ProfessorBainbridge.com

Don't "Adopt a Parish"

Hugh Hewitt suggests that we "adopt a parish" that has been affected by Katrina. I appreciate the sentiment. As a Catholic, however, I am only going to contribute to the national office of Catholic Charities, not local Gulf Coast parishes. Why? Because of the decision recently reached by the judge supervising the Diocese of Spokane's bankruptcy case (Spokane declared bankruptcy because the diocese can't pay all the legal claims arising out of the priest abuse scandal.) Here's a news summary of the holding:

U.S. Bankruptcy Judge Patricia Williams of Spokane ruled Aug. 26 that civil property laws prevail in a bankruptcy proceeding despite any internal church laws that might bar a bishop from full control over parish assets. Diocesan lawyers had argued that in church law parish assets belong to the parish itself, not to its pastor or to the bishop. They said that, while the diocesan bishop was nominally the owner in civil law, even in civil law he only held those properties in trust for the parishes themselves. ...

Last December the Spokane Diocese filed for bankruptcy protection under Chapter 11 of the federal Bankruptcy Act, citing $11.1 million in assets and $83.1 million in liabilities, mostly from people seeking recompense for childhood sexual abuse by priests. It did not include parishes, parish schools or cemeteries in its list of assets.

Victims' lawyers claimed that the bishop had more than $80 million in assets under his control if he included the diocese's 82 parishes, 16 diocesan and parochial schools, and various cemeteries and other properties that he claimed he held only in trust. {Ed: What exactly do the lawyers want to with the [expletive deleted] cemeteries? Dig up the bodies and sell the land?}

And here's the real kicker:

Stockton attorney Larry Drivon, who represents hundreds of Californians suing the Catholic Church over childhood sexual abuse, said the Spokane ruling sends a warning to other Catholic dioceses considering bankruptcy to avoid payment of multimillion-dollar jury verdicts in sex-abuse cases. "They are not going to get anywhere in bankruptcy," he said. "This is exactly what we've been saying since Day One, that all of the Catholic assets within the diocese are available to pay these plaintiffs," Drivon said.

Drivon said the ruling also meant that money held in restricted funds within dioceses for special projects, such as construction of a cathedral, can be used to pay judgments in sex-abuse cases, contradicting what some church officials have told donors. "They have told their parishioners, 'Don't worry about the funds that you gave us for the cathedral, because these funds are separate and cannot be used for lawsuits.' Well, they can," Drivon said.

In other words, giving money to a specific parish these days for a specific purpose like Katrina relief is no longer safe from the claims of sex abuse litigants. I firmly believe that the Church needs to compensate the victims of priestly sex abuse, but I also don't want money I give to hurricane relief being diverted to other purposes and, in particular, I don't want it to end up in some trial lawyer's contingent fee.

Update: Hugh acknowledges the risk, but thinks it is minimal because none of the Gulf Coast dioceses are yet in bankruptcy and the money will all be spent quickly. As to the latter, however, there will be needs for months if not years and one hopes people will keep giving to meet those needs. In addition, because they may anticipate long-term needs, not all parishes will spend the money immediately. There may not be much risk, but I'm disinclined to take any risk on this issue.

Law and Lawyers Post-Katrina

An email from a friend reports something I hadn't even considered; namely, the devastation Katrina will cause to the legal system.

5,000 - 6,000 lawyers (1/3 of the lawyers in Louisiana) have lost their offices, their libraries, their computers with all information thereon, their client files - possibly their clients, as one attorney who e-mailed me noted.  As I mentioned before, they are scattered from Florida to Arizona and have nothing to return to.  Their children's schools are gone and, optimistically, the school systems in 8 parishes/counties won't be re-opened until after December.  They must re-locate their lives.

Our state supreme court is under some water - with all appellate files and evidence folders/boxes along with it.  The 5th Circuit Court of Appeals building is under some water - with the same effect.  Right now there may only be 3-4 feet of standing water but, if you think about it, most files are kept in the basements or lower floors of courthouses. What effect will that have on the lives of citizens and lawyers throughout this state and this area of the country?  And on the law?

The city and district courts in as many as 8 parishes/counties are under water, as well as 3 of our circuit courts - with evidence/files at each of them ruined.  The law enforcement offices in those areas are under water - again, with evidence ruined.  6,000 prisoners in 2 prisons and one juvenile facility are having to be securely relocated.  We already have over-crowding at most Louisiana prisons and juvenile facilities. What effect will this have?  And what happens when the evidence in their cases has been destroyed?  Will the guilty be released upon the communities? Will the innocent not be able to prove their innocence?

Our state bar offices are under water.  Our state disciplinary offices are under water - again with evidence ruined.  Our state disciplinary offices are located on Veteran's Blvd. in Metairie.  Those of you who have been watching the news, they continue to show Veteran's Blvd.  It's the shot with the destroyed Target store and shopping center under water and that looks like a long canal.  Our Committee on Bar Admissions is located there and would have been housing the bar exams which have been turned in from the recent July bar exam (this is one time I'll pray the examiners were late in turning them in - we were set to meet in 2 weeks to go over the results).  Will all of those new graduates have to retake the bar exam?

