Who would gain from a law that bars you from paying your lawyer more than 25 percent of the money she wins for you in a lawsuit?

Think about it.  If you have a case worth $X, a lawyer will take it on a contingent fee basis only if he thinks he can collect the $X before spending more than his % x $X fee.  He won't agree to represent you if he expects to invest more than his contingent part of the eventual recovery, if any.

But wait.  The case involves risk, right?  You might lose; and, even if you win, the guilty party may go bankrupt.  Why would the lawyer take your case unless he gets back his investment plus something extra for taking on the risk?

She wouldn't.

In the real world, chancier cases demand bigger contingent percentages.  But the source of the risk doesn't matter.  Risk of uncollectability.  Risk that getting to trial — or completing appeals — will take years, delaying payment.  Risk that controlling law may change.  And of course risk that a judge or jury may decide against you.

A cap on percentages would kill off riskier cases, including strong ones.

The U.S. Senate today voted down an amendment that would've limited contingent fees in medical malpractice cases to 25 percent of recoveries above $150,000.  Yay.

Shorting a stock places a bet that its price will fall.  You short by promising to hand over the stock, on such and such date for $X.  The gamble pays off if the price drops below $X.

But, to sell short, you can't own the stock.  You are "short" it.  How do you legally sell a stock you don't own?  Under Securities and Exchange Commission rules, you have to "borrow" it.  Brokers lend stock for a fee.

The short-selling plaintiffs in Electronic Trading Group LLC v. Banc of America Securities LLC (In re Short Sale Antitrust Litig.), No. 08-0420-cv (2d Cir. Dec. 3, 2009), sued brokers under section 1 of the Sherman Act.  They alleged that the brokers conspired to drive up rent on stocks they loaned.  The district court granted defendants' motion to dismiss under Credit Suisse (USA) LLC v. Billing , 551 U.S. 264 (2007), in which the Court held that SEC regulation of initial public securities offerings implicitly preempted antitrust law.  The Second Circuit affirmed on the same ground.

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Yesterday, the Supreme Court peppered Merck's lawyer with hot questions.  Before he started, at least, the advocate likely harbored hope that he could convince Their Honors that the two-year statute of limitations under 28 U.S.C. 1658(b) starts running before the plaintiff could have alleged enough facts to survive a motion to dismiss under the tough pleading standards of Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), and Tellabs, Inc. v. Makor & Rights, Ltd., 127 S. Ct. 2499 (2007).  A comment by Justice Anthony Kennedy summed up the lawyer's problem:

[I]t seems to me, as Justice Stevens' and Justice Ginsburg's questions indicate, that the companies can't have it both ways. They can't endorse the Twombly case and then say just an inquiry notice[] of a general — of a general nature suffices. You have to have specific evidence of scienter. And there is nothing here to indicate that the plaintiffs had that.

Merck & Co., Inc. v. Reynolds, Transcript 11:19-12:1 (U.S. Nov. 30, 2009).  Amicus and Merits Briefs here.

Blawgletter covered the Third Circuit's answer in another case this January, when we said:

The Relevance of Scienter to Securities Fraud Limitations Analysis

As all the world knows, the Private Securities Litigation Reform Act — which President Bill Clinton vetoed but which Congress passed anyway — toughened the pleading requirements for securities fraud claims.

The Supreme Court, in Tellabs, Inc. v. Makor & Rights, Ltd., 127 S. Ct. 2499 (2007), recognized the enhancement of difficulty by holding that the PSLRA allows a complaint to survive a motion to dismiss "only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged."  Tellabs, 127 S. Ct. at 2511.

The hardening of the scienter-pleading test would logically mean that the reasonable person wouldn't conclude he, she, or it had a claim until he-she-it learned facts suggesting a strong inference of fraud, right?  Which would have the effect of making a statute of limitations defense harder to prove and easier to whip, correct?

You are so smart.  The Third Circuit held on Friday that "inquiry notice, in securities fraud suits, requires storm warnings indicating that defendants acted with scienter."  Alaska Electrical Pension Fund v. Pharmacia Corp., [554 F.3d 342, 348] (3d Cir. [] 2009).  False statements, standing alone, don't tell an investor he-she-it has a claim.  The investor must also have information that makes the inference of fraudulent intent "cogent and at least as compelling as any opposing inference one could draw" from the information.

What does an obvious bludgeoning in Supreme Court oral argument do to the value of a case like the one against Merck? 

If you said "increases it", you get a silver star. 

You'd receive a gold one if you added "but not that much". 

Why?  BECAUSE THE DISTRICT COURT STILL HASN'T RULED ON WHETHER THE CLASS ACTION COMPLAINT STATES A CLAIM — MORE THAN SIX YEARS AFTER PLAINTIFFS BROUGHT THE CASE!!!

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Seldom does Blawgletter get the chance to copy something we wrote a year ago, plop it into a post, and hit "Publish". 

The Supremes gave us the excuse today by granting cert in Morrison v. Nat'l Australia Bank Ltd., No. 08-1191 (U.S. Nov. 30, 2009), about which we noted last October:

Down Under Securities Case Goes . . . Down

Australia 
One is reminded of a terrier.

