big to fail businesses that interfere with consumer friendly competition than our antitrust laws do to discourage them.

Simply put, there are lots of relatively easy, safe harbor ways under the tax code to merge a business with predictable, favorable tax consequences. There are "A" reorganizations (statutory mergers), there are "B" reorganizations (stock for stock purchases of companies), there are triangular "B" reorganizations (stock for stock acquisitions by a parent company that merge the acquired company directly into one of its subsidiaries), there are "C" reorganizations (stock for asset purchases of companies), there are triangular "C" reorganizations (stock for asset acquisitions by a parent company that merge the acquired company directly into one of its subsidiaries), and there are acquisitive "D" reorganizations (another flavor of stock for asset purchases of companies). (Reorganizations are usually classified by the lettered subsection of Internal Revenue Code Section 368 that authorize them). There are also some lesser known back door ways to merge companies, such as via a contribution to capital of a sister corporation by its shareholders.

In contrast, obtaining the same kind of favorable tax treatment for divisive reorganizations (also called "D" reorganizations), which can be structured as spin-offs, split-offs, or split-ups, are fraught with tax risk and uncertainty. The IRS and tax lawyers have to pay close attention to regulations that have detailed facts and circumstances driven analysis, and a great deal of audit and pre-approval efforts to making sure that tax code requirements regarding which assets can go in which surviving corporation are met.

In a divisive tax free reorganization, like a tax free merger, nobody leaves either kind of transaction with untaxed cash at closing (although for publicly held companies the difference between stock and cash may not be all that material since anyone who wants to can readily sell their stock for full fair market value at a moment's notice and tax free, hard money margin loans are widely available if the stock is not sold), in an effort to prevent potential leaks in the regime of double taxation of corporate profits that is criticized by big business executives and liberal academics alike under our tax code.

But, our tax code discourages publicly held companies from splitting by with the frequently deal busting risk of unexpected premature taxation of all of a successor company's assets. Divisive reorganizations will often prove unworkable from a tax perspective unless the groundwork for the move is laid years in advance and even then, the freedom of businesses to split themselves up into units that make the most economic sense can be materially limited by the need of lawyers and accountants involved in the deal to control tax risk.

As a result, mergers of publicly held corporations are relatively common place, while divisive reorganizations, like the one announced by Kraft today that breaks its business into an internationally oriented snack food business and a domestically oriented grocery store product business, or the recently announced deal to unwind the merger of Wendy's and Arbys restaurants, are the much more rare and notable exceptions.

This little known bias in the tax code, at the macroeconomic level, gives us too many conglomerates, in which it is hard for stock market price discipline to hold management accountable and which create systemic risk in our economy that flows from too big to fail entities (like AIG), while discouraging the financial markets from crafting firms in a way that disaggregates separate businesses from each other to the full extent that their underlying lack of economic interdependence permits.

The merger bias in the tax code also harms the economy by reducing transparency in financial disclosures. The SEC has exacting rules on financial reporting for publicly held companies, but one of the big shortcomings of those rules, that prevents the financial markets from efficiently allocating capital to profitable businesses, while denying further resources to businesses with poor profits, is that the financial accounting rules do little to require the divisional and line of business breakdowns of corporate profits, losses, assets and liabilities necessary to do the managerial accounting analysis necessary to determine if corporate restructurings make sense.

Instead, the combination of weak subunit reporting requirements from the SEC, corporate reorganization taxation biases against divisive reorganizations, and a double taxation of corporate profits regime that encourage businesses to retain earnings from equity to reinvest in their own company even when the average stock market investor would agree that the funds would be more profitably reinvested in some other segment of the economy, all conspire to increase systemic risk in our economy, reduce transparency in our financial markets, and inefficiently allocate financially investments to business divisions that are suboptimal uses of available capital.

Indeed, the bias towards reinvestment of corporate earnings, coupled with the bias against divisive reorganizations, creates an incentive that is strongest for the least well managed businesses to acquire better run businesses that throw off cash for the primary purpose of obscuring their weak performance and diverting the cash from the successful businesses towards reinvestment in poorly run businesses.



Our economy relies on the threat of hostile takeovers by businesses who can profit by identifying mismanaged companies, buying them, jettisoning the bad management or reversing bad decisions, and improving the bottom line as a result to hold corporate executives accountable and to give them an incentive to manage their companies effectively. But, conglomerates with many units purchases to provide internal access to retained earnings that lack meaningful public disclosure of unit performance that would be available if the divisions were separate publicly held firms, discourage this kind of market discipline, as do management friendly rulings of the Delaware courts that allow publicly held corporations to discourage market efforts to hold them accountable with golden parachutes that international financial experts have widely condemned as encouraging systemic risk by rewarding senior executive mismanagement, and other poison pills to discourage shareholder and financial market identification of and intervention to end mismanagement of big businesses.

In theory, antitrust laws should prevent anticompetitive mergers that harm the public interest, but in practice, they are a toothless tiger than looks impressive but has little practical impact. Most of the harm from a bias towards mergers and against holding separate functional business units accountable flows from the collective effect of little incremental decisions whose public impacts are not obvious. By the time that antitrust regulators can truly prove that the merger of the last few oligarchic firms in an industry will harm competition, the damage has already been done, and nothing gives antitrust authorities the power to limit the formation of conglomerates that don't have monopoly power in any one industry, despite the fact that this was one of the concerns that led to the passage of these laws in the first place.

Collectively, these incentives and corporate and antitrust law flaws have not only negative economic efficiency consequences, but negative consequences for the appropriate distribution of wealth and income in society and the allocation of political power. While economically unreasonably large firms may not necessarily have unreasonable market monopolies in given industries, their sheer size does unreasonably concentrate wealth in a self-dealing economic elite of senior managers and the top professional advisers in investment banks, law firms and accounting firms (for example), and similarly, unreasonably concentrates political power in these unaccountable elites, while providing a means by which businesses have an incentive to fight for the interests of this economic elite as a social class, rather than being disaggregated into the conflicting factions of smaller firms with more particular political interests that the founders envisioned in the Federalist papers that are more easily subjected to the diffuse interests of the majority. In a nutshell, conglomerates encourage logrolling and mutual backscratching not just by politicians themselves but by the monied interests that are developing political coalitions that work to the detriment of the public interest.

Is this a lot to lay at the foot of Internal Revenue Code 368, corporate double taxation, and regulations promulgated by the IRS and SEC? Surely it is. But, the obscure pieces of our regulatory framework conspire to drive the unreasonable concentration of economic power, wealth and income, while simultaneously making our economy less competitive. They may not be flashy, but their day after day, broad systemic impact on the way that decisions are made in the dominant sector of our economy have a cumulative impact that is easily underestimated.

READ MORE - The Tax Code's Merger Ratchet Drives Harmful Economic Decisions

The Tax Code and Systemic Risk

Simon Johnson at the New York Times discusses whether tax reform could make the financial system safer, for example, by reducing tax incentives to favor debt over equity which increases leverage in the economy and makes firms more vulnerable to economic downturns as a result. The topic is near and dear to my heart as I presented on May 29, 2009 at the Law and Society Conference in Denver entitled "This Financial Crisis Was Brought To You By The Internal Revenue Code" on essentially the same subject.

Some key points of my paper were these:

1. Aggregate tax rates don't have much influence on economic growth, but incentives to engage in one kind of economic activity rather than another good economic substitute for that kind of activity are extremely influential. For example, historically very specific provisions of the law regarding which kinds of charitable giving are entitled to tax deductions have profound influences on the porportion of taxable gifting made by that means. A wig tax destroyed the wig as a fashion accessory. Tax policy has a strong influence on home ownership levels in mortgage loan to value ratios in Europe and was an important factor in the housing bubble in places like California that lead to the financial crisis.

2. Another important but subtle difference was the tax distinction between obtaining a second mortgages for the non-conventional part of a mortgage loan (i.e. beyond 80% loan to value), and private mortgage insurance. Both protect the first mortgage holder in the same way. But, tax law favored second mortgages over private mortgage insurance during the housing bubble. This was problematic, because the insurance regulation model was much better at regulating systemic downside risk than the mortgage securitization market that governed underwriting of second mortgages.

3. The intense systemic losses that flow from systemic biases towards leverage in the financial sector was illustrated by the history of repeated cycles of mass bank failures during recessions as a result of industry-wide overleverage by investor owned banks until commercial banking was subjected to FDIC regulation, while mutual banks, which gave control to depositors who are a form of lender, effectively transforming them into equity holders, did not experience this frequency of bank failures in economic downturns. Management and ownership downside loss relative to upside gain incentives turn out to be pivotal in the degree of risk that businesses take on in the absence of direct government regulation of capitalization.

4. I also illustrated how a change in government policy in 19th century Japan that changes a system of equity based land finance to a debt financed system of land finance produced a mass wave of foreclosures then.

5. I explored how overleveraging made the housing bubble possible, how that overleveraging was facilitated by non-bank lenders who has strong incentives to in turn leverage their own balance sheets which the FDIC regulation of the commercial banking sector was not there to stifle.