What a disaster. And what very scary questions! I can't imagine how they will even begin to sort all this out.

In related news, via Conglomerate, I learned of a blog that is tracking the whereabouts of Tulane and Loyola law professors and students post-Katrina. So far, thankfully, the news seems to be about as good as it could be under the circumstances.

Juries and Scientific Evidence

The recent Vioxx decision spurred a lot of discussion in the blawgosphere (including a couple of posts by yours truly; e.g., here) about the ability of juries to handle scientific evidence. An empirical study of that very question was just published in the Journal of Legal Studies: Dale A. Nance and Scott B. Morris, Juror Understanding of DNA Evidence: An Empirical Assessment of Presentation Formats for Trace Evidence with a Relatively Small Random-Match Probability. As I read it, it's not good news for my position.

Here's the abstract:

In cases involving scientific evidence linking the accused to a crime (a "match"), expert testimony sometimes can provide a suitably reliable estimate of the chance of a coincidental match. Controversy attends the question whether, and in what form, to allow testimony reporting that probability. Further controversy concerns the implications of laboratory proficiency tests for the presentation of testimony about the chance of lab error. This large-scale empirical study, using members of an Illinois jury pool, confirms earlier research suggesting that, contrary to some predictions, jurors tend to undervalue forensic match evidence. Our results differ from most prior research, however, in showing that variation in the way the random-match probability is presented and explained can reduce the undervaluation, that it can do so without inducing significant inferential fallacies, and that incorporating information about comparatively large lab error rates, when it has any discernible effect, increases jurors' willingness to convict.

Here's the money quote from the conclusion:

There is now significant evidence that, when measured by Bayesian norms, juror assessments can be improved by providing appropriate instruction that offsets the otherwise extant, but reasonableindeed laudable tendency of jurors to discount the probative value of a scientific technique the results or implications of which they do not fully understand.

...our results tend to support a view of trial law as more urgently concerned with assisting the jury to understand the evidence, in this case a DNA match, than with shielding the jury from evidence, such as a calculated random-match probability, that some worry might lead them astray by triggering irrational mistakes or submissive credulity favoring the prosecution.

I have to admit that this study appears to support Beldar's analysis of the Vioxx case rather than mine. It looks like ability to present scientific evidence (at least of this sort) may well be a much bigger factor than the jury pool's intrinsic ability to assess such evidence.

Bias against conservatives in law school hiring

The NYT reports:

[A] study, to be published this fall in The Georgetown Law Journal, analyzes 11 years of records reflecting federal campaign contributions by professors at the top 21 law schools as ranked by U.S. News & World Report. Almost a third of these law professors contribute to campaigns, but of them, the study finds, 81 percent who contributed $200 or more gave wholly or mostly to Democrats; 15 percent gave wholly or mostly to Republicans.

The percentages of professors contributing to Democrats were even more lopsided at some of the most prestigious schools: 91 percent at Harvard, 92 at Yale, 94 at Stanford. ...

Law professors' politics may be similar to those of other academics, but they are not representative of people with similar credentials and incomes. In the 2000 election cycle, according to data from the National Election Study produced at the University of Michigan, 34 percent of people with advanced degrees and 44 percent of those earning $95,000 to $200,000 gave exclusively to Democratic candidates. For law professors, the new study finds, it was 78 percent.

Jim Lindgren comments:

... a professor at the Harvard Law School told me that in 1988 he asked every member of the Harvard Law School faculty with even a hint of conservative or Republican leanings whether they favored or had voted for Bush in 1988. Only one had (1 out of 60-80 faculty); all others favored Dukakis. He also said that in about 2 or 3 dozen entry-level faculty hires from the mid-1970s through about 3 or 4 years ago (when they hired an entry-level conservative), the Harvard Law School had not hired a single Republican.

Now consider this thought experiment: [Imagine that in 1988 all but one of the Harvard Law faculty had favored Bush1 over Dukakis. And] Imagine that over the same period of a quarter century [mid 1970s through early 2000s], the Harvard Law School had hired at the entry-level only those who leaned Republican. Imagine how different the Harvard Law School would be, how different legal education would be, how different the government (and public policy) would be, populated with lawyers trained by an overwhelmingly Republican Harvard faculty. Somehow I think it would be a different world.

Yep. And the MSM/legal left would be screaming bloody murder about discrimination.

Actually, I don't think it's discrimination, so much as a problem of critical mass. I took on this issue in an October 2003 post, opining:

... for a candidate to survive the [law school faculty hiring] winnowing process, somebody has to pull their resume out of the slushpile and make sure it gets flagged for close review. Because most law schools lack a critical mass of libertarian and conservative faculty members, there is nobody predisposed to pulling conservative candidates' AALS form out of the slushpile (and a fair number of folks inclined, whether consciously or subconsciously, to bury it). Meanwhile the latest left-leaning prodigy from Harvard or Yale has a mentor at one of those schools who makes calls to his/her buddies and ideological soulmates at other law schools. The recipients of those calls then flag the prodigy's file, giving them a critical leg-up in the process. It is one of the few moments in the process when somebody is affirmatively trying to hire someone rather than just trying to get rid of the pile. And that, my friends, is why there would be a disparate impact even if there were no deliberate bias.