Something about a class of overseas people suing an Australian bank about securities fraud that emanated from the world's smallest continent.  They lost on subject matter grounds.  Seems the U.S. Securities Exchange Act doesn't reach so far.  Morrison v. National Australia Bank Ltd., No. 07-0583-cv (2d Cir. Oct. 23, 2008).

Kinda like Empagran.

The Court had raised the stakes by asking the U.S. to give its views.  The Securities and Exchange Commission answered by asking the Court to deny the cert petition while expressing the opinion that the complaint alleged too thin a connection between the fraud and U.S. activity to justify liability under the Securities Exchange Act of 1934. 

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Last week, just before Thanksgiving, the Second Circuit shot a big turkey.  The fowl in question – a jailbird actually — claimed that New York Daily News and The Polish Daily News defamed him.  Their repute-blackening words?  That Shemtov Michtavi, a drug offender, planned to sing like a canary.

The district court blasted the libel claim, holding that it couldn't fly because what the papers said about Mr. Michtavi didn't defame him.  The Second Circuit affirmed.  Michtavi v. New York Daily News, No. 08-2111-cv (2d Cir. Nov. 25, 2009) (applying New York law).  It said:

  • "Under New York law, a statement is defamatory only if it would expose an inividual to shame 'in the minds of right-thinking persons.'"  Id., slip op. at 4 (citations omitted).

  • "It is becoming increasingly hard to ascertain as a matter of law what a right-thinking person would think . . . ."  Id..

  • "[T]he prison population . . . is clearly the group whose good opinion matters to Michtavi."  Id.
  • "The population of right-thinking persons unambiguously excludes 'those who would think ill of one who legitimately cooperates with law enforcement.'"  Id. at 5 (citation omitted).
  • "[E]very American court surveyed has held that identifying someone as a government informant is not defamatory as a matter of law."  Id.

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Turkey Dinner
This has nothing to do with AIG.  Or does it? 

The Special Investigator General for the Troubled Asset Relief Program issued an audit report last week.  The paper — "Factors Affecting Efforts to Limit Payments to AIG Counterparties" — goes 47 pages to explain why the Federal Reserve and its good friend the Treasury threw tens of billions of dollars at one of the leakiest money buckets in world history:  American International Group, Inc.

Gretchen Morgenson, over at NYT, wrote about the SIGTARP's findings on Saturday.  She beamed her flashlight on whether Goldman Sachs fibbed when it said — a bit huffily — that it never faced any "material" danger from its "credit" exposure to AIG.  The reason Ms. Morgenson misdoubts GS's stance?  Because, but for the Fed's squirting fire hose-o'-cash, AIG would've collapsed, the market would've gone with it, and all those "hedges" that GS so cleverly bought itself would've proven less than solid.  Ahem.

Blawgletter has more questions, though.  These include:

  • "Factors Affecting" treats AIG, the parent, with American International Group Financial Products, a sub that sold hundreds of billions of credit default swap insurance, as the same outfit.  If AIGFP sold a CDS, AIG somehow had to make good on it.  Huh?
  • We know that Congress exempted CDSs and other derivative products from the main effect of a bankruptcy filing — the automatic stay.  No longer may creditors grab collateral, demand payment, and do other things to collect on a debt from the bankrupt.  So, a filing by AIG wouldn't have stopped GS, et al., from picking AIG's bones clean, right?  Why didn't SIGTARP mention that?
  • Thanks in part to Congress's decision to PROHIBIT rules that might prevent CDS excesses, AIGFP and others sold CDSs to pure gamblers — people who didn't need insurance against loss on a bond or other debt obligation but who desired to bet that things would go badly for the owners of the investment.  How much of AIG's CDSs fit into that category?  How many billions in federal cash went to those folks?  Why?

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Pic_turnip

The Arbitration Act of 1925 set up a regime aiming to settle disputes quickly and cheaply.  The system depends on courts to make it work.  Courts don't do quick and cheap.  Sorry.

The Fifth Circuit proved the point this week.   The appeal turned on whether a district court erred by ordering a respondent in an arbitration (Old Colony) to pay $29,600 as a deposit to cover American Arbitration Association fees.  The arbitrators had directed the claimant (Dealer Computer Services) to front the money for Old Colony.  The court held the question procedural and thus one for the arbitrators.  Dealer Computer Services Inc. v. Old Colony Motors Inc., No. 09-20049 (5th Cir. Nov. 19, 2009).

The appeal took 10 months and cost Old Colony — the pauper – the writing of 50-page and 19-page briefs plus a trip to New Orleans for its lawyer.  Quick and cheap?

Blawgletter gets the bee gotta buzz, bird gotta sing aspect of the federal court system.  It can't help its nature — deliberative and collegial.  (The bee says buzz buzz buzz; the bird sings tweedily tweedily twee; and judges think long and hard, but with little thought to cost). 

Some courts have dealt with the slow and costly problem by granting sanctions for stringing out the process and threatening worse.  (Recent case here.)  Others have taken to advising corporations not to include an arbitration clause in their contracts and to use a jury waiver instead. 