6. The investment banking industry, in turn, poured money into these non-bank lenders making risky decisions in their investing decision because they had turned from an equity financed partner owned structure with a brokerage model to a highly leverage investor owned structure investing on their own accounts, and because they had heads I win, tails you lose incentive stock option and bonus based compensation structures. The shift in the investment banking industry business model was driven in part by the strong tax incentives for debt over equity that drove the investment bankers to seek the deregulatory measures that allowed them to restructure in this fashion.

7. This culminated in every major stand alone investment bank in the United States either going bankrupt or reinventing itself as a regulated commercial bank, in Lehman Brothers, one of the oldest investment banks on Wall Street, which was a key financier of mortgage backed CDOs and credit default swaps, going bankrupt, in the government purchase an 80% stake in the major insurance company AIG, in order to prevent defaults on credit default swaps it issued from destroying the financial sector, and so on. Commercial banks which were barred by the FDIC from acting on tax incentives to overleverage, in contrast, failed at an only slightly elevated rate relatively to other recessions.

8. I explore the fact that one of the reasons that this spread to the real economy with the GM and Chrysler bailouts that followed, was because these firms were vunerable because they were overleveraged. Defined benefit pensions (which look like debt obligations to corporations unlike defined contribution plans) and reliance on bonds rather than stocks for capital were both key factors here.

9. The key culprits in the tax code, in the end were: (1) the corporate tax law debt-equity distinction and incentives, (2) incentive stock option compensation tax incentives that encourage excessive risk taking by public company executives, (3) the home mortgage interest deduction and in particular the detail that it allows deductions up to the full value of the house for second mortagages and vacation homes but not for private mortgage insurance for first mortgage holders who have a greater incentive to be cautious in underwriting.

The take away lessons were that while we have never been successful at preventing recessions from happening, that tax code reform that ends tax subsidies of debt relative to equity and that would encourage executive compensation and entity financing approaches that give decision makers a reason to fear downside losses would lead to a more resiliant, less risk biased economy.

Eliminating the bias that favors debt over equity in combined C corporation and shareholder income taxation has been a darling of academic economists and tax lawyers (for good reason) for decades, particularly after the General Utilities doctrine removed the best tool for circumventing the distinction. Incentive stock options have always been a concern of those worried about unfairly low tax rates for the rich but also have impacts important the systemic risk in the economy on corporate executive decision making by removing downside risk while rewarding upside gain for executives. There is more than one way to reduce the incentive to overleverage residental real estate and not unduly favor buying with a mortgage over leasing a residence, but restraining the incentives where they are doing the most harm, even without total reform of that area of tax law, would have major stablizing economic effects for the nation.

READ MORE - The Tax Code and Systemic Risk

Principal Reductions In Mortgage Modifications Follow Pattern

Banks will sometimes modify mortgages to reduce principal if they are already shown at a discount on their books due to an acquisition from another bank, especially if the mortgages are currently not in default, but not if the write down will produce an accounting loss for the bank.

It seems that Wells and JP Morgan are happy to do principal reductions only on the mortgages they bought at a discount from Wells Fargo and WaMu respectively; Bank of America, meanwhile, which inherited a bunch of these loans when it acquired Countrywide, is not doing principal reductions, and I don’t think it’s a coincidence that the Countrywide loans were bought at very close to par.

The behavioral psychology here is very easy to understand. No bank wants to admit that it wrote idiotic loans, and write down its own assets from par. Meanwhile, it’s much easier to write up an acquired asset, if the amount you reduce the loan is less than the discount you bought the loan for in the first place.

Economically speaking, however, what the banks are doing here does not make sense. Either writing down option-ARM loans makes sense, from a P&L perspective, or it doesn’t. If it does, then the banks should do so on all their toxic loans, not just the ones they bought at a discount. And if it doesn’t, then they shouldn’t be doing so at all.

The truth is, of course, that banks should be doing principal reductions, and they should be doing them on lots of their loans, rather than just the ones they bought cheap. And the fact that they’re already doing this, entirely voluntarily, on some of their loans is the best possible indication that it makes perfect economic sense to do so on all of their loans. Even if doing so might involve admitting that the subprime crisis still isn’t fully over.

The implication is that the financial accounting reform may be a key to responding more rationally to the current and future asset bubbles.

The results also shed doubt on the prevailing assumption that banks act in an economically rational way, which makes reforms, like cramdowns in bankruptcy, that force lenders to act rationally rather than based on the reputational effect of a decision for actors in the organization look attractive.

READ MORE - Principal Reductions In Mortgage Modifications Follow Pattern

Civil Unions In Rhode Island And The State Of Gay Marriage

Rhode Island's state legislature had passed a civil unions bill that its Governor is sure to sign.

Rhode Island joins four other states — Hawaii, Illinois, New Jersey and Delaware — that have legalized civil unions, according to the National Conference of State Legislatures. Several other states recognize domestic partnerships, while six have legalized same-sex marriage, as has the District of Columbia[.]

In terms of terminology, civil unions are marriage in all but name, and domestic partnerships are "marriage minus." But, it isn't clear yet whether all three will be the same in the eyes of the federal government, only marriage will count as marriage, or both marriage and civil unions will count as marriage in the eyes of the federal government. In theory, the federal government could even treat civil unions and/or domestic partnerships as marriages for some federal law purposes, but not others.

Still, we have reached a tipping point on gay rights in the United States.

The only other New England state without either gay marriage or civil unions is Maine (a year and a half ago Maine voters narrowly overturned the state's legislatively adopted marriage equality law, 53-47), but it apparently still has some form of domestic partnership law. New York, New Hampshire, Vermont, Massachusetts, Connecticut and District of Columbia have gay marriage. Pennsylvania and Maryland are the holdouts in the Northeast that currently lack gay marriage, civil unions or legally recognized domestic partnerships, and none of the states in the region that lack gay marriage or civil unions appears to have constitutional amendments prohibiting state legislatures from allowing gay marriage.

Rhode Island's move solidifies the Northeast block's stance that same sex couples have the same legal rights under state law as married couples, putting pressure on Maine, Pennsylvania, and Maryland, which have considered but not yet adopted such legislation (with the bills failing by narrow margins), to follow the examples set by their regional neighbors with whom they have strong ties and a history of interstate cooperation on other issues like automotive emissions and bottle recycling.

In the last tally that I saw, there were civil unions in Hawaii and domestic partnership legislation on the book in Washington State, Oregon, California and Nevada, forming a regional block of greater Pacific area states with gay friendly legislation.

California had had judicially established gay marriage until voters passed Proposition 8, but a trial court has ruled that Proposition 8 was unconstitutional, a challenge claiming that the trial court judge who ruled on the Proposition 8 case should have recused himself has been rebuffed, and the 9th Circuit Court of Appeals has essentially held that the only person who purported to appeal the trial court ruling lacked standing to appeal unless the California Supreme Court states in a legal question certified to it that the proponents of a ballot initiative always have standing to defendant constitutional challenges to that ballot initiative (which it seems unlikely to do when it rules on this issue which has been briefed and it is considering).

To make a long story short, it isn't at all beyond the realm of possibility that California will have true gay marriage (in addition to New York, which took this step earlier this year) by year end. Resisting a trend that already includes two of the nation's largest states and two whole regions of the country is not easy for its opponents, particularly without national government support with the Obama administration has denied them.

In the rest of the country, Illinois (which has civil unions) and Iowa (which has gay marriage) are an island of tolerance in an otherwise legally hostile sea, in the case of Iowa, as a result of a judicial decision that caused several Iowa Supreme Court judges who supported the ruling to lose retention elections.

The repeal date for the military's "Don't Ask, Don't Tell policy" a half-measure that kept a ban on gays in the military in force, is now set in stone by legislation.

Each legislative and court victory, shifts overall public opinion in favor of the change, because there is a natural tendency to accept the legal status quo as legitimate.

For activists in Rhode Island, winning "civil union" status rather than "marriage" status is more than a symbolic defeat, because the provision of the Defense of Marriage Act (DOMA) that pertains to federal law recognition of state law marriages is crumbling. Court rulings holding that this part of DOMA is unconstitutional are staking up; the administration has changed its litigation strategy from one of vigorous defense of the constitutionality of this part of DOMA to half-hearted enforcement of the law until there is an authoritative judicial decision to the contrary despite publicly expressed doubt concerning its constitutionality, and federal administrative reluctance to enforce penalties that deportation of a same sex spouse. There is a strong likelihood, although it is not completely certain, that the federal law part of DOMA will be judicially ruled to be void and no longer applied by the federal government before the 2012 election.

But, even if the federal part of DOMA is held unconstitutional, it isn't obvious that a couple with a civil union or state recognized domestic partnership would be entitled to the same treatment under federal law as a married couple.

Even assuming that the federal government part of DOMA meets its demise for want to support from the Obama Administration and as a result of judicial rulings to that effect, the provision of DOMA the provides that states need not give full faith and credit to a gay marriage in a sister state is not yet the subject of a serious legal challenge, and a great many states have no form of gay marriage, civil union, or domestic partnership of their own.