My TCS column on this subject blasted a couple of favorite arguments of liberals:

Many liberals advance some version of the "conservatives are stupid" argument, only occasionally dressed up in less pejorative forms. For example, here is Duke Philosophy Department chair Robert Brandon's take on the question:

"If, as John Stuart Mill said, stupid people are generally conservative, then there are lots of conservatives we will never hire. Mill's analysis may go some way towards explaining the power of the Republican party in our society and the relative scarcity of Republicans in academia. Players in the NBA tend to be taller than average. There is a good reason for this. Members of academia tend to be a bit smarter than average. There is a good reason for this too."

In fact, however, data from the widely used General Social Survey (GSS) consistently show that Republicans are better educated than Democrats (on average, they have more than half a year more education and hold a higher final degree). In addition, Republicans score better than Democrats on two tests included in the GSS.

Another explanation one sometimes sees is that liberals are better people than conservatives. As George Will observed:

"George Lakoff, a linguistics professor at Berkeley, denies that academic institutions are biased against conservatives. The disparity in hiring, he explains, occurs because conservatives are not as interested as liberals in academic careers. Why does he think liberals are like that? 'Unlike conservatives, they believe in working for the public good and social justice.' That clears that up."

What about all those conservatives who have taken low paying jobs at think tanks like Cato, Heritage, or AEI? Or the public interest lawyers working at low paying jobs at places like the Pacific Legal Foundation? My firm belief is that those institutions provide a pool of individuals who would be perfectly happy to settle into the academy, if they had a fair shot at finding an academic job.

I concluded:

What is to be done? Proponents of diversity, as measured by race, gender, sexual orientation, or what have you, long complained about the "old boys network" that dominated law school hiring. (Oddly enough, as the proponents of such diversity have achieved their own critical mass on most law school campuses, one tends to hear this complaint less often. Indeed, from what I see and hear, there seems to be something a "new boys and girls network" at work.) It's time for us conservatives and libertarians to take up that complaint. We shouldn't ask for affirmative action in favor of our fellow travelers, but we should insist that the pool of candidates not be artificially constricted by either the old or the new networks.

I still think that's about right.

Update: Ann Althouse and Pejman Yousefzadeh have more. Brian Leiter thinks the McGinnis study is "meaningless."

Update: Todd Zywicki blasts three commonly made arguments - rural/urban divide, regional selection, and willingness to apply the scientific method - to smithereens. He then concludes:

... it seems utterly absurd that people are still making uninformed armchair speculation about the causes of the prevailing ideological imbalance in the academy. Is it self-selection? Conservatives are greedier? Conservatives are dumber? When it comes to addressing the issue of other "underrepresented minorities" on college campuses, the record overflows with high profile blue ribbon panels of leading scholars and administrators. No stone is left unturned and no penny left unspent to try to determine why women are "underrepresented" in teaching math and science, or the underrepresentation of minorities. I think maybe it is time to take even a small percentage of those tens of millions being spent at places like Harvard and Columbia and perhaps do a study of the causes of the ideological disparity in the academy, rather than simply speculate and pontificate. At the very least, such a study would eliminate some of the more preposterous hypotheses (such as the idea that conservatives generically like money more than liberals or that conservatives lack the intellecutal frame of mind to succeed in academia).

Well said.

Duckhorn Merlot (Napa Valley) 2001

Since last noted in June 2004, the 2001 Duckhorn Merlot has mellowed quite a lot. In this bottle, at least, the tannins are round and smooth. Soft, sweet dark fruits dominate this delicious wine, which also offers a long and perfumed finish. At $45/bottle, this wine is perhaps a tad pricey, but I recommend it anyway. Grade: A- (as before)

Behrens & Hitchcock Oakville Merlot Fortuna Vineyard (Napa Valley) 2002

A highly perfumed wine of power and refinement (the proverbial iron fist in the velvet glove comes to mind). Plums, black olive, red currant, and rose petals. Delicious. Very drinkable now, It lacks the firm structure to support extended aging. In the event your cellar is well stocked with this wine, in which case you really need to have me over more often, I suggest drinking up all but one bottle, which you should then let age to about age 8 to see what happens. At about $50/bottle, this wine is fairly priced for the high quality. Grade: A-

Thomas More

Matthew Mehan's got a very fine roundup of biographies and source materials on St. Thomas More. Because More is the patron saint of lawyers and scholars, I have a special veneration for More, and I was impressed by the amount of material Mehan's puilled together. Clearly I've got some reading to do.

More on Merck and Juries

Many bloggers/blawggers were taken aback by the recent verdict against Merck in the first of the Vioxx trials, mainly because it seemed that the jury failed to grapple with the scientific evidence and the tough causation issues presented by that case (see, e.g., Megan McCardle, Larry Ribstein, Ted Frank, and me, to name just a few). Among other things, all of us asked whether this verdict calls into question the jury system (as I put it, "nothing since the OJ criminal verdict has shaken my faith in juries as much as the details coming out of the recent verdict against Merck in the first Vioxx suit").

