Author: Dave Hoffman

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Back From Vacation

I’m back from a week’s vacation with family, and ready to rejoin the blogging world. Not entirely coincidentally, Dan will be blogging “more lightly” in the near future as he has vacation and conferences to attend. Whether “more lightly” translates to less than once an hour remains to be determined.

I, and the rest of us here at Co-Op, were happy to see us getting a nod as “Best New Blawg in 2005″ at the BlawgReview. It is true that the award list is long, suggesting my fourth grade baseball league most-improved trophy (no shame in that!), but it was still very exciting to be recognized after only three months in existence. Thanks!

In the coming weeks, apart from a little less Dan, we’ll be joined by several exciting new guests, and hope to provide wall to wall coverage of the Alito/Spying/Patriot Act hearings in Congress. Don’t change that channel.

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Alito and the ECMH

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For more evidence of Judge Alito’s strong support of the efficient capital market hypothesis, read this recently released Third Circuit opinion in the Merck & Co. Sec. Lit. that Alito joined (Ambro was the writing judge). The relevant discussion is on pages 15-20. The opinion follows Burlington and Oran, which (as I noted in the past) Alito did write. Obviously, this isn’t as useful evidence of the Judge’s views as his own work, but any product released in this highly sensitive period is surely something he gave a careful look at.

Merck interprets Oran and Burlington to mean that price movement must occur in the period “immediately following disclosure”. Plaintiff had argued that the market failed to appreciate the nature of the disclosure at issue until the Wall Street Journal had added up some figures that revealed (allegedly) $4.6 billion in inflated revenue.

The court, conscious of its status as having one of the “clearest commitments” to the ECMH of the appellate courts, applied what I’ve called in my work the “understand consequences materiality technique”* and dismissed plaintiff’s allegations out of hand. It noted that multiple analysts followed Merck, and queried:

“If these analysts-all focused on revenue-were unable for two months to make a handful of calculations, how can we presume an efficient market at all. [Plaintiff] is trying to have it both ways: the market understood all the good things that Merck said about its revenue but was not smart enough to understand the co-payment disclosure. An efficient market for good news is an efficient market for bad news.”

This is an interesting claim. It might not actually be true – there is evidence that individuals are significantly more resistant to incorporating evidence of bad news than evidence that confirms the optimism they naturally feel, which suggests that it is possible that market irrationality, if it exists, may not go in both directions. But, on the other hand, Ambro’s basic theory – that disclosure of underlying facts about a well-known stock followed by dozens of analysts should be curative – makes intuititve sense.

In any event, another data point suggesting that securities plaintiffs may not win lots of battles with (a Justice) Alito, but on the big, class-enabling, issue, he’s solid.

(Hat Tip: Naturally, Howard B.)

Related Posts:

1. Hoffman, Alito and Securities Law: Part II;

2. Hoffman, Alito: The Business Friendly Justice?

*No, it wasn’t my most catchy and inspired naming day.

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The Contractual Freedom to Prohibit Football

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This buzzworthy newstory about celebrity pre-nups has a few examples of bizarre clauses that couples have agreed to before marriage:

• “Limiting the wife’s weight to 120 pounds or she must relinquish $100,000 of her separate property.”

• “Requiring a husband to pay $10,000 each time he is rude to his wife’s parents.”

• “Mandatory sexual positions”, “No mother-in-law sleepovers.” “Only one football game per Sunday.”

Attorneys quoted in the article suggest that all such provision are

“legal unless you’re dealing with custody of children or child support.” This might be right, but since these agreements are almost never evaluated in written opinions (the parties usually hired retired judges to ensure privacy) I’m not sure whether I’d be so definite. Of course it isn’t my area of law, but I usually teach my contract class that there are limits – public policy and otherwise – to what you can contract to, even in the pre-nup context. The one that really gets me here, of course, is “one football game per Sunday.” What kind of judge would enforce that kind of tyranny?

(Hat Tip: Huffington).