Interstate recognition of gay marriages, civil unions and domestic partnerships is ill defined at the moment, even among states that have them. Wyoming is a recent example of a state that does not have its own gay marriage law, but was willing to take jurisdiction over a divorce for a same sex couple married elsewhere. The court found that a ban on marrying same sex couples did not imply a ban on divorcing them.

Many constitutionally prohibit gay marriage, and almost all that don't do so in their constitutions, prohibit it by statute. But, state constitutions, unlike the federal constitution, tend to be quite easy to amend as public opinion shifts.

Isolated rulings, however, particularly in the adoption and child custody area in states like Florida, have held that discrimination against same sex couples even if they are not married, lacks a rational basis and is unconstitutional under the 14th Amendment equal protection clause.

Indeed, the law related to children, in general, and of parental rights and responsibilities of married couples vis-a-vis non-married couples has been so completely harmonized in the context of opposite sex unmarried couples, that paternal marriage status is almost irrelevant to these issues now even in states that have strongly resisted recognition of gay rights. There are some sometimes subtle differences involved in establishing paternity, but otherwise, the formal barriers to same sex couples in relation to children have been retreating for some time.

The U.S. Supreme Court's Lawrence case ended criminal prosecutions for consensual, non-commercial sexual relationship between adults in same sex couples, and this also probably provides a comparable privilege for sexual relationships of this type between all unmarried adults who are not in a position of trust with regard to each other or incestuous. Very few states continue to have civil or criminal sanctions for adultery. Meanwhile, martial exclusions for non-statutory rape have increasingly been stripped from the law books.

From a legal perspective, marriage no longer has almost any relevance to the legal regulation of parenting or sexual activity with which it was traditionally associated. At this point, legal marriage is almost exclusively an economic relationship pertinent to default private law rules concerning property, and personal care taking, mandatory private law rules concerning financial support, and is a device that helps to structure economic obligations for taxes and economic entitlements to government benefits.

For many purposes, private documents, such as domestic partnership agreements, inheritance and beneficiary designations in wills and other documents, medical decision making, and more, can establish arrangements between couples whose state law legal incidents are equivalent to those provided by marriage, and in states like Colorado that are at first glance hostile to gay marriage, these legal arrangements are increasingly easier to put in place and adopting non-discrimination laws that include sexual orientation. Many couples never put the full package in place, but many, although not all, of the practical state law legal disabilities associated with not being married can be overcome.

Colorado was just a couple of votes short of a civil unions bill in the 2011 legislative session, it has a U.S. Congressman and a number of prominent state legislators who are openly gay or lesbian, it has a U.S. Senator, Michael Bennet, who is co-sponsoring DOMA repeal, and its Governor is a supporter of gay rights who made a high profile appearance at this year's Denver Pridefest. Colorado's designated beneficiary act is just a notch short of a full domestic partnership law, Denver has a process by which couples can register as domestic partners, Colorado has included sexual orientation in almost all of its non-discrimination laws, and Colorado has made other same sex couple friendly adjustments to other aspects of its private law. If Democrats regain control of the state house in 2012, and possibly even if public opinion shifts even a small number of state legislative votes in the 2012 legislative session, Colorado will probably have civil unions by 2012 or 2013.

The solid regional blocks of legal recognition for same sex couples that are in place now and growing will make denial of full faith and credit look increasingly bigoted and will make this denial increasingly administratively cumbersome as a practical manner.

The Denver Post today cited statistics from the Census Bureau identifying more than 16,000 people who are gay or lesbian partners living together in 2010 up from a little more than 10,000 in 2000. About a quarter are in Denver, and thousands more are in the metropolitan area. It is increasingly easy for same sex couples to have a marriage or civil union somewhere, and to the extent that out of state couples are given the opportunity to marry in states that do permit same sex marriages, this will presumably provide full recognition at the federal level nationwide if the federal government portion of DOMA is held unconstitutional, even if the states where the couples reside do not themselves recognize their marriages as valid.

For example, suppose that the federal government portion of DOMA is invalidated and two men from Denver get married in New York City, and then return to Denver. They file their federal tax returns as a married couple filing jointly. Colorado law provides that state taxable income is a fixed percentage of federal taxable income. But, this state tax rule is hard to apply if Colorado does not permit couples that are treated as married filing jointly for federal tax purposes to be taxed with the same filing status at the state level.

DOMA does not appear to allow one state to invalidate an adoption of a child by a same sex couple granted in another state. Community property rights that were accrued by members of same sex couples in a state that gives their relationship formal legal status equivalent to marriage probably persist, even if the couples moves to other non-community property states, and give rise, at least, to a partition right, if not a right to a true divorce proceeding. The more that this issues become practical ones immersed in people's everyday lives, rather than exceptional issues of principle, the less controversial they will become.

READ MORE - Civil Unions In Rhode Island And The State Of Gay Marriage

SCOTUS Puts Slight Boundaries On Product Liability Jurisdiction

In a product liability suit arising from an allegedly defective European tire design that caused in injury to a North Carolina resident in Paris, (Goodyear v. Brown) and a product liability suit involving an English machine marketed in some U.S. states but not New Jersey where no more than four of the machines, and perhap just one, ended up being sold, and one of those machines allegedly caused the injury, (but in which the manufacturer did hold a U.S. patent) (J. McIntyre v. Nicastro) the U.S. Surpeme Court held that long arm jurisdiction over the manufacturers was not present on a "stream of commerce" theory.

These would be landmark decisions in personal jurisdiction if they spoke with one voice, but they don't. As the lead opinion in the second case explains:

The rules and standards for determining when a State does or does not have jurisdiction over an absent party have been unclear because of decades-old questions left open in Asahi Metal Industry Co. v. Superior Court of Cal., Solano Cty., 480 U. S. 102 (1987).

The first case, unanimously decided, was as much error correcting and precedent changing. Incidental sales of a few products not marketed there in the forum state, when those product that actually caused an injury to the Plaintiff were never present in the forum state, would not generally give rise to personal jurisdiction under a fair reading of existing law. The injuries involve didn't result from a products being carried in the stream of commerce to the place where the harm was caused in the case.

The second case, decided on a 6-3 basis, with two of the majority judges (Breyer and Alito) concurring in judgment, but not reasoning of Justice Kennedy's ruling on behalf of four judges, is a case that was a close one, quite plausibly providing a basis for personal jurisdiction in a U.S. state under a stream of commerce theory (although Breyer and Alito find that it does not under existing precedents because it involves a single isolated sale with no contacts in New Jersey in particular, rather than a regular stream of products), and it may constrain that theory of personal jurisdiction in personal injury cases going forward. The concurrence also argues that what makes since for a large scale manufacturer may not make sense in the case of a small craft manufacturer operating through big business distributors.

Justice Kennedy's opinion, whose rational fails to secure a majority, rejects a theory based on "fairness and foreseeability" under Ashai, and instead reverts to an earlier precedent out of which the stream of commerce standard arose that is still a touchstone for personal jurisdiction cases outside the product liability area, which holds that a court can have long arm jurisdiction over a party when it "“purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” Hanson v. Denckla, 357 U. S. 235, 253 (1958)."

The dissent would have transferred a clear intent to market in the United States to the particular state, New Jersey, where the product happens to wind up.

The practical impact of these particular cases is material for the defendants involved. French and English forums, in addition to being inconvenient for U.S. defendants, do not award signficant damages for non-economic harms like pain and suffering, do not afford a right to trial by jury for Plaintiffs in products liability lawsuits, and arguably have less generous standards for finding liability at all on failure to warn theories.

But, since the first case was well within past precedents, and the major change in the standard for applying its personal jurisdiction precedents in the second one did not secure majority support (while the broadened standard advanced by the dissenters also failed to secure majority suport), the net effect of all of these suits is to leave the legal standard for asserting personal jurisdiction in product liability suits essentially unchanged while reaffirming that not every single product liability suit brought by a U.S. defendant against a foreign manufacturer is within the long arm jurisdiction of state courts.

READ MORE - SCOTUS Puts Slight Boundaries On Product Liability Jurisdiction

State Securities Law Class Actions In Colorado

Colorado had somewhere from 12 to 16 state court securities law class action lawsuits in the fifteen period from 1996 to 2010, six in the first five years, zero to four in the next five years, and six in the last five years. State securities law class action suits most often arise in states with many publicly held corporations headquartered there (Delaware, California, New York, and Texas) and most frequently involve merger and acquisition deal disputes. The highest number of suits was in 2009, with four, but other years had just zero or one or two filings.

READ MORE - State Securities Law Class Actions In Colorado

Estate and Tax Planning For Same Sex Couples In 2011

SSRN has a new paper entitled "Planning For Same Sex Couples in 2011" that provides a nice overview of the estate planning and tax issues involved, including a state by state survey that covers recent legislative changes in this area.

READ MORE - Estate and Tax Planning For Same Sex Couples In 2011

Is Colorado Revised Statutes Section 14-2-205 Still Good Law?

Wife's land subject to judgment. When any woman against whom liability exists marries and has or acquires lands, judgment on such liability may be rendered against her and her husband jointly, to be levied on such lands only.