The seriousness of the problem is driven home by a WSJ($) op-ed today, in which Betsy McCaughey observed:

Before the trial began, according to the New York Times, Mr. Lanier knew that the autopsy was a problem, and he told his legal team that he was going to "browbeat" the pathologist into supporting his theory linking Vioxx to Ernst's death. How plausible is that theory? "To say that Vioxx did it because a blood clot you didn't find caused a heart attack that left no evidence of heart muscle damage is absolutely speculative," says Dr. Jeffrey Borer, chief of Cardiovascular Pathophysiology at Weill Cornell Medical College. According to an expert on arrhythmia, Dr. John Somberg, professor of Medicine and Pharmacology at Rush Medical College in Chicago. "It is more likely that [Ernst] had a primary arrhythmia" without suffering a heart attack first. Blaming the death on Vioxx, he says, "is very far fetched."

How could a jury believe such a far fetched tale? The jury may have been swayed somewhat by Mr. Lanier's fondness for quoting the Bible and his star quality in Texas as a Baptist preacher, populist Republican, and anti-abortion, anti-corporate crusader. But the fundamental problem, in every state, is that juries drawn from the general population, as wonderful as they are in most cases, lack the expertise to decide medical questions accurately. They often fail. How often? Up to 80% of the time, according to the Harvard Medical Practice Study of litigation in New York state. Similar studies in Utah and Colorado show that verdicts against defendants in medical malpractice cases are seldom justified by evidence. The same lack of expertise hampers juries from reaching fair decisions in trials involving medical products. The results conflict with our commitment to justice and fail to provide fast, fair remedies to actual victims.

So what do we do about it?

Like some others, I suggested that the time may have come to rethink the jury system. Self-described "crusty, longwinded trial lawyer" Beldar has been leaving eloquent defenses of the jury in the comments section of my and other blogs, however, upon which he has now elaborated in a blog post well worth reading. Beldar has been emphasizing two arguments: (1) juries are smarter than a lot of people give them credit for being and (2) maybe Merck's lawyers didn't do a very good job of presenting the evidence to the jury (a possibility I had noted but not emphasized). Hence, he argues that Merck lost

... not because the jurors were stupid or incapable of understanding them [i.e., Merck's scientific arguments], but because they found the arguments and evidence offered by Mrs. Ernst's lawyers and witnesses more persuasive, more accessible, more credible, more sensible.

Maybe.

In any case, in her WSJ op-ed McCaughey offers an alternative that would retain the juries that Beldar praises, while still strengthening barriers against junk science and support for good science; namely, specialized courts:

The jury's verdict shows that our system is failing to provide justice reliably in medical cases. The remedy? Specialized state medical courts, where judges stop lawyers and hired-gun witnesses (for the plaintiff or the defendant) from misleading juries with theories disguised as science, something Judge Ben Hardin failed to do in the Ernst case. ...

In state medical courts, the right to a jury trial, which is guaranteed in most state constitutions, would be preserved. The difference is that medical cases would be assigned to a few judges, who would hear similar cases again and again, recognize the same patterns of fact, and become expert at keeping "junk science" out of the courtroom. Judges would also be given training in scientific evidence and call neutral expert witnesses to help jurors assess conflicting testimony. In many states, this reform could be achieved administratively, without legislation. (New York, for example, has already established 170 specialized courts without legislation.)

I think this is an idea well worth exploring. In an article I co-wrote with my friend Mitu Gulati, How Do Judges Maximize? (The Same Way Everybody Else Does - Boundedly), I explained that generalist judges often have difficulty handling technical issues and therefore tend to resort to decision-making heuristics that tend to increase error rates. Quoting law professor Eric Posner, for example, we observed that:

[C]ourts have trouble understanding the simplest of business relationships. This is not surprising. The judges must be generalists but usually they have narrow backgrounds in a particular field of the law, and they often owe their positions to political connections, not to merit. Their frequent failure to understand transactions is well-documented. One survey of cases involving consumer credit, for example, showed that the judges did not even understand the concept of present value. [Citing Jeffrey E. Allen and Robert J. Staaf, The Nexus between Usury, “Time Price,” and Unconscionability in Installment Sales, 14 UCC L. J. 219 (1982).] The judges struck down contracts because the credit price was higher than the cash price, not taking account of risk and of the time value of money. The authors showed that the implicit interest rates were reasonable. Even when judges do not misunderstand basic ideas, we must take their interpretation of facts on faith. Judges’ reasoning can be evaluated only against the canned facts described in the opinion, which themselves are the result of a fact-finding process that does not inspire confidence. ... Skepticism about the quality of judicial decision-making is reflected in many legal doctrines, including the business judgment rule in corporate law, which restrains courts from second-guessing managers and directors, and the many contract doctrines that restrain courts from second-guessing parties to contracts.

