The U.S. Supreme Court yesterday agreed (order list here) to decide if the federal Arbitration Act bars class arbitration unless the agreement to arbitrate allows it.  As petitioners framed the issue:

In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), this Court granted certiorari to decide a question that had divided the lower courts: whether the Federal Arbitration Act permits the imposition of class arbitration when the parties' agreement is silent regarding class arbitration. The Court was unable to reach that question, however, because a plurality concluded that the arbitrator first needed to address whether the agreement there was in fact “silent.” That threshold obstacle is not present in this case, and the question presented here – which continues to divide the lower courts – is the same one presented in Bazzle:

Whether imposing class arbitration on parties whose arbitration clauses are silent on that issue is consistent with the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.

Blawgletter summarized the decision below (by the Second Circuit) thus:

[T]he court turned back an attack on a "clause construction" award by a panel of arbitrators.  The claimants in the arbitration proceedings had contracts for parcel tanker shipping services and alleged that Stolt-Nielsen and others conspired to restrain competition for those services, artificially inflating prices as a result.  After a Connecticut district court ordered arbitration of the dispute as the contracts required, the claimants asked that the arbitration proceed on a class basis.  Respondents resisted but couldn't point to contract language that prohibited class arbitration.  The arbitral panel granted class treatment, but on petition of the respondents a district court vacated the award.  The Second Circuit disagreed, holding that the arbitrators didn't manifestly disregard applicable law in rendering their award.  Stolt-Nielsen SA v. AnimalFeeds Int'l Corp., No. 06-3474-cv (2d Cir. Nov. 4, 2008).

Feed-icon-14x14 No, Judge Sotomayor wasn't on the panel.

The Racketeer-Influenced and Corrupt Organizations Act has waxed and waned since Congress passed it, and President Richard Nixon signed it, in 1970 — at least for the treble-damages civil cases it authorizes.

Plaintiffs started suing under RICO a lot in the 1980s.  District courts tried to quell them by calling for elaborate RICO "case statements".  And courts of appeals started taking narrow and technical views of broad RICO language.  RICO filings fell.

They've stayed pretty steady in the last decade.  Federal Judicial Caseload Statistics show 765 RICO filings (civil and criminal) in 2000, 791 in 2001, 707 in 2002, 845 in 2003, 695 in 2004, 840 in 2005, 678 in 2006, 703 in 2007, and 640 in 2008.  They represent a tiny fraction of the 250,000 or so annual average of all case filings.

The Supreme Court hasn't shared the lower courts' — and businesses' — distaste for RICO.  Last term, for example, the Court as one refused to read a "reliance" element into a RICO claim alleging mail fraud as a "predicate act".  See "Supremes Reinstate RICO Case".

The streak grew last week.  The Court, by 7-2, upheld the conviction of Edmund Boyle for his role in a series of bank thefts.  The government charged Boyle with participating in an "enterprise" through a "pattern of racketeering activity".  Boyle argued that the group of hoodlums he worked with lacked any formal or lasting "structure" distinct from the racketeering pattern.  The Court held that RICO doesn't demand a fancy structure:

We see no basis in the language of RICO for the structural requirements that petitioner asks us to recognize.  As we said in [United States v.] Turkette, [452 U.S. 576 (1981),] an association-in-fact enterprise is simply a continuing unit that functions with a common purpose.  Such a group need not have a hierarchical structure or a "chain of command"; decisions may be made on an ad hoc basis and by any number of methods — by majority vote, consensus, a show of strength, etc.  Members of the group need not have fixed roles; different members may perform different roles at different times.  The group need not have a name, regular meetings, dues, established rules and regulations, disciplinary procedures, or induction or initiation ceremonies.  While the group must function as a continuing unit and remain in existence long enough to pursue a course of conduct, nothing in RICO exempts an enterprise whose associates engage in spurts of activity punctuated by periods of quiescence.  Nor is the statute limited to groups whose crimes are sophisticated, diverse, complex, or unique; for example, a group that does nothing but engage in extortion through old-fashioned, unsophisticated, and brutal means may fall squarely within the statute's reach.