- Section 14-2-205, Colorado Revised Statutes.

The statute above, part of the Married Women's Property Act passed very early on in Colorado's history (actually a few years before its admission to statehood when it was under the territorial legislature rather than the state legislature), remains on the books exactly as it read when it was enacted in the late 1800s as part of a general package of legislation that reformed the common law rule that a married woman was subsumed as one person with her husband who was vested with all of her property, upon marrying and ceased to have an of the legal rights of an adult person. Most of the sections of the act had that effect.

But, this section, by its terms (despite the fact that the heading for the section doesn't give a clue that this is the case), this section would suggest that if a woman had an unpaid debt from before the marriage, married, and then, for example, acquired a home which she and her husband co-owned, that both the half of the home owned by her, and the half of the home owned by him would be subject to liquidation for payment of the debt, despite the fact that it was her sole pre-marital debt that he wouldn't otherwise have any personal liability upon, and that the reverse (in the case of a man with premarital debts) would not be true. This gives creditors access to more assets than they would otherwise have available to them from which to collect debts of recently married women.

While some debts contracted for "necessities" by a married person in a single spouse's name may be the responsibility of the other spouse, and a spouse may be responsible for the other spouse's automobile accident liability under the "family car doctrine," the general rule is that a spouse is never legally responsible for the other spouse's sole debts and that one spouse's interest in land cannot be seized for the other spouse's debts in the absence of a fraudulent transfer.

The statute surely violates the intermediate scrutiny test for gender distinctions under the 14th Amendment's equal protection clause, but normally the remedy would be simply to say that wives who co-own real estate with their husbands have responsibility for their husbands' pre-marital debts just as husbands do for their wives under this statute.

This is the standard way that statutes that use masculine language only are interpreted and the reverse ought to be true, even though this is a case where the original intent of the statute (enacted when the 14th Amendment didn't apply, interestingly) was probably not to do so, because it was enacted in response to previously unequal treatment of the pre-marital debts of husbands and wives.

The law in Colorado's case, however, probably due to wholesale copying from the laws of some other state, corrected a problem that Colorado didn't have. Unlike some states in the Eastern United States, Colorado has never had the doctrine of tenancies by the entireties that prohibited judgment liens against a single spouse from attaching to a single spouse's interest in real property co-owned by a husband and wife. So, a husband and wife purchasing real property as co-owners does not impair the ability of a wife's pre-marital creditors to collect from her as it would, for example, in Boston where the tenancies by the entireties doctrines survives.

But, there is no obvious constitutional principle that would prohibit the law from making all of real estate jointly owned by spouses subject to the pre-marital claims of one of the spouses, and the general rule is that statutes are given effect according to their plain language. In order to escape the claim of a creditor that this expands their collection rights, a debtor husband would have to argue that the law doesn't really mean what it seems to say on its face, given the larger intent of the Married Women's Property Acts to simply treat married women the same way that unmarried women are treated in private law. This argument could be made, and its disuse suggests that there are widespread assumptions that creditors don't have this right, but such an argument would hardly be a slam dunk. Moreover, most individual consumer debt collection defendants (and some of the lawyers who represent them) aren't legally sophisticated enough to make that kind of argument.

Interestingly, there is not a single reported case that has ever discussed this statute in the entire history of Colorado, despite the fact that this would be a rule that would seem to favor creditors in debt-collection actions that could benefit that class of creditors thousands of times per year. The leading treatise on debt collection law in Colorado, by Stephen W. Siefert, "Colorado Creditors' Remedies - Debtors' Relief," doesn't ever mention the statute once. Neither does the treatise, "Colorado Family Law and Practice," by Frank L. McGuane, Jr. and Kathleen A. Hogan. While this could simply be a function of the law being unambiguous, the more likely reality is that it is forgotten and not utilized because it doesn't make logical sense in the context of the contemporary was that we think about the property rights of married people. Most lawyers don't expect it to be there and therefore don't look for it, and don't expect it to work, in the rare cases where they do know about it and it does apply by its terms to a case.

READ MORE - Is Colorado Revised Statutes Section 14-2-205 Still Good Law?

Bank of America Still Stupid

It takes a really poorly run bank to first foreclose on a property that has on that has no mortgage, and then to ignore a judgment entered against it from the same lawsuit until the sheriff's deputies are on its door. Alas, this is one of the half dozen largest banks in the United States, and probably the world.

Bank of America mistakenly filed a foreclosure claim against [Warren and Maureen Nyerges] even though they had no mortgage at all. The couple fought the case in court and won, but then asked Bank of America to pay for $2,534 in attorney fees. A Collier County judge ruled the bank should pay, but the bank never did.

On Friday, the couple's lawyer went to a Bank of America branch with two sheriff's deputies. He was prepared to take possession of furniture inside the bank to pay the debt.

One hour later, the bank wrote a check for $5,772.88 to satisfy the original debt plus other fees.

From here.

In truth, the consequences for the Bank of America in this Florida case were probably entirely too lenient.

READ MORE - Bank of America Still Stupid

Extortion and Insider Trading

There are at least two quite different crimes both involving securing personal gain from other people's secrets. One is a subtype of extortion, where one makes money by promising not to reveal someone else's secret. The other is insider trading, where one makes money by acting on someone else's secret before it is revealed.

Secrets that are the subject of extortion threats are frequently not a crime or even a civil wrong giving rise to liability to publicly disclose. And, revealing a secret from an insider that materially affects the value of its stock to the general public before trading on it is likewise often neither a crime nor a civil wrong. Indeed, in both cases, revealing the secret is often considered a public service and is constitutionally protected. If the person who receives the secret does not act improperly in obtaining it, that person is generally free to disclose it, and even when a secret is obtained illegally, the punishment for the crime is often unrelated to the disclosure or non-disclosure of the secret and is frequently a misdemeanor.

It also isn't necessarily a crime or even civil wrong to profit from revealing someone else's secrets. While it would be a crime to extort cash not to publish information that someone had an affair, making money by selling that story to a gossip magazine or working as a private investigator using only legal means is perfectly legitimate. While trading securities on insider information is illegal, revealing negative inside information about a company in order to get a superior fired so that you can have a shot at that job when the vacancy arises. So it revealing negative insider information about a company so that stock in a competitor of a company becomes more valuable, so long as you already owned the competitor's stock it when you learned the inside information.

Nor is it a profit to keep other people's secrets, even for profit. Lawyers, doctors, mental health professionals, priests, accountants and many government employees are legally required to keep other people's secrets and are paid to do so. However, in those cases, the secrecy is promised in exchange for trust from someone who needs to know the information for reasons that often benefit the person who is the source of the secret, and the profit generally is from the secret's source or from someone who is financially indifferent to whether or not the secret is revealed.

In contrast, extortion and insider trading involve either harm or threatened harm to the source of the secret from others. In the case of both extortion and insider trading, not revealing the secret may harm the public, either because they are denied important negative reputational information about someone, or because they are inaccurately valuing a security and being exploited by someone else as a result of that inaccurate valuation.

READ MORE - Extortion and Insider Trading

Does Law Have Insufficient Visual Drama?

Once upon a time, where you wanted to sell real estate, you handed some soil or twig for the property to the buyer in what was called livery of seizen. Couples kiss, wear traditional costumes, and exchange rings when they marry in front of a crowd. One of the traditional ways to revoke a will (recently litigated in Colorado) is to destroy or deface the physical document (which leads to a number of peculiarities of probate law). Traditionally, wills were read aloud after a death, although that rarely happens these days. Even though it no longer legally matters, it is traditional to seal a contract with a handshake. When sports teams finish a game, win or lose, the players each slap hands saying "good game", emotionally putting an end to disputes over the details that led to the final result. Churches acknowledge affiliations to their faith with dramatic baptisms in the Christian church and a vividly memorable circumcision ceremony for infant Jewish and (at least in traditional societies) adolescent Muslim boys. Basic trainees in the military, men entering monastic orders, and prison inmates have their hair shorn, and are stripped of almost all of their personal possessions.

The current story arc in the webcomic Red String's (set in Japan but written by Gina Biggs of Georgia) features Hanae Niijima, a lesbian whose mother will not accept the fact that she has come out or acknowledge Hanae's true love Fuuko Akimoto. The set up to the scene is in this dialog:

Hanae: Why can't you be happy for me? This is who I am. This is ME.

Mother: It's NOT you. You were my sweet little girl who liked flowers and unicorns; who loved to be dressed up in frilly clothes and have me curl your hair. You were never a tomboy!

Hanae: That's STILL me. You think you have to be boyish to like a girl? That's . . .you can't believe that.

Hanae decides the overcome the conceptual block that seems to be getting in the way of her mother by making a visual statement:

Hanae: Fine. [Grabbing scissors with one hand and her long flowing curly hair with the other.]

Mother: What are you doing?!

Hanae: If its frills and curls keeping you from accepting this then I'll get rid of them. Will that work?

Hanae then hands a long pony tail of crudely cut off hair into the hands of her shocked mother who sits, holding it, staring off into space.