We then argued that this is one reason for Delaware's dominance of corporate law. Delaware has a court - the Court of Chancery - that more-or-less specializes in corporate law. As a result, those judges develop considerable expertise in dealing with the sort of business issues Posner says other judges struggle with. As Mitu and I explained:

Delaware chancellors face a different set of incentives than do federal judges faced with securities fraud claims (or state judges elsewhere faced with limited liability issues). As is true of everyone, the rationality of Delaware chancellors is bounded. As with all judges, Delaware chancellors are time-and resource-constrained. Yet, the Delaware chancellors have considerable incentives to develop specialized expertise in dealing with complex corporate law issues arising in the context of sophisticated financial transactions. In contrast to federal judges who only decide securities cases episodically, Delaware chancellors decide a lot of corporate law cases on an on-going basis, which makes it rational for them to devote effort to mastering both doctrine and the financial world to which the doctrine applies. Because of Delaware’s prominence in corporate law, the reputation of a Delaware chancellor depends mostly on his or her ability to decide corporate law matters quickly, thoroughly, and accurately. Hence, the payoff to devoting effort to such cases is far higher than is the payoff to a federal judge for devoting effort to securities cases. Conversely, given the small size of the Delaware judiciary and their state’s prominence in corporate law, there likely would be a considerable reputational hit if a Delaware chancellor tried to rely on heuristics.

Setting up courts to specialize in technical medical and scientific issues, as McCaughey proposes, thus strikes me as a perfectly plausible compromise that retains the benefits of the jury system (if any) while still being likely to constrain bad science and bad arguments.

It's not a First Amendment Issue

Michael Graham got fired from his ABC radio job for making some derogatory remarks about Islam. Now he's claiming:

The First Amendment and I have been evicted from ABC Radio in Washington, DC.

Sorry, but no.

Speaking as a business lawyer, I hate these sort of arguments. The First Amendment limits only the power of government, in general. The First Amendment, absent state action, therefore generally does not prohibit a private employer from firing one of its employees.

This sort of rights talk, claiming to have Constitutional protections one obviously lacks, is particularly disappointing coming from a conservative. I thought one thing almost all conservatives agreed upon was that judges and courts had taken cognizance of too many social issues better left to politics and/or markets. The kind of lose talk in which Graham engaged undercuts that understanding by implying he has some sort of legally cognizable right under the First Amendment to continued employment.

My point is not, of course, that Graham should have been fired. (James Joyner's got a nice analysis of that question.) My point is only that I hate to see conservatives invoking the lex-centric rights language of the left rather than relying on markets and politcs for redress.

Update: LaShawn Barber really gets it, writing:

... The amendment protects citizens from government suppression of speech. It’s a “debate” I’ve had with people who actually thought they had a right to comment on this blog. Sounds ridiculous, doesn’t it? Most got it, but some were too dimwitted to grasp the concept.

ABC Radio is a private entity and within its rights to fire Graham for “cause,” however it’s stipulated in the employment contract. I do think ABC’s actions are un-American and cowardly.

Well put.

Revlon Duties

In the Toys R Us Shareholders Litigation, Delaware VC Strine holds that the directors of Toys R Us did not breach their "Revlon duties" instructuring the sale of the company. Originally, the Toy R Us board had intended only to sell on division. The process of seeking a buyer for that division had turned up four potential bidders. The board subsequently decided to sell the whole company, but did not reopen the bidding process to seek additional potential bidders. Plaintiffs objected to that failure, which Strine dismissed in harsh terms:

I begin by noting my disagreement with the plaintiffs about the nature of players in the American M & A markets. They are not like some of us were in high school. They have no problem with rejection. The great takeover cases of the last quarter century — like Unocal, QVC, and — oh, yeah — Revlon — all involved bidders who were prepared, for financial advantage, to make hostile, unsolicited bids. Over the years, that willingness has not gone away.

... capitalists are not typically timid, and any buyer who seriously wanted to buy the whole Company could have sent a bear hug letter at any time, if it wanted to be genteel about expressing an interest. In all reasonable likelihood, the board’s sales process for Global Toys provided the most credible and likely buyers of the whole Company with information that would have gotten their acquisitorial salivary glands going.

The opinion is instructive for two reasons. First, it confirms the interpretation of Revlon that I offered up in my book Mergers and Acquisitions, in which I observe that (at 351):

... target directors need not be passive observers of market competition. The board's objective, however, "must remain the enhancement of the bidding process for the benefit of the stockholders." Favored treatment of one bidder at any stage of the process was therefore subjected to close scrutiny. Ultimately, the board's basic task was to get the best possible deal, which usually but not always meant the best possible price, for their shareholders. Directors did not need to blindly focus on price to the exclusion of other relevant factors. The board could evaluate offers on such grounds as the proposed form of consideration, tax consequences, firmness of financing, antitrust or other regulatory obstacles, and timing.

Just so, Strine does not accord the board's decision, business judgment rule protection, but also is unwilling to second guess a reasonable board decision about how to conduct a sale of the company.

Second, Strine devotes considerable attention to the question of whether Toy R Us directors and officers engaged in self-dealing and/or had conflicted interests in connection with their conduct of the sale. Again, I think this is consistent with my understanding of Delaware's takeover jurisprudence. As I observe at 366 of Mergers and Acquisitions:

In its takeover jurisprudence, Delaware typically has balanced the competing claims of authority and accountability by varying the standard of review according to the likelihood that the actions of the board or managers will be tainted by conflicted interests in a particular transactional setting and the likelihood that nonlegal forces can effectively constrain those conflicted interests in that setting. In other words, the Delaware cases suggest that motive is the key issue. … If the conflict of interest inherent in [board resistance to unsolicited tender offers] has matured into actual self dealing, the court will invalidate the defensive tactics. If the board acted from proper motives, even if mistakenly, however, the court will leave the defenses in place.