Boyle v. United States, No. 07-1309, slip op. at 9 (U.S. June 8, 2009).

Amici curiae – U.S. Chamber of Commerce and McKesson Corporation – had foretold "particularly grave consequences for this Nation's businesses" unless the Court stiffened the "structure" of RICO.

As for Blawgletter, we'll wait for proof that the sky has commenced to falling.  It hasn't collapsed in about 40 years.  And Chamber Little's powers of prediction never have much impressed.

Feed-icon-14x14 Seldom right but never in doubt.

Gross Clinic 
Gross Clinic (1875) by Thomas Eakins.

Blawgletter doesn't know where to come out on the pending health care debate.  We hear about single payer, universal coverage, Harry & Louise, lobbyists, the AMA, Big Pharma, socialized medicine, taxing of benefits, cost controls, and lots of other buzzwords.  Who can tell what to do?

One thing stands out for us — the notion of defensive medicine, an idea that says doctors order tests and avoid practice areas because they fear malpractice lawsuits.  The impulse drives up costs.  It may explain why Americans pay the most for health care but get less benefit than people who live in lower-cost countries.

Call us skeptical.  A doctor may believe he requires unnecessary tests to protect himself, but you also need to know if the extra work — for him and others — also raises his pay and status.

[Has anyone studied the relative importance of the desire for self-protection versus the incentive for more money and professional standing?  Can anyone separate out the effects of each?]

A group at Dartmouth said in February:

Recent research points to the critical role of "discretionary" decision-making by physicians, such as whether to admit a patient to the hospital, refer to a specialist, order diagnostic tests or see the patient more frequently.  Local hospital and other provider decisions also matter, such as whether to make new investments in clinical services that have higher "profit" margins.  Some data point to for-profit hospital ownership as contributing to more rapid growth.

Even if we abolish liability for malpractice, doctors would still struggle with the profit motive.  We hope somebody figures out how to get incentives right.

FeedIcon Our feed really likes Max Schmitt in a Single Scull, too.

On Friday afternoons, Blawgletter's mind tends to drift.  More than usual, we mean.

On this day, whose name honors the Norse goddess Frigg, our thoughts ran to lender liability.  For today the First Circuit upheld a district court's rejection of same.

FAMM, which fabricated steel products, borrowed money from Sovereign Bank.  FAMM's finances hit the skids, and the company went into "covenant default" on the Sovereign loan.  The bank pressed FAMM to hire its choice of a new comptroller, who proceeded to do a bad job.  Things got worse.  More stuff happened.  The bank liquidated FAMM, taking a $4 million hit.  FAMM sued.

Let's not go through all the claims, which included fraud, tortious interference, duress, bad faith, breach of fiduciary duty, and other usual suspects in the lender liability Pantheon.  No, let's pause on the one that the First Circuit highlighted — the "instrumentality" hypothesis.

That inchoate theory posits that a lender gained such control over a borrower that it (the borrower) turned into the outsider's zombie.  The catatonic cat's paw then wreaks havoc.

The First Circuit dispatched the instrumentality claim with a couple of strokes.  The first slashed at FAMM's "radical alteration to the theory."  Usually Creditor B alleges that Creditor A used its power over the debtor to line Creditor A's pockets, leaving Creditor B little or nothing.  But FAMM claimed that Sovereign damaged it (FAMM).  "Plaintiffs point to no cases that recognize this novel application of the instrumentality theory, and there is no indication that such an application would be accepted by the Massachusetts courts."  FAMM Steel, Inc. v. Sovereign Bank, No. 08-1955 (1st Cir. June 12, 2009) (applying Massachusetts law).