Obviously, I'm not recommending that this become a ritualized part of the process of coming out that is mandated in any way. But, powerful visual dramas can often convey meanings about abstract concepts, particularly emotionally charged ones, that some people have a hard time grasping from mere words.  Hanae's mother might be able to understand from the hair in her lap what she couldn't when her daughter merely spoke to her.

For example, one of the classic problems that one sees in modern family law litigation is that one or both of the people who once were married, or at least a loving couple, can't let go of that relationship. The service of the divorce petition, the signing of the papers, the dryly worded court order ending a marriage and providing for the sharing of the children and property of the marriage, and often a restraining order as well, don't communicate to the former member of that relationship with adequate emotional force that the relationship is really, once and for all, over.  Some people are simply beyond reaching by any means of communications, but a large number of people who go through family law proceedings simply don't really understand at an emotional and subconscious level what has happened until much later, even if they can parrot the court's ruling.

Perhaps if that message could be conveyed with more visual drama in some universally accepted new ritual, more people who move on, and there would be, as a result, less senseless fighting driven by old emotions instead of new practicalities. The demise of fault based divorce has made the process much more antiseptic for all involved in the process, but have we overdone it to the point of failing to really acknowledge in an emotionally valid way that not just the legal construct of the marriage, but also the emotional reality of the relationship that it approximates, has ended. Shouldn't the symbolism and ritual that ends of marriage need to be even more powerful and less subtle than the symbolism and ritual that starts one?

Adoptions tend to be even more understated, for fear of spooking the relinquishing parents, and not surprisingly, the main complaint that gets litigated in adoptions is that of relinquishing parents who claim they were properly appraised of the gravity of their actions.

A classic problem in consumer litigation of all kinds is the not infrequent failure of a debtor or consumer, already overwhelmed by paper and having trouble determining what is most important, to realize that a summons and complaint in a lawsuit is a once and for all speak now or forever hold your peace notice that has profound legal consequences if ignored.  This lack of understanding is one of the driver's of the almost ubiquitous paranoia about ulterior motives and about being cheated by one's betters found among unsophisticated people who have frequently been on the receiving side of litigation.

Perhaps we would do well to imitate the litigation practices of the protocol agents of the advanced civilization in the science fiction book "Jaran" by Kate Elliott, where legal disputes are announced by delivery of a physical baton in person by a courier, and one responds to the allegations at a mandatory in person appearance at the designated place and time, as inefficient as that may be, rather than simply enforcing the duty to appear by entering a default judgment against a party who does not appear (one that is often forgotten until property is seized pursuant to the judgment).

I have no empirically evidence to support the theory that more dramatic visual drama in the legal system would make any difference at all. The modern trend has been to strip away formalities, arcane language, pompous court room surroundings, wax seals, fancy ribbons and the like from legal matters. Instead, modern legal proceedings and legal facilities, favor plain English, the bare minimum of in person appearances, contemporary but understated and inoffensive surroundings suited for efficient, processing of business matters, dispenses with wigs and obtuse morning suits, and use very simple seals and acknowledgements - relying on the ability to confirm orders with third party repositories rather than lack of counterfeitability for reliability. Many documents that used to have to be notarized are now simply signed under penalty of perjury with no third party verification of identity or intent.

For lots of purposes this trend may be a good one. It demystifies the legal system and makes it more accessible to pro se parties. Much of what courts do is as much administrative business as it is emotionally meaningful decision making. For the most part, people prefer an inexpensive, quick, form driven informal probate process to the traditional succession proceedings of courts of equity will all their pomp and circumstance. And, some parts of the court process, like the delivery of jury verdicts finding someone guilty or not guilty, have managed to hold onto some of the drama that gives them emotional power. But, maybe some of the time, particularly in civil matters that don't involve business people and may have consequences for people who do not have the same cultural heritage as the lawyers and judges who are running the system, a higher touch, lower tech approach is in order and would make courts more effective. It is certainly a hunch that would be worth exploring with more systematic research.

READ MORE - Does Law Have Insufficient Visual Drama?

Defined Benefit Promise In ERISA Plan Must Be Kept

CIGNA, a finance and insurance company, converted its retirement plans covered by ERISA, from a defined benefit plan to a superficially similar defined contribution plan called a "cash balance" plan.

The retirement plan beneficiaries sued, claming that the new plan deprived them of benefits that they had earned under the old plan. A federal trial court agree and reformed the plan to remedy the shoftfall. The U.S. Supreme Court, in an opinion issued today, agreed that any plan beneficiary who was actually harmed by the loss of benefits they had earned under the defined benefit plan that were forfeited in the cash balance plan was entitled to an equitable remedy, but found that the specifics of how the federal trial court went about calculating that remedy was incorrect.

The ruling has broad applicability for the many large and medium sized employers that have converted defined benefit plans to cash balance plans on a model similar to that used by CIGNA, although the ultimate remedy is likely to be somewhat less rich than lower court rulings in the CIGNA case had suggested. As the U.S. Supreme Court explained (citations omitted):

CIGNA . . . told its employees that they would “see the growth in [their] total retirement benefits from CIGNA every year,” that its initial deposit“represent[ed] the full value of the benefit [they] earned for service before 1998,” and that “[o]ne advantage the company will not get from the re-tirement program changes is cost savings.” In fact, the new plan saved the company $10 million annually (though CIGNA later said it devoted the savingsto other employee benefits). Its initial deposit did not “represen[t] the full value of the benefit” that employees had “earned for service before 1998.” And the plan made asignificant number of employees worse off in at least the following specific ways:

First, the initial deposit calculation ignored the fact that the old plan offered many CIGNA employees the right to retire early (beginning at age 55) with only somewhat reduced benefits. This right was valuable. For example, as of January 1, 1998, respondent Janice Amara had earned vested age-55 retirement benefits of $1,833 per month, but CIGNA’s initial deposit in her new-plan individual retirement account (ignoring this benefit) would have allowed her at age 55 to buy an annuity benefit of only $900 per month.

Second . . . the new plan adjusted CIGNA’s initial deposit downward to account for the fact that, unlike the old plan’s lifetime annuity, an employee’s survivors would receive the new plan’s benefits (namely, the amount in the employee’s individual account) even if the employee died before retiring [by] multiplying the otherwise-required deposit by the probability that the employee would live until retirement—a 90 percent probability in the example of our 32-year-old. And that meant that CIGNA’s initial deposit in our example—the amount that was supposed togrow to $120,500 by 2031—would be less than $22,000,not $24,000 (the number we computed). The employee, of course, would receive a benefit in return—namely, a form of life insurance. But at least some employees might have preferred the retirement benefit and consequently could reasonably have thought it important to know that the new plan traded away one-tenth of their already-earned benefits for a life insurance policy that they might not have wanted.

Third, the new plan shifted the risk of a fall in interest rates from CIGNA to its employees. Under the old plan, CIGNA had to buy a retiring employee an annuity that paid a specified sum irrespective of whether falling interest rates made it more expensive for CIGNA to pay for that annuity. And falling interest rates also meant that any sum CIGNA set aside to buy that annuity would grow more slowly over time, thereby requiring CIGNA to set aside more money to make any specific sum available at retirement. Under the new plan CIGNA did not have to buy a retiring employee an annuity that paid a specific sum. The employee would simply receive whatever sum his account contained. And falling interest rates meant that the account’s lump sum would earn less money each year after the employee retired. Annuities, for example, would become more expensive (any fixed purchase price paying for less annual income). At the same time falling interest meant that the individual account would grow more slowly over time, leaving the employee with less money at retirement.

Of course, interest rates might rise instead of fall, leaving CIGNA’s employees better off under the new plan. But the latter advantage does not cancel out the former disadvantage, for most individuals are risk averse. And that means that most of CIGNA’s employees would have preferred that CIGNA, rather than they, bear these risks.

The amounts likely involved are significant. If, in our example, interest rates between 1998 and 2031 averaged 4 percent rather than the 5 percent we assumed, and if in 2031 annuities paid 6 percent rather than the 7 percentwe assumed, then CIGNA would have had to make an initial deposit of $35,500 (not $24,000) to assure that employee the $11,667 annual annuity payment to whichhe had already become entitled. Indeed, that $24,000 that CIGNA would have contributed (leaving aside the life-insurance problem) would have provided enough money to buy (in 2031) an annuity that assured the employee anannual payment of only about $8,000 (rather than $11,667).
We recognize that the employee in our example (like others) might have continued to work for CIGNA after January 1, 1998; and he would thereby eventually have earned a pension that, by the time of his retirement, wasworth far more than $11,667. But that is so because CIGNA made an additional contribution for each year worked after January 1, 1998. If interest rates fell (as they did), it would take the employee several additional years of work simply to catch up (under the new plan) to where he had already been (under the old plan) as of January 1, 1998 . . .

The District Court found that CIGNA told its employees nothing about any of these features of the new plan—which individually and together made clear that CIGNA’s descriptions of the plan were incomplete and inaccurate.

The implication seems to be that on remand the trial court may use equitable remedies to cure these deficiencies.

