Blawgletter®

Balance on Texas Supreme Court = Greatest Influence

Yesterday Blawgletter received the Texas-only data from a recent essay on the "influence" of each state's highest civil and criminal courts around the nation.  We learned some tres interesting stuff.

Methodology.  Let's look at how the essay measured influence first.  Jake Dear and Edward W. Jessen tallied all decisions, between 1940 and 2005, that the folks at Shepards desiginated as "followed" by another state's highest civil or criminal court at least three times.  It then ranked each state according to how often its court or courts of last resort met the three-or-more-times-"followed" criterion.

Some have criticized the methodology.  Several supposed that it gives undue weight to rulings that expand liability -- by, say, recognizing new causes of action.  That, they suggested, explains the disproportionate number of liberal jurisdictions at the top.  Places, in rank order for 1986-2005, like California, Washington, Massachusetts, Kansas (oops), New Jersey, Arizona (oops again), and Colorado (triple oops).

Paint us skeptical.

Limits on utility.  No doubt the number of "followed" opinions over long periods tells us little.  We can't divine the ebbs and flows of influence from year to year or even decade to decade.  Nor do we know how often a state's decisions earned the disagreement, if not scorn, of other states' judiciaries -- as the "criticized" or "questioned" designations might reveal.

But, still, we do get at least some sense of which states' courts consistently persuade other states' courts to follow them, which do a middling job, and which seldom convince anybody.

T for Texas.  Which brings us to that Texas data we mentioned at the outset.  It shows a fascinating -- and in its way encouraging -- phenomenon:  The Supreme Court of Texas (official site here) wielded by far the most influence during the six years when a balance of Democratic and Republican justices sat on it.

From 1940 until 2005, the Court issued 16 opinions that attracted the full agreement of a non-Texas high court on a point of law at least three times.  The relevant decisions line up thus:

1940 -- 1
1970 -- 1
1984 -- 2
1985 -- 1
1993 -- 1
1994 -- 3
1995 -- 3
1996 -- 1
1997 -- 1
1998 -- 1
2001 -- 1

As you can see, during the six years from 1993 through 1998, the justices rendered 10 of the 16 decisions that won three "followeds" in the 65 years between 1940 and 2005.  That comes to 62.5 percent in less than 10 percent of the survey period.

Dems/Repubs.  What made one six-year period so remarkable?  Let's add the number of Democrats/Republicans on the Court in each of those years:

1940 -- 1   9/0
1970 -- 1   9/0
1984 -- 2   9/0
1985 -- 1   9/0
1993 -- 1   5/4
1994 -- 3   5/4
1995 -- 3   4/5
1996 -- 1   3/6
1997 -- 1   3/6
1998 -- 1   3/6
2001 -- 1   0/9

Hmmm.  In every one of the years from 1993 through 1998, the Court's composition included a substantial number of justices from each of the major political parties.  And the Court's two most prolific years, 1994 and 1995, happened just at the time of greatest uncertainty about which party would hold a majority.

The good news for balance on the Court unfortunately doesn't obscure the overall bad news.  As we reported recently, the original essay ranked the Texas high courts -- including the Court of Criminal Appeals -- fourteenth for 1940 through 2005 and twentieth for 1986-2005.  But a fresh look at the data prompted the authors to adjust the rankings.  Texas fell to twenty-seventh and twenty-third for the same periods, respectively, as a result.  The UC Davis Law Review will soon publish the update.

What've we learned?  Three things, we think.  First, that having to listen to and consider colleagues' differing views, as the Texas justices had to do from 1993 through 1998, produces higher quality decisions.  Second, that, due to the extraordinary Court of 1993-98, the Court's performance improved from the period 1940-1985 to the period 1986-2005.  And, third, that making judges run for office in partisan elections may diminish their freedom to act as neutral arbiters.

Will you subscribe now?  How about now?

A Solution for Auction Rate Securities Debacle?