The second whack struck the (faintly) beating heart of the claim.  No evidence, the court held, showed that Sovereign in fact wielded enough control to make FAMM its instrumentality.

Contrast FAMM with Schubert v. Lucent Technologies, Inc. (In re Winstar Communications, Inc.), 554 F.3d 382 (3d Cir. 2009) (post here).  In that case, the court held that Lucent acquired and then abused its "insider" status as a key supplier to and large creditor of Winstar.  Other creditors suffered.  Winstar's trustee in bankruptcy could thus recoup $188 million that Lucent extracted from the company.

Our wandering mind connected FAMM with Schubert because — we think — they involved like facts but opposite outcomes.  FAMM lost largely because you expect creditors to push borrowers around some and that borrowers in default look at least whiny when they complain the shoving got rough.  In Schubert, though, other creditors — through their new friend, the bankruptcy trustee — got the harsh treatment.  They seem more deserving.  And of course in bankruptcy the rules against inequitable conduct make prevailing on an instrumentality-ish set of facts a bit easier.

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Blawgletter added set in style to our blawgroll awhile back.  A recent visit reminded us why.

The post, "Recuse Who?", points out that the verb recuse — as a transitive one — requires not only a subject but also an object.  A judge (subject) thus can't simply recuse.  He or she (subject) must recuse himself or herself (object).

Why do judges treat a transitive verb as an intransitive one?

FeedIcon Our feed recuses.

Bonus:  The U.S. Supreme Court held this week that a state court judge violated due process by not recusing (himself).

USAA Logo

The Fifth Circuit today affirmed an order that kicked claims by subscribers against a big "reciprocal insurance exchange", United Services Automobile Association.  The subscribers alleged that USAA's directors squirreled away billions in "surplus funds" that rightly belonged to the subscribers.  The suit aimed to force disgorgement of the extra cash.  True v. Robles, No. 08-50782 (5th Cir. June 10, 2009) (applying Texas law).

The court takes 20 pages to reach a ruling that turns on this syllogism:

Socrates is a man.

All men are mortal.

Therefore Socrates is mortal.

No, wait.  It goes like this:

The directors of a reciprocal insurance exchange are like directors of a corporation.

Directors of a corporation don't owe fiduciary duties to owners.

Therefore the directors of a reciprocal insurance exchange don't owe fiduciary duties to owners.

If that leaves you cold, join the club.  Reasoning-by-analogy, while common, risks logical error.  So what, for example, that an RIE looks a bit like a corporation?  It also looks a bit like a partnership.

The question, Blawgletter suggests, should depend on the directors' powers and function in an RIE, not the traits of the entity itself.  The court doesn't confront that issue straight on.  We wish it had.

Feed-icon-14x14 Thoreau oversimplified, too.

(Photo by chadarizona at flikr, http://www.flickr.com/photos/chadarizona/3251529125/)

Video 
You can't edit video depositions.

On Monday, Deliberations put up an interesting post on witness prep — Why Your Witness Didn't Get Better After Watching Herself on Tape.  It cues on humans' trouble in reading our own body language.  Blawgletter says check it out.

The study that the post cites looked at how well subjects scored on self-evaluation of their non-verbal cues (facial expressions, hand on face, jumpy eyeballs, rocking).  The subjects did badly.

We'll add that putting a client-witness on video should come, if at all, at the end of the prep.  By then, you'll have already talked with your client-witness about:

  • The witness's background and role in the underlying events;
  • The claims and defenses; and
  • Guidelines for giving truthful and effective testimony.

If you don't lay that crucial foundation, don't bother with the video.

But if you do the necessary hard work before taping, don't start scrimping now.  Write out the hardest questions.  Ask them and let the witness respond as the camera rolls.  Review with the witness what went right and what went wrong.  Then repeat.  Two more times.

By the way, privilege generally protects your sessions with clients but may not apply to non-clients.  Like experts.

Feed-icon-14x14 Our feed would like you to rephrase the question.