READ MORE - Defined Benefit Promise In ERISA Plan Must Be Kept

Colorado Securities Act Trumps Forum Selection Clause in Contract

As a general rule, parties to a contract can decide where disputes arising under the contract or between the parties in relation to the transaction are litigated and according to which state's law. When this is part of an arbitration clause, state law determinations that a choice of forum are frequently pre-empted by the Federal Arbitration Act. But, what if the contract provides that suits may be brought in ordinary courts, but only in a particular state?

If that contract is a contract related to a sale of securities that are regulated by the Colorado Securities Act because sales are made by a business with Colorado offices from which it conducts business, the Colorado Court of Appeals has held that the contract's forum selection clause is void as violation of a public policy articulated in that statute in an anti-waiver provision.

The Colorado Court of Appeals followed precedents interpreting similar issues under Colorado's Wage Claims Act and invalidating an arbitration requirement in a case covered by Colorado's Wrongful Withholding of Security Deposits Act. California and Illinois have similarly used anti-waiver provisions to invalidate forum selection clauses.

The Colorado Court of Appeals rejected analogies to federal securities contracts in international situations where state securities law claims are also present, a situation where many federal courts have upheld choice of forum clauses. It also rejected analogies to arbitration cases, where a federal statute applies, and to change of venue motions in the federal courts which do not have an analogous provision for transferring a case to a different state in Colorado's state courts.

In the case decided, in which the clause also selected Texas law as applicable, the distinction was crucial, because the general partnership interests that were marketed are securities under Colorado law, but not under the state securities laws of Texas, and because the Texas securities law, on its face, does not apply to transactions conducted outside the state of Texas.

Notably, this case was not brought as a class action.

READ MORE - Colorado Securities Act Trumps Forum Selection Clause in Contract

Probate Law and 9-11

Osama bin Laden is dead. Why care? Because it opens the door to probate claim litigation in his estate for 9-11 victims.

Osama bin Laden evaded civil liability for 9-11 and other terrorist attacks prior to his death because no process server could find him.

Bin Laden’s death could open the door to civil litigation targeted directly at him if new assets are uncovered, said Bill Wheeler of Mississippi’s Wheeler and Franks. The firm is pursuing a civil suit pending in Washington federal court stemming from the 1998 embassy bombings in Africa.

If an estate is discovered abroad, said Wheeler's co-counsel, James Franks, “that would be much easier than trying to get service on bin Laden [when he was alive].” But the ability to access those assets would depend on the probate laws in that country, he added.

Of course, the probate issues in these kinds of cases are non-trivial. Bin Laden was a Saudi Arabian national and at the time of his death was domiciled in Pakistan, both jurisdictions that use Islamic law as determined in Shari'ah courts to determine the inheritance rights in the estates of Muslim decedents like Bin Laden. In rem jurisdiction would also be present, under general Anglo-American and civil law principles, in jurisdictions where Osama bin Laden owned property. My understanding is that he was disinherited by his family, so none of the substantial inheritance to which he would otherwise have been entitled would be available to him or to his creditors.

Testamentary freedom is limited in the Islamic law regime, with only one-third of an individuals estate distributable to a non-designated heir, and I am not familiar with how it handles claims arising from the acts of decedents. Western legal systems typically provide some priority in an estate for spouses and children of a decedent over the claims of tort creditors. Also, it is likely that Bin Laden dedicated a significant share of his wealth to religious organizations which he controlled, rather than personally owning that wealth.

Shari'ah law does provide for the payment of "blood money" (diyah) when one causes the wrongful death of another, a remedy that parallels that of a civil suit, but there is not consensus among scholars of Islamic law over whether the 9-11 terrorist event was wrongful. Some Islamic law scholars have issued proclamations stating that the attack was wrongful under Islamic law, but Bin Laden likely had conferred with an Islamic law scholar, or had the authority as an Islamic law scholar himself, to determine that the attacks were conducted pursuant to a valid Jihad.

Not surprisingly, the Quran, which is the primary source of authority in Islamic law, is particularly sparse in resolving issues of jurisdiction, venue and collateral estoppel in a system of Shari'ah law courts that has no one central organization and was mostly not in place at the time that the Quaran was written.

Indeed, from a formal structural perspective, a large share of all the schisms and conflicting interpretations of Shari'ah within Islam that divide it into religious sects and national polities have this lack of clear canon law jurisdictional rules at their root. The problem is somewhat less acute in Shi'ite Islam, where there is or was for a long period depending on the sect, a living person to adjudicate these disputes, than for Sunni Islam, but in Shi'ite Islam, disputes over the legitimate order of succession among Imams (itself a quasi-probate issue) produced similar schisms.

READ MORE - Probate Law and 9-11

Maoism in India Linked To Neo-Feudalism

In parts of India, historically, land has typically been owned by individuals, much as it is in most of the United States. In parts of India, historically, land has typically been owned communally by villages in what amounts to a localized form of communism. In yet other parts of India, historically, land has typically been owned the landlords with large land holdings that is worked by landless peasants, in what amounts to a neo-feudal system.

While territorial boundary tensions in the general vicinity of Kashmir, and religous/ethnic conflicts between Hindus and Muslims capture most of the press about political violence in India, a third major source of political violence in India is an ongoing insurgency by Naxalites, who are usually described as Maoist are highly concentrated in parts of India that have historically had neo-feudal land tenure.

Thus, what seems from abroad to be revolution in support of discredited communist ideology, looks locally like an economic struggle that had already been largely resolved in Europe when Adam Smith and Karl Marx were defining the boundaries of the political economy debate there. Maoists in India are addressing legitimate grievances that the developed world is so far removed from that it is has largely forgotten them.

The United States experienced a similar struggle, but we didn't conceptualize it as an issue of land reform. We called the effort to dismantle a system largely build around ownership of large farms worked by landless workers abolition and dealt with it by ending slavery rather than with government sponsored land reform. Emancipation happened; 40 acres and a mule did not. A wave of reconstruction era bank foreclosures did a little to disaggregate plantation land holdings, but mostly the mechanization of agriculture and rise of an industrial economy made land ownership less economically relevant than it had been.

The implication of this fact, of course, is that the solution to the long running Maoist insurgencies in India may be to address the land tenure concerns that a fueling those insurgencies, and for outsider forces in India's policy environment to not so easily conflate an anti-feudal movement with anti-capitalist sentiment. This understanding of the movement helps makes sense of otherwise mysterious phenomena like the large contigent of pro-business Maoists in nearby Nepal's recent democratic elections.

In the words of a 1972 speech by Pope Paul VI, "If you want peace, work for justice."

READ MORE - Maoism in India Linked To Neo-Feudalism

What Is Mind Control And Why Should We Care?

The blog "Science Not Fiction" has an interesting post on whether mood influencing drugs are a form of mind control.  The original post argues that they are not.  In a length comment, I argue that the distinction is not as clear as the author of the post suggests.

Drugs can influence decision making to the same extent as variety of other factors from money to threats of violence.

The distinction between legitimate and illegitimate ways of influencing someone's decision making is one that is relevant to a wide array of legal issues because voluntariness in decision making is a key legal issue in wide variety of legal contexts from substantive criminal law issues like consent as a defense to rape charges, to the criminal procedure issue of the admissibility of a confession or validity of a plea bargin, to trusts and estates law, to health care law, to contract law, and more.

In these bodies of law, some kinds of decision influencing factors are considered to be legitimate, while others are seen as making consent ineffectual and amounting to duress or undue influence or fraud.

Rather than asking whether drugs constitute mind control, we should instead ask "when is it legitimate to use drugs to influence a person's decision making process?"

READ MORE - What Is Mind Control And Why Should We Care?

Deconstructing the Concept of Health Care And Options For Dealing With It

The convention of lumping all of the issues that fit under the rubric of health care is necessarily somewhat arbitrary. As we look to improve ways to control costs and find better ways to finance care, which is a never ending process despite the passage of the Affordable Health Care Act, which makes major reforms, it is worth examining ways to break the overall field of health care into parts, and to see if there are things that we commonly don't define as health care that are appropriate to address with the same tools.

Group health insurance plans and Medicare define health care quite broadly, but exclude certain procedures and treatments commonly deemed to be cosmetic or recreational or fitness related; long term care in nursing homes or with home health care services; and sometimes abortion. Medicaid often includes a broader definition that includes, for example, nursing home care.

Individual health insurance plans, out of concerns about moral hazard in the purchase of health insurance, have narrower definitions of covered health care. Routine services are often covered by a deductible on the theory that the tax advantage that applies to group health care plans creating an incentive to include as much as possible in the plan coverage scope for tax reasons does not apply in individual plans of employees who are not self-employed where risk management and price negotiation with providers, but not tax minimization is the goal.

Individual health insurance plans also usually exclude, or include only at prohibitively expensive rider rates (far more than this kind of care contributes to the whole in group health insurance plans) types of health care for which moral hazards exist because patients can know that they will need coverage in advance and buy it only if they need it. These conditions include pregnancy related care, mental health coverage, and coverage for pre-existing conditions (mitigated by a variety of devices to allow pre-existing condition coverage where moral hazard risks are not as serious, such as quasi-group COBRA continuation coverage).