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Welcome to the Blogosphere

To Joel Jacobson, and his new blog “Judging Crimes.” Jacobson, an assistant attorney general in New Mexico, has a number of great posts up already, including this empirical investigation into deterrence and the Fourth Amendment. Here is a taste:

The Supreme Court has repeatedly told us that the suppression of evidence deters wrongdoing by police. Lower court judges accept this as fact for a very good reason: the Supreme Court says so. But the rest of us can be little more skeptical. Using the sabermetric principle that if a phenomenon exists, it must inevitably show up in the statistics, I looked for evidence that the judiciary’s fourth amendment jurisprudence has had a deterrent effect.

My working hypothesis was that if the exclusionary rule has any overall tendency to deter police from making unconstitutional searches and seizures, the number of cases in which the legality of a search/seizure was challenged should have peaked relatively soon after 1961 and then gone into a steady decline. As more and more officers were deterred, it seems reasonable to suppose, ever-fewer would still need deterring.

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Scientists Say The Sun Rises in the East

This story (via Andrew Sullivan) on Iran President Mahmoud Ahmadinejad’s view of Israel and the holocaust, contains the following paragraphs:

“Some European countries insist on saying that Hitler killed millions of innocent Jews in furnaces and they insist on it to the extent that if anyone proves something contrary to that they condemn that person and throw them in jail,” [a news organization] quoted Ahmadinejad as saying.

“Although we don’t accept this claim, if we suppose it is true, our question for the Europeans is: is the killing of innocent Jewish people by Hitler the reason for their support to the occupiers of Jerusalem?” he said.

“If the Europeans are honest they should give some of their provinces in Europe — like in Germany, Austria or other countries — to the Zionists and the Zionists can establish their state in Europe. You offer part of Europe and we will support it.”

Historians say six million Jews were killed in the Nazi Holocaust.

Those crazy historians and the things they “say.”

It isn’t as though Reuters doesn’t believe that it can state things as facts. Other examples of facts, shorn of attribution, from the article include:

Ahmadinejad’s earlier “call in October for Israel to be ‘wiped off the map'” “sparked widespread international condemnation.”


“Close allies when Iran was ruled by the U.S.-backed Shah, Iran and Israel have become implacable foes since Iran’s 1979 Islamic revolution.”

Jews trace their roots in Israel back to Biblical times.

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Are Subway Searches Really the Top of the Slippery Slope to Korematsu?

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Dan’s “Rational Security” post and Jason’s provoking democratic searches response seem to me to have occupied part of the field of what I wanted to say here, which is that random suspicionless searches can be left to democratic controls without imperiling the entire constitutional order.

A bigger issue for Dan and privacy absolutists: not all anti-terror policies lead to Korematsu! Although I’m significantly more sympathetic to slippery slope arguments than I used to be, thanks to Volokh, I think Dan’s argument here is off-target. The differences between the internment cases, involving racially suspect classifications, and the searches here are evident. Most significantly, in a factual finding that commentators on this site appear to be ignoring, these really are random searches; the police aren’t permitted discretion to search any particular suspect class. Dan argues nonetheless that checking bags of subway entrants is a first step toward totalitarianism. I’d like to hear more about the mechanisms of this particular slippery slope. But until I do, my intuition is that a policy that burdens equally all residents is significantly less troubling than one that does not.

Dan also, I think, ignores my point that the court really didn’t defer to the government here, at least as deference is normally understood. Sure, the court is tougher on plaintiff’s witnesses, but that is because they didn’t have the relevant expertise. What is the court to do if the plaintiff doesn’t show up with the right folks, hire an independent security consultant? That isn’t how our system works.