If you bought auction rate securities, you probably thought you could get a higher interest rate than with other highly liquid alternatives.  You likely also believed you could get your money back, with interest, within a week.  And Blawgletter bets you've gotten so mad that you almost can't see straight when you learned recently that, no, you can't tap into your cash just now -- and might not get it back for weeks or months, if at all.

A Bloomberg report today highlights the problem.  It tells of how college students parked liquid funds in ARSs only to find that they'd suddenly turned illiquid -- and the students now face the prospect of having to sit out a semester or more.

ARSs depend for their liquidity on periodic auctions in which potential investors bid on the shares available for purchase.  If the auction succeeds, the sellers get their money back.  If it fails -- as many of them started to do on February 7, 2008 -- the existing holders of the ARSs must hang onto them or sell them in a secondary market at a below-par price.

The flood of auction failures since February 7 has frozen the funds of a great many investors, all of whom presumably chose ARSs precisely because they promised a high degree of liquidity.  Some companies have already taken write-offs on their ARS holdings.  MetroPCS, for example, reported in February that it took an "impairment charge of $83 million related to the Company's investment in auction rate securities."

Those with the ability to hold the ARSs until maturity or until auctions start working again may choose that route.  But the indefinite-hold option won't compensate people who have incurred losses because they missed a deadline to pay creditors, fund purchases of goods and services for their businesses, or acquire other investments or because they sold at a loss in a secondary transaction.

What can they do?  Blawgletter sees state securities laws as a possibility.  Under state "blue sky" statutes, investors may recover "rescissory" damages or, if they sold the ARSs, actual damages.  The rescissory remedy allows investors to get the money they invested back plus interest less any "income" they received on the security.  (Note that people who want to receive rescissory damages may need to tender the ARSs back to the issuer promptly.)  Actual damages typically reflect the difference between the price the investor paid plus interest less what she received on selling the security. 

An analogous federal statute, section 12(2) of the Securities Act of 1933, applies only to the first public offering of a security and thus may not provide a remedy for transactions involving ARSs.

We'll continue looking at the ARS debacle.  Please chime in with your thoughts in the meanwhile.

Our feed does not give legal advice.  Consult an attorney!

Quote of the Day: Charles Bruton

You'd be good if you had any speed.

Charles Bruton, star athlete at NHS, commenting circa 1974 on Blawgletter's football-carrying prowess.

High praise.

Yes We Can -- Hire Contingent Fee Lawyers

In January, Blawgletter posed this question: "Can Public Entities Hire Lawyers on a Contingent Fee Basis?"  We got our answer today.  The California Court of Appeal for the Sixth District said Yes -- Yes, they bloody well can.  County of Santa Clara v. Superior Court (Atlantic Richfield Co.), ___ Cal.App.4th ___ (Apr. 8, 2008).

The decision turns on the public entities' retention of "control over all decision-making" in the litigation, which involves local governments' efforts to abate a public nuisance, lead paint.  The control, the court held, satisfies the requirement of "absolute neutrality" in government lawyers.  Even though the private contingent fee lawyers of course may not completely share their supervisors' disinterest.

Blawgletter views the outcome as a sensible recognition of the need, sometimes, to enhance the ability of public entities to combat and remedy public wrongs.  But we also get the court's emphasis on who controls the course of litigation (to the extent any pay may control that rowdy beast).  As we said in January, "Blawgletter finds the idea that all contingent fee arrangements destroy a governmental client's neutrality contrary to experience and implausible even in the realm of theory."  Because, you know, the client generally has the right to call the most important shots in every contingent fee arrangement.

A big hat tip to Kimberly A. Kralowec, she of The UCL Practitioner, for the heads up.  She's promised to give her take on the decision tomorrow.  We cannot wait.  And we aren't being ironic.

What light on yon window breaks?

People Prefer Arbitration. Should They?