Pregnancy is very expensive to insure against in individual health insurance plans because it is highly controllable by the insured, even though the lifetime costs of pregnancy related care frequently don't vary much from one woman to the next.

Mental health coverage has been further divided into categories that look more or less medical (biologically based conditions). There is dispute over whether some treatment regimes such as non-allopathic medical approaches (such as chiropractic, aromatherapy, herbal remedies, psychological therapy, acupuncture, personal training, and massage therapy remedies) are really health care in the sense intended, and over whether treatments such as fertility treatments are genuinely necessary as opposed to recreational.

Long term care coverage is an example of a very expensive, high probability event, with moderate risks regarding duration and costs, that is further complicated by the fact that long term care typically covers not only medical-like expenses but also non-medical-like expenses such as rent and food costs for the resident. Similarly, loss of income due to disability, or the disabilities presumptively inferred from old age called retirement, are typically handled separately from medical care.

We make distinctions between "emergency care" which everyone who comes to an emergency room is entitled to regardless of ability to pay, at least until stabilized, and other kinds of medical care.

We have different financing regimes for dental care, vision care, work related injuries (worker's compensation or the equivalent), non-work related accidental injuries (tort remedies and casualty insurance), health care for foster children, health care for Medicaid v. non-Medicaid patients, health care for the uninsured who can and cannot pay in cash, health care for certain veterans, out-of-pocket and insurance paid care, over the counter and prescription treatments, and so on.

Within the area of Medicaid covered health care, there are two groups of beneficiaries whose care is very expensive: older people who need nursing home care, and people with disabilities, and another, poor people who are not disabled or old served by the minority of providers willing to accept new Medicaid patients for below market rate reimbursements, for whom it is very inexpensive to provide health care.

A large share of all people covered by health insurance or governmental health care programs are entitled to that coverage not in their own right, but by virtue of their status of dependents of someone else. Medicare is one of the few programs that does not cover the entire family (although individual policies and CHIP enrollment in Medicaid for children only in a family are another).

The Affordable Care Act has made several strategic choices, which made political sense at the moment, but may not be the best long term solutions. One is to focus on a scope of care similar to bare bones group health insurance plans. Group plans are encouraged. Individual plans are made more like group plans through prohibitions on pre-existing condition denials, through mandatory coverage, and through expanded scope of coverage, in order to address moral hazard issues. The scope of Medicaid is expanded to include the near poor. And, tax credits and incentives ease the ability to pay problem for both group and individual plans.

There are other ways that the task could have been divided.

We could have chosen to deliver some or all health care services to children (and even college students) through educational institutions. Most school districts have school nurses and psychologists already, administer a few routine screening tests, provide health education (mostly, but not entirely sex education and illegal drug use propaganda), and refer children who seemed to be in need of medical attention but are denied it to social services authority. But, it wouldn't have been hard to establish a system of comprehensive, single payer health care for children through the school system. This would prevent the current system from suffering strain from the fact that large families do not fully bear the cost of their own care in many cases (particularly with more generous employers), and would in some ways reinforce the notion of connecting health care to one's place of employment - extending the idea to school aged children.

Colorado until recently, and some other states, have experimented with no fault automobile accident medical coverage, in which care for automobile accident injuries are financed through the injured person's car insurance, with particularly severe cases to be settled via subrogation actions by the insurer who pays for the care. There have been proposals to make such no fault coverage universal and finance it with a gas tax or other excise tax that functions as a "pay at the pump" user's fee. Worker's compensation, in theory, at least, covers work related injuries and diseases without regard to fault.

With a universal health care system, it would be possible to remove health care payments from the domain of automobile insurance, casualty insurance, tort judgments and worker's compensation entirely, by making health insurance the primarily responsible party for all health care, with legal responsibility for medical expenses related to fault in accidents or on the job injuries or diseases limited to subrogation actions. This would take a great many personal injury cases outside the tort law system entirely, and narrow dramatically the scope of the issues presented in these cases. Even more dramatically, we could decide that compensation for lost income due to disabilities that arise from injuries or diseases (or perhaps otherwise) ought to be entirely the province of insurance or social safety net programs, rather than the courts, perhaps via a more robust version of Social Security, or mandatory comprehensive disability insurance, in lieu of separate regimes for work related injuries, general tort cases, sick leave policies, and cases covered partially by private disability insurance policies and social security. Subrogation cases could allocate fault in cases where it was necessary to provide the proper incentives not to engage in negligent conduct (although in a society where everyone is adequately insured, this is harder to justify, particularly for small cases where the burden of the risk faced by different insurance companies can be expected to average out over time). In a regime like this one, only "pain and suffering" and dignitary injuries would be left to litigate.

Less radically, health insurance companies would process all health care claims, regardless of the nature of the injury, and then would be reimbursed by casualty insurance companies, with their actual costs entitled to presumptive validity. Tort lawsuits might establish liability for medical costs, but simply order the insurer for the tortfeasor to pay those costs as they come due, avoiding litigation involving expert witnesses over the validity of medical costs incurred and the estimated future medical costs involved in a personal injury case. Casualty insurers and health insurers could resolve medical expense disputes in individual cases through intercorporate arbitration.

We could have had a single payer system for some conditions, perhaps mental health care, or pregnancy care, or congenitally disabled people whose high cost of care is a certainty at the outset, that are hard to deal with through individual insurance due to moral hazard issues, while utilizing the Affordable Health Care Act insurance regime approach only for more ordinary cases. Mental health care or pregnancy care could be quite affordable to provide via a single payer system since they are a small part of the total national health care expense.  Failure to provide adequate mental health and/or pregnancy care has immense externalities for the rest of society as well, so perhaps these need to be redefined as public health issues.

We could have medical care in all trauma cases handled by one program or insurance regime, and handle non-trauma causes in another regime.  The public interest in universal trauma care is greater than the public interest in many kinds of universal non-trauma care.
Pregnancy care could be insured not through employers, but on a basis similar to universal life insurance or long term care policies, with premiums made over a lifetime or many years, to cover a lifetime of coverage. Rather than expiring for want of premium payments, these policies could create non-dischargable debts, a bit like student loans, which insurers could collect with bad debt figured into their pricing. Alternately, we could have a system of guaranteed pregnancy care loans that is directly analogous to the student loan regime, allowing births to be paid for over the course of a decade or two, rather than all at once, and could focus on transparency in pricing as a way to control costs in this area.

Guaranteed medical care loans also make sense as a back stop to a regime with catastrophic coverage in which not all patients have funds in a health savings account or otherwise sufficient to pay their current out of pocket costs.

We could distinguish between catastrophic care, which might be handled by a government program or secondary tier of insurers (a bit like umbrella insurance), and ordinary health care which would de-emphasize risk sharing and emphasized price negotiating and cash flow management. The greater ability of patients to pay for non-catastrophic care would make more ordinary market-like arrangements such as those seen in the area of dental health, seem more workable.

If coupled with a system of guaranteed medical loans, non-catastrophic care could be optional, and only catastrophic care would have to be universal either because it is mandatory in some form, or is a tax financed government program. The downside of making this a mandatory form of insurance, is that compliance can be difficult to secure for a program that actually makes insurance payments to the people who pay the bills only very infrequently, while accounting for something on the order of half of the cost of health insurance. But, catastrophic care on an umbrella insurance model would have very low administrative costs relative to premiums, and relatively few of the really controversial insurance coverage issues involve catastrophic care cases. This could give a government program a fairly large economic role in health care without having much of a day to day administrative role in it that people would fear would interfere with doctor-patient relationships.

Medicare and Medicaid are currently mostly programs that pay providers directly on a fee for service basis, but could be organized to pay for a menu of health insurance options, or to pay providers on capitation or similar basis. The Ryan plan that would provide mere flat dollar vouchers to buy health insurance would be problematic standing alone, but if there was a core set of coverages that could be purchased with the voucher without additional expenses from a vendor of last resort who was required to provide it, this would not be worrisome.

It would be possible to structure health care claim processing a bit like the way we structure credit card progressing today, where cooperatives like Mastercard and Visa process claims and adjudicate billing disputes, but the loans are extended by member banks that set interest rates, set credit limits, and establish their own reward programs. The vast majority of health insurers could be united in a small number of cooperatives, which would receive claims from providers and process them in a standardized process, set provider compensation rates for member providers, and leave the actual health insurers with only a few key terms like copay amounts or deductibles being set by the actual health insurer which would bear the financial cost of claims processed for its insureds, but would not actually administer those claims. This could produce many market efficiencies even if the claim processing cooperative had no formal monopoly.

Of course, to some extent, this is the easy part of the equation. Once you have universal health insurance coverage, it is a relatively bloodless affair to reshuffle the expense from one pocket to another in the interests of more efficient administration and more sensible cost distribution that is consistent with ability to pay. The really hard part of the issue is figuring out which scenario is not going to be to reduce just administrative and marketing costs to a minimum, giving health care consumers the best value for their money. This is the low hanging fruit, which shouldn't be that hard to realize.