Anyway, this is an important take on the so-called Revlon duties that will be of interest to all corporate lawyers and law students.

Joseph Phelps Merlot (Napa Valley) 2002

I was disappointed by this vintage of what is usually a very reliable wine. I found it thin, lacking the rich unctuousness one associates with premium California Merlot. Instead of the bright fruit flavors typical of good young Merlot, it shades toward the earthy mineral end of the spectrum. The Spectator liked this wine a lot, scoring it at 91; Parker was more dismissive, calling it "clipped" and "one dimensional," and slotting it in a range from 85-87. (Links will work only for subscribers.) I'm siding with Parker on this one. Grade: B-

The Jury System and the Vioxx Verdict

As a fan of limited government and an amateur student of the growth of English liberties (I once wrote a long essay on the roots of the right against self-incrimination in Stuart England), I have long accepted - at the level of an article of faith - that the jury is an important bedrock of our liberties. I must confess, however, that nothing since the OJ criminal verdict has shaken my faith in juries as much as the details coming out of the recent verdict against Merck in the first Vioxx suit.

At the outset, I am prepared to admit that the evidence of cover-ups and so on at Merck is non-trivial. But that wasn't the gravamen of this suit. The question here was whether Vioxx caused Robert Ernst 's death. This is, obviously, a question of medical science. What killed Ernst and could Vioxx have caused it?

Unfortunately, if the WSJ($)'s reporting is to be believed, the jurors basically didn't understand - and, indeed, didn't even try to understand - the science:

Merck argued that Vioxx couldn't have caused Mr. Ernst's death because, according to his death certificate, he died of an arrhythmia or irregular heartbeat, not a heart attack. While scientific evidence suggests Vioxx can promote blood clots leading to a heart attack, no data have linked the drug with arrhythmias.

Jurors who voted against Merck said much of the science sailed right over their heads. "Whenever Merck was up there, it was like wah, wah, wah," said juror John Ostrom, imitating the sounds Charlie Brown's teacher makes in the television cartoon. "We didn't know what the heck they were talking about."

At the very least, this incident thus raises serious questions as to the competence of lay jurors to resolve technical issues. To be sure, there is some evidence that how technical evidence is presented matters a lot, and some suggestion in the press accounts that Merck's lawyers may not have done a very good job of presenting the evidence in a way that would maximize understanding. Even so, at the very least, this case confirms the urgent need for objective study of the ability of lay juries to understand and process scientific evidence. If it turns out that they cannot do so, perhaps it is time to take these sorts of issues out of their hands.

Equally troubling are the reports suggesting that the jury was swayed by emotional and personal considerations.

... [juror] Ostrom, 49, who has a business remodeling homes, was also disturbed that former Merck Chief Executive Raymond Gilmartin and another top Merck official gave videotaped testimony but weren't in the courtroom. "The big guys didn't show up," said Mr. Ostrom. "That didn't sit well with me. Most definitely an admission of guilt."

I have observed that giving folks unaccustomed to power a small dose of it often results in them taking offense at any perceived slight. (Mea culpa.) They expect to be kowtowed to and will react negatively when they are "dissed." But are we really better off if the top Merck management has to spend the next 10 years or so sitting through thousands of trials? (I understand that cruise ships have two captains - one to actually run the ship while the other glad hands the passengers. Maybe that's what Merck should do. One CEO to run the company, while another strikes jurors in every backwater court in the US.)

Then there's the Oprah effect:

One juror, Ms. Blas, had written in her questionnaire that she loves the Oprah Winfrey show and tapes it. "This jury believes they're going to get on Oprah," Ms. Blue told Mr. Lanier. "They only get on Oprah if they vote for the plaintiff."

Two days later, facing the jury with his final argument, Mr. Lanier ... hammered home the point that they would be sending a message that would be heard widely. "I can't promise Oprah," he said, but "there are going to be a lot of people who'll want to know how you had the courage to do it."

As he made the Oprah reference, Mr. Lanier looked at Ms. Blas in the eye. She says she broke out into laughter and liked the lawyer's attention to her. "That told me he read those profiles and tried to assess each and every one of us," Ms. Blas said.

Leaving liability determinations in the hands of people like Ms Blas has real costs, as Richard Epstein explained in a WSJ($) op-ed:

I would like to send my message to Mr. Lanier and those indignant jurors. It's not from an irate tort professor, but from a scared citizen who is steamed that those "good people" have imperiled his own health and that of his family and friends. None of you have ever done a single blessed thing to help relieve anybody's pain and suffering. Just do the math to grasp the harm that you've done.

Right now there are over 4,000 law suits against Merck for Vioxx. If each clocks in at $25 million, then your verdict is that the social harm from Vioxx exceeds $100 billion, before thousands more join in the treasure hunt. Pfizer's Celebrex and Bextra could easily be next. Understand that no future drug will be free of adverse side effects, nor reach market, without the tough calls that Merck had to make with Vioxx. Your implicit verdict is to shut down the entire quest for new medical therapies. Your verdict says you think that the American public is really better off with just hot-water bottles and leftover aspirin tablets.