Last week, the Institute for Legal Reform -- an arm of the U.S. Chamber of Commerce -- released results of a survey it commissioned on voters' attitudes towards arbitration.  It summarized the findings thus:

1. Voters express concern about the difficulty of settling a dispute with a company, and how fairly they would be treated in such a situation.
2. Given the choice of how they would like to settle a serious dispute with a company, voters overwhelmingly choose arbitration (82%) over litigation (15%).
3. Voters strongly believe Congress should NOT remove arbitration agreements from the contracts consumers sign with companies providing goods and services (71%).
4. Voters believe there could be many adverse outcomes should arbitration agreements be removed from contracts.

Blawgletter already suspected that people fear going to court and that they worry about getting fair treatment there.  But we didn't imagine that their anxiety would prompt them to prefer arbitration to litigation, much less by such a huge margin -- 82 percent to 15 percent. 

And yet the outcome makes total sense.  Surveyors asked respondents to pick between "arbitration, which does not require going to court" and "litigation, which does require a lawsuit and going to court."  Who, aside from a trial lawyer, wants to go to court?  What individual, other than Bill Gates or Warren Buffett, thinks he or she can outspend and outgun a company in a lawsuit?  Doesn't a process that "does not require going to court" sound oh so much nicer and less likely to bankrupt you?

We have more trouble accounting for the strong opposition -- 71 percent -- to letting "some officials in Congress" remove arbitration clauses from contracts for goods and services.  But then we reflected that people probably (a) distrust Congress (especially "some officials" there) and (b) feel weak and vulnerable when imagining a hypothetical fight with, say, the cable or telephone company.  They think an arbitration clause will protect them from all the bad stuff they've heard about the court system.

The last bit of the survey confirms our inferences.  Respondents' biggest worry -- 64 percent called it "the worst thing that could happen" -- is that "consumers who may not be able to afford the cost of a trial would never be represented in a dispute".  They also feared that eliminating arbitration agreements would cause price increases, force consumers to choose between paying for a trial or dropping their complaints, benefit lawyers, and increase the number of lawsuits.

The survey strikes us as fair and informative -- as far as it goes.  But it doesn't go far enough.  We'd like answers to, for example, these questions:

1. If going to court and arbitrating a dispute cost the same, which would you prefer?
2. Should Congress set fairness standards for arbitration provisions in consumer contracts?
3. Should federal standards include (a) requiring that either party may elect arbitration or that only the consumer may choose it, (b) making the company cover filing fees above what the fee for initiating a lawsuit would cost, (c) barring routine secrecy of arbitration proceedings and results, and (d) allowing class or aggregate arbitration of similar claims?

We don't expect the ILR will commission our survey any time soon.  We doubt they'd like the answers.

Our feed adores standards.

Fifth Circuit Vacates $72 Million Sanctions Award

May a federal court impose sanctions for intentionally prolonging a lawsuit for the improper purpose of forcing a party opponent to cause transfer of a Redwood forest to the misbehaving party?  Yes.  May the court penalize conduct that occurs in collateral proceedings but involves the same opponent and arguably the same motive?  No.

So the Fifth Circuit, per Patrick E. Higginbotham, held last week.  Federal Deposit Ins. Corp. v. Maxxam, Inc., No. 05-20808 (5th Cir. Apr. 3, 2008).

  This land is your land, this land is my land.

Eleventh Circuit Extends eBay Patent Decision to Trademark Cases

The Eleventh Circuit today vacated a preliminary injunction because it deemed a presumption of irreparable injury arguably insufficient to establish the irreparable injury element.  The court found the reasoning in a patent case, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), "applicable" to trademark claims but declined to rule on whether a presumption of irreparable injury "is the equivalent of the categorical rules rejected by the Court in eBay."  N. Am. Medical Corp. v. Axiom Worldwide, Inc., No. 07-11574, slip op. at 32 (11th Cir. Apr. 7, 2008).

The eBay Court held that courts may not routinely grant injunctive relief in patent cases and must instead evaluate the appropriateness of an injunction according to traditional (and tougher) requirements.

Can you show exceptional circumstances?