The truly hard part of the health care reform question, which still remains largely unanswered, is who is both willing and able to effectively negotiate lower compensation rates for providers that will translate into lower compensation for doctors, nurses, pharmacists, drug companies, medical equipment makers, hospital administrators, and so on. The deepest problem with the American health care system is that the people who are currently making these decisions, with other people's money, are leaving American providers much better compensated than those anywhere else in the world by a large margin, for the same or less or inferior work. And, very few people in the policy world are entirely clear on what precise flaws in the provider rate system is most to blame. Notably, the truly iconic seats of medical excellence in the United States, like Mayo and Bethesda, are not the ones with the most highly paid providers.

Even in a perfect world with high levels of transparency, the sick and the injured are simply not in a good position to bargain for lower provider costs at the time of treatment as one would with many goods and services. They need intermediaries to handle this for them. But, how do we get the intermediaries (who might be civil servants or insurance company bureaucrats that we have never met) the clout that they need visa-a-vis medical providers who we know and love and the incentive to do their job well?

READ MORE - Deconstructing the Concept of Health Care And Options For Dealing With It

Selected Bad Precedents and Rules of Law

What rules of law (other than those in the U.S. Constitution) and court precedents, that remain good law, are on my list of the worst precedents and rules of law?  I supply the bad holdings only below, rather than presenting a more scholarly version that cites the case making that law in this post.

Criminal Justice

1.  Acquitted conduct may be considered when calculating a sentence under the U.S. Sentencing Guidelines, or in general, as a basis for a sentence by a judge following a jury verdict.

2. It is constitutional to try guilt or innocence for a death penalty crime before a "death qualified" jury.
3. The death penalty is permitted in felony-murder cases where the convicted defendant was not a trigger man and did not solicit a murder or conspire with the intent of causing a murder.

4. No imprisonment sentence for a recidivist felony offender, no matter how trivial the current offense, violates the 8th Amendment protection against cruel and unusual punishment.

5. There is no constitutional requirement that criminal sentences for clearly lesser crimes be no more severe than clearly greater crimes (e.g. child rape is often punishable by a shorter sentence than non-commercial possession of child pornography).

6. Photographs of lawful conduct can be criminal to produce and distribute (e.g. in child pornography cases involving adolescents above the age of consent engaged in consensual, non-commercial sex).

7. Neo-natal homicide by women in the throes of childbirth constitutes first degree murder (true in Colorado and in some other states).

8. Criminal defendants who have been convicted are not generally permitted to benefit from subsequent reductions in the sentence for the crime of conviction.

9. A decision of a criminal defendant to testify in his or her own defense opens the door to introduction of evidence of prior criminal convictions that would otherwise be inadmissible.  (Note that there is not a single alternative to this rule, but the rule as currently posed is problematic.)

10.  Plea bargain offers are not relevant in any legally binding way to the validity of a later sentence upon conviction.

11.  Acquittal of an offense in a state court does not trigger double jeopardy protections in a criminal prosecution by another state or the federal government (and likewise acquittal of a offense in a federal court does not trigger double jeopardy protections in state court).

12. Federal habeas corpus review is limited the violations of constitutional rights that took place through the conviction, even if after acquired evidence can establish innocence or cast substantial doubt on the accuracy of the verdict.

13. Forfeitures of rights in a criminal case as a result of the failure of court appointed counsel to act is not, per se, unconstitutional ineffective assistance of counsel.

14. The exclusionary rule applies to physical evidence obtained in violation of the 4th Amendment.  (In such cases, damage awards would be more appropriate.)

15. Defects in grand jury indictment process, or preliminary hearing process can constitute a basis for the reversal of a conviction in a criminal case.

16. Multiple offenses, not interrupted by a period of incarceration or a criminal proceeding, often lead to consecutive rather than concurrent sentences of imprisonment.

17.  State court criminal juries need not be unanimous as a matter of constitutional law.
Governmental Liability

1. Liability for civil rights violations is not vicarious. Employers of civil rights violators are only liable if affirmative misconduct is shown.
2. The 11th Amendment establishes a substantive principle of state sovereign immunity, rather than merely limiting venue in select types of lawsuits.

3. Qualified immunity for civil rights violations of constitutional rights that are not well established extends to all liability, rather than merely to liability for punitive damages.

4. Imprisonment as a result of a wrongful conviction does not give rise to liability under the takings clause of the due process clause of the 5th and 14th Amendments.

5. Judicial enforcement of a legal right does not constitute state action for civil rights action purposes.

Civil Procedure and Choice of Law

1.  A federal court complaint fails to state a claim in cases where an alleged civil liability arises from acts that only the alleged offender is in a position to know absent espionage or whistle-blowing for failure to establish that it is "plausible" that such secret action took place.

2.  A federal law counterclaim does not give rise to federal court jurisdiction in a civil action.

3.  Corporations not treated a residents of every state where they have a regular place of business for diversity jurisdiction purposes.

4.  Appeals from courts of inferior jurisdiction (at least in Colorado, New York, and some federal court contexts) are to the court of general jurisdiction rather than to the intermediate court of appeals.

5.  Default civil judgments cannot be set aside for mistake, inadvertence, surprise, execusible neglect, fraud, misrepresentation or other misconduct of an adverse party more than six months after the judgment is entered, even if no action is taken to enforce the judgment in that time period.  (Many defendants don't recognize that a default judgment has been entered or is a problem and have an incentive to do something about it, until it is enforced.)

6.  Judges are not permitted to resolve disputed issues of fact prior to trial in actions where the right to a jury trial has been waived.

7.  The right to a jury trial depends upon the classification of an action as arising in law or in equity, rather than expressly on facts such as the availability of money damages v. injunctive or declaratory relief, the availability of damages for non-economic damages, or allegations of fraud.

8.  Personal jurisdiction is available in defamation actions in forums other than the forum in which the allegedly defaming party resides, or was present when the defamatory statement was allegedly made by the defaming party.

9.  Personal jurisdiction is available in contract actions in forums other than the forum in which the allegedly breaching party resides, where the allegedly breaching party was present when executing the contract, where the contract provides that jurisdiction shall be available, or where the contract duties other than payment are to be performed (e.g. where the non-breaching party resides, or where contract negotiations took place).

10.  The U.S. Supreme Court and federal courts have jurisdiction to review disputes concerning the outcome of federal elections (i.e. U.S. House of Representatives, U.S. Senate, electoral college votes) made by state courts and by state and local governments, as opposed to confining these decisions exclusive to state courts and Congress.

Constitutional Law Other Than Individual Rights

1.  Treaties may be unilaterally repealed by an ordinary law enacted by Congress and are not generallly viewed as self-executing.

2.  The filibuster has the practical effect of imposing a sixty vote supermajority requirement on all legislation in the U.S. Senate for which a higher supermajority requirement is not imposed.
Tort and Environmental Law

1.  The CERCLA (superfund) liability exception for innocent property owners is not sufficiently narrow to protect innocent property owners from all liability in excess of forfeiture of the property and forfeiture any profit received from the property.

2.  There is no vicarious liability for medical malpractice.

3.  Warnings that it is foreseeable that an ordinary user of a product will not read are relevant to product liability.

4.  Ordinances requiring property owners to clear their sidewalks of snow do not give rise to negligence per se civil liability in Colorado.

Intellectual Property Law

1.  Intellectual property protection is available for images of publicly available buildings.

2.  Intellectual property protection is not per se unavailable for materials delivered voluntarily to an intended receipient on a non-commercial basis.

3.  Statutory damages are permitted in intellectual property actions in cases where the existence of a market for identical or closely comparable intellectual property and a calculation of attorneys' fees permits accurate determination of the damages actually suffered by a defendant.

4.  Stautory damages are determined per infringing work rather than per defendant.

5.  Injunctive relief is available for patent law violations even when the holder of the patent has known about the infringement and has failed to assert any rights until the economic impact of an injunction far exceeds the economic impact had the infringement been alleged when the infringement was first discovered, or when the patent holder is not engaged in the production of a competing product.  (In such cases, a court imposed accounting for profits on the basis of the licensing agreement that would have been made if the parties had negotiated a license should be imposed instead).

6. Intellectual property protection is available for public performance without modification of intellectual property made available for free, for example, via broadcast television or radio.

7. Copyrighted works take an extremely long time to enter the public domain, even if the owner has taken no action whatsoever, even a copyright registration, to assert copyright protection.

Bankruptcy

1. There is no general priority for trade creditors.

2.  It is not generally possible to cramdown a personal residence mortgage in bankruptcy.

3.  Replacement value, rather than the value of a debtor's assets to a creditor if obtained via a writ of execution, is used to value tangible personal property in bankruptcy.

4.  Default interest in excess of pre-default interest rates, late payment fees, and punitive damages have the same priority as general creditor claims as pre-default interest rates and principal claims.

5.  Exemptions from creditors in bankruptcy vary from state to state.

Trusts and Estates

1. Beneficiary designations supercede later executed probates wills.

READ MORE - Selected Bad Precedents and Rules of Law