Neither the blunderbuss nor the dodge seems helpful to us.  Ruling timely does.

By the way, why did DCS insist on forcing Old Colony to arbitrate and to pay its part of the deposit?  You can't get blood from a turnip, they say.  And you won't get any hint at the answer from the court's opinion.  But the briefing reveals that Old Colony wanted to address DCS's claim through a pending class arbitration and that DCS preferred not to.  The quicker and cheaper way, you know.

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One hundred and eighty years ago, on August 15,1829, as the New England summer faded and a school year dawned, U.S. Supreme Court Justice Joseph Story spoke to a muster of colleagues and students in Cambridge, Massachusetts.  They came to honor the Justice's inauguration as Dane Professor of Law at Harvard University.  He told them about the "Value and Importance of Legal Studies".  He said:

I will not say with Lord Hale, that "The Law will admit of no rival" . . . but I will say that it is a jealous mistress, and requires a long and constant courtship.  It is not to be won by trifling favors, but by lavish homage.

Justice Story's words came back to Blawgletter today as we scanned a Ninth Circuit ruling from the day before.  The opinion did one of the things we enjoy most about the law.  It taught us something we didn't know.

We've paid a bunch of homage to her majesty, The Law, for that feeling.  God help us.

The court held that a qui tam defendant may go after a third party for causing it (the defendant) to do stuff (filing bogus claims) that made it liable under the False Claims Act to the federal government.  The case involved an upstart drug maker, Cell Therapeutics.  CT had come up with a way to treat leukemia.  It hired a firm, a predecessor to Lash Group, to advise it about Medicare reimbursement.  The firm said, untruly, that CT could rightly get Medicare money for "off label" uses of the drug.  An ensuing qui tam case against CT forced it (CT) to pay more than $10 million to the feds.

CT sued Lash for giving bum advice.  The district court kicked the suit on the ground that the FCA doesn't allow claims for contribution and indemnity between qui tam guilty parties.  The Ninth Circuit agreed with the rule but said it didn't apply.  The FCA, it held, permits claims "independent" from recovery of CT's qui tam liability.  CT alleged that Lash damaged it by preventing adoption of proper Medicare reimbursement requests, increasing CT's cost of capital, and hurting CT's reputation.  That just might make the claims independent, the court concluded.  It remanded the case so the trial court could rule on whether or not CT's claims somehow depended on its qui tam liability.  Cell Therapeutics Inc. v. Lash Group Inc., No. 08-35619 (9th Cir. Nov. 18, 2009).

KC-135 Stratotanker 
Boeing put the the first KC-135 Stratotanker into service 52 years ago.  The U.S. Air Force bought the last one in 1965.

The four-engine KC-135 Stratotanker jets across the firmament, refueling other aircraft in flight.  It also, per Boeing – which first delivered the hulking milk cow in June 1957 —  can with upgrades "serve as flying command posts, pure transport, electronic reconnaissance, and photo mapping craft."

In 2005, the Air Force asked for proposals on a contract to provide upkeep of the aging fleet of more than 415 Stratotankers.  Boeing's response to the Request for Proposal won.  A losing bidder, Alabama Aircraft Industries, protested the award to the Government Accountability Office.  The GAO found Boeing's "price-realism analysis" wanting and told the Air Force to take another look.  Boeing got the contract the second time, too.  The GAO denied AAI's protest of the new award.

AAI sued in the U.S. Court of Federal Claims and prevailed.  The court set aside the award on the ground that Boeing and the Air Force hadn't done enough to explain pricing in light of the KC-135 fleet's advancing ancientness. 

The Federal Circuit reversed, holding that the GAO's ruling didn't transgress the "arbitrary and capricious" standard for overturning agency decisions under the Administrative Procedure Act.  While the Air Force failed to address the impact of age on price in a direct and explicit way, the court noted, it did make bidders structure their proposals to include a basic maintenance component, a "discrete" additional tasks component, and an "unexpected work" component.  The Air Force thus "decided the best approach was to provide all offerors with the three-tier work package on which to base their proposals.  This was a determination well within the agency's discretion."  Ala. Indus., Inc. – Birmingham v. United States, No. 09-5021, slip op. at 7 (Fed. Cir. Nov. 7, 2009).

They did it!  The folks who create Super Lawyers have parsed their data to see which law schools produce the most promotion-worthy lawyers.  The top 10 list follows:

    Rank Law School
    1

Harvard Law School
    2

University of Michigan Law School
    3

The University of Texas School of Law
    4

University of Virginia School of Law
    5

Georgetown University Law Center
    6

New York University School of Law
    7

Columbia Law School
    8

University of Florida Levin College of Law
    9

University of California Berkeley School of Law – Boalt Hall
    10

Yale Law School

Blawgletter fancies some will fuss that the ranking system overstates the throw weight of big law schools on a lawyer-for-lawyer basis.  We can already hear the Yale law alums griping that Harvard graduates THREE TIMES as many as the New Haven school generates each year (circa 600 v. circa 200).

Do the numbers add up?  Super Lawyers lists 3,568 HLS grads and 1,091 from YLS.  Go figure.

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