Blawgletter®

New "Tort Liability Index"

The nutty Pacific Research Institute just came out with its latest goofy survey of the tort liability situation in these United States, the "U.S. Tort Liability Index:  2008 Report". 

One may gauge the seriousness of the report by how it classifies states -- as "saints", "sinners", "salvageable", and "suckers".  Also by its referring to litigation as "lawsuit 'Whack-a-Mole'".

Blawgletter reviewed last year's version in "Does Tort Litigation Kill People?", which pretty well captures the new one too. 

PRI's answer to the question about a connection between lawsuits the deaths?  Why, yes.  Yes, the very act of litigating a tort claim does cause homicide.

Enjoy!

And yet people actually believe that stuff.

Pesky Indirect Purchaser Claims Suffer Setback

In the lore of antitrust class action litigation, indirect purchaser cases -- as they say in East Texas -- suck hind tit.

Why?  Because they usually get into federal court on the hypothesis that the indirect purchasers need protection against future predations of the antitrust violators.  They then harness to the injunctive relief claim a bunch of claims for damages under a variety of state statutes that permit -- unlike the Sherman Act -- recovery of damages by indirect purchasers.  Illinois Brick, you know.

[In case you actually can't tell an Illinois Brick from a quarry tile, the case held that only people who bought directly from a price-fixer have standing under the Sherman Act to recover damages.  The Supreme Court decision, Illinois Brick v. Illinois, 431 U.S. 720 (1977), led several states to enact "repealer" statutes that conferred standing on indirect purchasers.  These legslative actions in turn produced a torrent of state indirect purchaser cases that paralleled federal direct purchaser litigation.  And some of the indirecters often sought a federal forum by alleging fear that, without an injunction, the price-fixers would keep on fixing prices.  Which brings Blawgletter to the case we want to alert you to.]

In In re New Motor Vehicles Canadian Export Antitrust Litig., No. 07-2257 (1st Cir. Mar. 28, 2008), the unanimous panel threw frigid water on the notion that federal jurisdiction exists because indirect buyers need injunctive relief.  Their Honors doubted that the relevant conditions of the past would recur.  They also cast asparagus on "novel" expert opinions concerning whether the class of plaintiffs suffered actual harm as a result of a conspiracy to restrain trade.  Piling on too many assumptions or skipping over gaps in the chain of causation might prove problematic, the court suggested.

We urge you antitrust addicts out there to read the opinion.  Especially those of you who often represent indirect purchasers in federal court.  Because it signals, at least in the First Circuit, a curtailment of opportunities for tagging along in federal court with direct purchaser litigation.

Oh, yeah -- the case had something to do with preventing importation of new cars from Canada.  We think.

Murky Prospects Clear Some for Clear Channel Deal

A Bexar County, Texas, district judge issued a temporary restraining order putting a two-by-four across the head of banks that committed to finance Bain Capital's and Thomas E. Lee Partners' purchase of Clear Channel Communications.  WSJ story here.  Clear Channel press release here.

The judge, John D. Gabriel, didn't rule on the merits.  He concluded instead only that failure to issue the TRO would cause Clear Channel immediate and irreparable injury.

Normally a TRO lasts 14 days.  Texas procedure allows a judge to extend the TRO one more 14-day period but not beyond that.  To extend the restraint until trial, the court must consider evidence in a temporary injunction proceeding, where the merits become key.

Bexar County = home of San Antonio -- and the Alamo!

Chocolaty News from the MDL Panel Hearing in Austin

The U.S. Judicial Panel on Multidistrict Litigation heard arguments today at the Homer Thornberry Judicial Center in Austin, Texas.  The Panel assigned 20 minutes each to more than a dozen motions to centralize before one federal judge cases pending in multiple federal district courts.  Most of the arguments consisted of short bursts, often as terse as a minute.

Blawgletter attended mainly to make a pitch for centralizing the 70-plus cases constituting In re Chocolate Confectionary Antitrust Litigation, MDL-1935, before U.S. District Judge Michael Schneider in the Eastern District of Texas.  We also enjoy watching the spectacle and visiting with colleagues from around the country.

Our prediction for Chocolate?  If Judge Schneider doesn't get it, we'd put our money on Philadelphia.  The city has excellent transportation, the judges move complex cases quickly, and the courthouse forms a bulls-eye for the 100-mile range of trial subpoenas, reaching the U.S. headquarters of three out of the four principal defendants.

Yumm!

Big Borrowers Sue Big Banks Over Clear Channel Deal

Entrance to Clear Channel Communications headquarters.

Two prolific borrowers -- the private equity firms Bain Capital and Thomas E. Lee Partners -- have sued six of the biggest banks -- Citigroup, Credit Suisse, Deutsche Bank, Morgan Stanley, Royal Bank of Scotland, and Wachovia -- for refusing to carry through on financing a buy out of radio-and-billboard behemoth Clear Channel Communications for $19.5 billion.  Bain and Lee allege that the banks committed to lend.  Stories here and here.

Apparently the dispute required at least two lawsuits -- one in Clear Channel's home town of San Antonio, Texas, and the other in New York City.  Both in state court.

Stay tuned.

Same bat time.  Same bat channel.

Annals of Arbitration: Supreme Court Zaps Vacatur

Six of the nine Justices sided today with the Ninth Circuit -- over, among others, the Fifth.  Wow!  Sweet sassie molassie.  Hall Street Assocs., L.L.C. v. Mattell, Inc., No. 06-989 (U.S. Mar. 25, 2008).

The issue concerned arbitration.  As Justice Souter framed the matter:

The question here is whether statutory grounds for prompt vacatur and modification [under the federal Arbitration Act] may be supplemented by contract.  We hold that the statutory grounds are exclusive.