Ah, you will say, but we're only after Vioxx, and not those good drugs. Sorry, the investment community won't take you at your word. It realizes that any new drug which treats common chronic conditions can generate the same ruinous financial losses as Vioxx, because the flimsy evidence on causation and malice you cobbled together in the Ernst case can be ginned up in any other. Clever lawyers like Mr. Lanier will be able to ambush enough large corporations in small, dusty towns where they will stand the same chance of survival that Custer had at Little Big Horn. Investors can multiply: They won't bet hundreds of millions of dollars in new therapies on the off-chance of being proved wrong. They know they'll go broke if they win 90% of the time.

Your appalling carnage cries out for prompt action. Much as I disapprove of how the FDA does business, we must enact this hard-edged no-nonsense legal rule: no drug that makes it through the FDA gauntlet can be attacked for bad warnings or deficient design. In plain English, Mr. Lanier, you're out of court before you make your opening statement. You've already proved beyond a reasonable doubt that the fancy diagrams that university economists use to explain why the negligence system maximizes social welfare is an academic delusion that clever lawyers use to prop up a broken tort system.

It would be a good start.

Larry Ribstein, Walter Olson and, especially, Ted Frank have more. Tom Kirkendall offers an intriguing guess as to the trial lawyers' next target.

Update: CE Petit has some very sound thoughts on how to improve juries.

New Books

Regular readers know that I participate in Amazon.com's Associates program (see the recommendations in the right side bar). Checking my reports tonight, I noticed that somebody who placed an order through my site had bought a couple of books that look interesting. First, Tom Standage's A History Of The World In Six Glasses. Sandage is the technology editor of The Economist, which is the only weekly news magazine worthy of the name (IMHO). Here's the Publishers Weekly review from Amazon:

Standage starts with a bold hypothesis—that each epoch, from the Stone Age to the present, has had its signature beverage—and takes readers on an extraordinary trip through world history. The Economist's technology editor has the ability to connect the smallest detail to the big picture and a knack for summarizing vast concepts in a few sentences. He explains how, when humans shifted from hunting and gathering to farming, they saved surplus grain, which sometimes fermented into beer. The Greeks took grapes and made wine, later borrowed by the Romans and the Christians. Arabic scientists experimented with distillation and produced spirits, the ideal drink for long voyages of exploration. Coffee also spread quickly from Arabia to Europe, becoming the "intellectual counterpoint to the geographical expansion of the Age of Exploration." European coffee-houses, which functioned as "the Internet of the Age of Reason," facilitated scientific, financial and industrial cross-fertilization. In the British industrial revolution that followed, tea "was the lubricant that kept the factories running smoothly." Finally, the rise of American capitalism is mirrored in the history of Coca-Cola, which started as a more or less handmade medicinal drink but morphed into a mass-produced global commodity over the course of the 20th century. In and around these grand ideas, Standage tucks some wonderful tidbits—on the antibacterial qualities of tea, Mecca's coffee trials in 1511, Visigoth penalties for destroying vineyards—ending with a delightful appendix suggesting ways readers can sample ancient beverages.

Second, Elin McCoy's The Emperor of Wine: The Rise of Robert M. Parker, Jr. and the Reign of American Taste. (I've blogged about the validity of the notion of national palates and, of course, a number of Parker's books are on my wine canon.) Here's the Booklist review from Amazon's site:

Wine critic Robert Parker, explains McCoy in this engaging new biography, is "the most powerful critic in any field, period." Parker's initial role was as a skeptic and consumer advocate, a kind of Ralph Nader of the wine world; one aspect of his straight-shooting approach was his now-celebrated 100-point scale for rating wine. But after more than a quarter-century of publication, Parker's newsletter has inevitably and ironically become the voice of the establishment, and Parker himself has come under attack for dogmatically imposing his tastes upon the wine-drinking public. More broadly, as McCoy shows, the influence of American consumers and critics on the world wine industry (traditionally dominated by the French) has grown by leaps and bounds. It is in tackling these broader themes that McCoy really shines: Parker as a man is mostly remarkable for his ordinariness, and McCoy occasionally overreaches in trying to dramatize the quotidian. She tells the larger story with panache and fairness, though, and has written a book that every oenophile should read.

I've decided both look worth picking up.

Merck

Drug giant Merck lost the first of 4000-odd Vioxx suits pending against it. The odds that Merck eventually ends up pulling a Johns Manville and resolving these cases via bankruptcy reorganization just went up - a lot.

The verdict was a whopping $253 million, split $24 million in compensation for wrongful death and $229 million in punitive damages. The plaintiff's lawyer conceded that the punitive component likely will be reduced in post-trial proceedings or on appeal.

Jim Copland comments:

... in essence, the jury expropriated Merck's Vioxx sales from Oct. 2001 through Feb. 2002. Though the verdict seems not to have been structured as a punitive award (Texas has a strict limitation on punitives at twice economic damages and $750,000 above noneconomic awards), it sure sounds like one.

And thousands of other Vioxx suits are pending--for which this expropriative penalty won't have any preclusive effect.

Jonathan Wilson has more on why the punitive component won't hold up. Walter Olson has links to prior discussion on the tort reform blogs. Finally, Evan Schaeffer (who I gather is litigating Vioxx cases on the plaintiff's side) writes:

One important thing to take away from today's verdict, even though it will presumably be reduced by virtue of the Texas law on punitive damages, is that this was a case perceived to have causation problems that made it virtually unwinnable for the plaintiffs. The verdict is very good news for victims of Vioxx and a terrible omen for Merck.

There has to be a better way of running the tort railroad than this.

Air America

Michelle Malkin continues her exhaustive coverage of Air America's financial mess. Via one of her latest posts, I downloaded a copy of Multicultural's complaint against Air America. In brief, the mess arose because the assets of Air America were sold by it original corporate parent, Radio Free America, to to a new entity, called Piquant, LLC. This transaction left Air America's creditors, including Multicultural, high and dry. Piquant was owned by many of the same people who owned Radio Free America, so control didn't really change hands.

As I predicted back in June, the complaint alleges that the asset sale was a fraudulent transfer.

Basically, a Fraudulent Transfer (a/k/a "Fraudulent Conveyance") is a transfer which a debtor makes for the purpose of defeating a creditor's collection efforts against the debtor. This typically happens when, say, a debtor attempts to "sell" everything to his wife, cousin or business partner for $5 to keep his stuff out of the hands of his creditors. If the court figures out that the transaction is a sham to defeat the creditor, the court will set aside the transaction and make the person holding the assets give them to the creditor.

In fact, the complaint includes 4 fraudulent conveyance counts arising under different NY statutes. If the plaintiff can make out the facts alleged in those counts, I would predict victory. They don't seem to have missed much. Note, by the way, that Multicultural need not prove actual fraud. They only need to prove that the defendants intended to hinder and delay their creditors. If Multicultural proves that, their remedy in essence will be the ability to levy judgment on their various claims against Air America's assets even though those assets are technically in new hands.

From a legal perspective, the more interesting claims are the counts alleging a breach of fiduciary duty.  Or, at least, it's interesting to me because I'm in the middle of writing a law review on the precise question of what fiduciary duties directors and officers owe creditors.

The complaint alleges that the directors and officers of Radio Free America owed a "fiduciary duty of loyalty to Radio Free America's creditors," which they breached. The complaint also alleges that the directors and officers of Piquant (the transferee) aided and abetted that breach.

There are a number of precedents holding that when a corporation is insolvent, the directors and officers in fact do owe fiduciary duties to creditors. See FDIC v. Sea Pines Co., 692 F.2d 973, 976-77 (4th Cir. 1982) (stating that "when the corporation becomes insolvent, the fiduciary duty of the directors shifts from the stockholders to the creditors"); Henderson v. Buchanan (In re Western World Funding, Inc.), 52 B.R. 743, 763 (Bankr. D. Nev. 1985) (holding that when a “corporation is insolvent” the fiduciary of directors “run to creditors”); Geyer v. Ingersoll Publications Co., 621 A.2d 784, 787 (Del. Ch. 1992) (observing that “when the insolvency exception does arise, it creates fiduciary duties for directors for the benefit of creditors”). More controversially, there is also some precedent for the proposition that the same is true even if the corporation is merely in the so-called vicinity of insolvency, the best known of which being Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp., 1991 WL 277613 (Del. Ch. 1991). My article, by the by, will argue that the latter is a mistake, but that's a question for another day. I'm assuming here, as the complaint does, that Air America was insolvent at all relevant times.

The transfer of Air America's assets from Radio Free America to Piquant appears to be a self-dealing transaction, since at least some of the former's owners, directors, and/or officers are also among the owners of the latter. As such, the defendants will have the burden of proving that Radio Free America received fair consideration for the assets being transferred. (Where a shareholder sues to challenge a self-dealing transaction, the fact that it was approved by a majority of the disinterested shareholders would shift the burden of proof re fairness from defendants to plaintiffs. Even if there were such approval here, however, there are also precedents for the proposition that such approval is not binding on creditors of an insolvent company. See, e.g., In re JTS Corp., 305 B.R. 529 (Bkrtcy. N.D. Cal. 2003.) Hence, the burden would not shift.)

What are the hallmarks of a fair transaction? Probably the best answer is that one should determine the fairness of a transaction by asking whether the terms of the transaction are within the range of terms to which disinterested parties bargaining at arms-length might have agreed.

When one party files a complaint against another, the defendant may move the court to dismiss the suit because the complaint fails to state a claim.

On a motion to dismiss, a complaint must be liberally construed, and the trier of fact must accept as true the facts alleged in the complaint and any submissions in opposition to the motion. 511 West 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 153 (2002) (noting that the court will "accord plaintiffs the benefit of every possible favorable inference.") (citations omitted). (Source)

If I were the judge, applying that standard, I would have to take the factual allegations in the Complaint as true, and view them in the light most favorable to the plaintiff. Based on my review of the Complaint, under that standard I would have no qualms about denying a motion to dismiss. The allegations appear to make out a valid claim.

Which is not to say that plaintiffs will win, of course. The Complaint is just the first stage. At this stage, a judge would give them the benefit of the doubt on all close calls. Once all the facts are in, however,a different story may emerge.