The decision means that parties may not require courts to conduct a more searching review of arbitration awards than the Arbitration Act allows.

Blawgletter wants to know what, in practical terms, the ruling signifies for the future of arbitration generally.  We think it will encourage more serious attention to the arbitral process itself.  If you worry that an arbitrator might go off the reservation, for example, make sure your contract provides for review by a panel of colleagues.  JAMS, for instance, offers an Optional Appeal Procedure.

We've commented before about how repeat offenders may try to strangle legitimate claims by making them uneconomic in an arbitral forum.  Hall Street ought to wake up companies and individuals who think the standard for arbitration is perfection. 

About time, we say.

But that's just us.

Eleventh Circuit Reinstates Misappropriation Claim

The Eleventh Circuit today reversed dismissal of misappropriation claims by a group of doctors against a "preferred provider organization" that contracted for their services and another company that sold "medical discount cards".  The practitioners of the healing arts complained that the PPO improperly let the card-seller use their identities and practice information to market its discount cards.  The district court rejected the claim on the ground that under Georgia law it sounded only in contract.  The court of appeals held that, sure, it did sound in contract but that it also constituted a tort.  Rivell v. Private Health Care Sys., Inc., No. 07-12387 (11th Cir. Mar. 24, 2008).

Blawgletter has heard of rules that confine tort claims to contract remedies, notably the "economic loss" doctrine.  The reason seems to have to do with worries about allowing punitive damages for conduct that also breaches a contractual obligation.  We wonder whether the rules will lose some of their momentum as a result of the U.S. Supreme Court's line of cases that limit punitives on the ground that excessive awards violate due process.

We wonder, but we doubt it.

Our feed can't picture magical thinking.

Pakistan Judges Go Free

The NYT reports that the new prime minister of Pakistan, Yousaf Raza Gillani, ordered the release of the judges that his predecessor, Pervez Musharraf, confined last year when he imposed martial law.

Musharraf remains Pakistan's president.

Quote of the Day: Thomas Jefferson

I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

Why not have both?

Subprime Deja Vu

Who can understand what happened to produce what looks like a U.S. recession?  Blawgletter hears that, at the simplest level, lenders believed borrowers' promises of intention and ability to repay far beyond honest limits.  They "credited" obvious lies.  Shame on the liars -- but also on the believers.

Who deserves the greater blame?  We don't know for sure and expect that it varies from case to case, but some overall responsibility must go to the policy makers who lived through the last bunch of dumb loans and the awfulness that followed.  People like Alan Greenspan and Ben Bernanke. 

If you remember the S&L crisis in the late 1980s and early 1990s, you know what we mean.  In that debacle, savings and loan associations and banks all but threw money at speculators, especially those of the real estate variety.  Developers of grandiose projects knew, if only for a little while, that their genius would make their reckless gambles pay off.  And lenders and borrowers grossly inflated valuations in order to support the lending decisions that enriched them.

Well, it has happened again.  This time, an S&L owner didn't arrange for an appraisal to overstate a property's value or get a straw man to buy a property at a ridiculously high price.  No.  This time firms like Goldman Sachs, JPMorgan Chase, Morgan Stanley, Bank of America, and others (Bear Stearns R.I.P.) dodged regulatory oversight both by securing changes to applicable law and, largely as a result of their new freedom, by creating financial instruments that nobody ever heard of before.  They thus created a "shadow" banking industry, one that the Federal Reserve and state regulators couldn't (or at least didn't) reach.

"Shadow" sounds ominous, so let us explain.  The Fed and the U.S. Comptroller of the Currency respectively oversee bank holding companies and national banks, and state agencies do likewise with state institutions.  But the distinction between commercial banks -- which take deposits and use them to make loans -- and investment banks -- which as far as we can tell do whatever they want to -- has all but vanished. 

After the Great Crash in October 1929, Congress required strict separation between commercial banks and companies that underwrote offerings of stocks and bonds.  The goal was to prevent banks from taking excessive risks, as they had done before the crash and ensuing Great Depression.  Repeal of the Glass-Steagall Act in the 1980s and 1990s freed Wall Street to charge higher interest rates and to mix commercial banking operations with the arms that floated securities, provided brokerage services, and even invested for their own account -- all far riskier endeavors.

Enter subprime mortgage lenders like Ameriquest and Countrywide.  They originated (or, often, bought) residential real estate loans to people whose credit profiles didn't support a bank loan.  Wall Street, including formerly stodgy commercial banks, furnished the money so that the mortgage lenders could fund the subprime loans.  The Wall Streeters also bought back the loans, combining hundreds of them in what they called "securitizations" -- debt instruments whose value depended on the creditworthiness of subprime borrowers and the value of the underlying real estate.  Then the same Wall Street firms sold the "mortgage-backed securities" to pension funds and other customers.  They reaped profits on the loans and profits on the securitizations.  Boo-yah!

Sounds simple, right?  Elementary, my dear Watson?  Very well.  Because now the story starts getting weird.

Wall Street firms found yet more ways to make money, this time by creating financial instruments that they called "collateralized debt obligations", "interest rate swaps", and other "derivatives".  We don't pretend to understand what those things involve, who in his or her right mind would buy them, or how they might differ from flipping a piece of Texas land three times in one day.  But we do believe that the lack of legal and regulatory restraint encouraged the bold to do what they do best -- to go way beyond reason in the hope that the party would last just a little while longer.

Well, the party has crashed and burned.  The, um, optimistic borrower now owns a house worth less than the loan, and the, er, overconfident lender can't get its money back.  Recession city, baby.

Will the grown-ups who ought to have seen this day coming get their comeuppance?  Hide and watch, we say.  Hide and watch.

In other words, probably not.