I take Dan’s big point to be that this is an unwise policy. It (according to him) misallocates scarce dollars on a policy that will not have significant deterrent effects. I disagree that simply because the chance of search are low and terrorists might be able to evade the cordon we can conclude that there is no or low deterrence. But putting that aside, there is a space between what the Fourth Amendment permits and what smart police policy ought to be. (Thanks to my colleague Craig Green for reminding me of this). To conflate the two, i.e., to require the police to justify anti-terror searches as the least intrusive method necessary, or the most effective strategy policy possible, would simply be to substitute the anti-terror judgments of one group of elites (judges and scholars) for another (elected officials and police authorities). What is the normative argument for that result?

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NYC Subway Searches: A Response to Dan

I was almost persuaded by Dan’s thoughtful post on the NYC subway search decision. But not completely, and I think our disagreements are worth further discussion.

1. Dan’s primary beef appears to be with Judge Berman’s deference toward the government’s weighing of risks of terrorism on the subway, and the likely effects of random bag checks. Dan says that “if the court defers to the government in this regard, it is essentially rubber-stamping the government in this determination.” I think this significantly overstates what the court actually did. The two places where the court really defers to the government are: (1) determining that terrorists are risk averse (Op. at 24); and (2) random searches “add uncertainty and unpredictability to the planning an implementation of a terrorist attack, which, in turn, increases the risk of failure and helps to deter an attack.” (Id.)

I’ve previously argued that these conclusions flow from behavioral research, and I find it unsurprising that the Judge would credit the government’s experts and discount those of ACLU. It isn’t as if the Judge completely ignored the plaintiffs’ contentions and genuflected to the NYPD’s authority. Plaintiffs’ witnesses, as discussed in the opinion, just didn’t have the necessary expertise to rebut powerful testimony from experienced law enforcement officers. A few testified to personal experience with the “intrusive” search policy and their resulting anxiety; one, an attorney and expert in transit design, testified that individuals can “easily evade” the checkpoints; and one, a consultant with a security company, testified that because “you can walk away” from an inspection, the deterrent effect is “close to zero.” (Op. at 19.) However, this last witness had “no discernable training or experience in subway transit security” has “never had access to classified intelligence about terrorism” and (tellingly) has never “evaluated intelligence information for the purpose” of advising on counter-terrorism measures. (Op. at 19.) In short, the court deferred to the government’s experts because they were significantly better informed about the relevant risks than plaintiffs’ experts. That’s simply the way the adversary system works: it isn’t a rubber-stamp.

2. Dan’s second argument concerns the value of marginal deterrence of attacks on the subway. He wonders: “[i]s it a victory to stop a terrorist from bombing a subway car and killing 40 people so that the terrorist decides instead to blow up a building or mall killing thousands?” This is obviously a tough choice, on many levels, and it is cold blooded and unpleasant to contemplate. (For more on this, see the work of Jonathan Baron.) But it is a decision I ultimately think ought to be left to democratic policy-makers in the sunlight of the public space, and not ill-informed judges in the quiet of the judicial chambers. The NYC subway is essential to the life of the City: it is “the largest, most heavily used subway system in the United States”; its disruption could have “widespread economic consequences . . . and create public fear and demoralization.” (Op. at 8.) If forced to the tragic choice, and if I still lived in NYC, I’d much prefer that resources be spent protecting the subway than a mall. I’m happy that I don’t have to make that choice and live with the consequences, but someone does, and NY politicians seem a good choice. New Yorkers learned of this policy before the last election. If they thought its cost-benefit calculus was as out of whack as Dan suggests, perhaps the result of the vote would have been different.

3. Dan finally argues forcefully that “I don’t believe that ‘minimal’ [privacy loss] can describe a massive program of random searching of people’s baggage.” The Court’s arguments in this regard are: (1) notice (Op. at 38); (2) random selection (Id.); (3) the right to refuse; (Op. at 39); and (4) limited scope of a brief search to determine if there are explosives present. Dan may feel that privacy loss is social, i.e., that minimal personal intrusions ought to be added up, to create an interpersonal mix of disutility. But it is not clear to me that this is possible or that this should be the law. To the extent that we’re talking about individual privacy loss, I agree that the court is somewhat cavalier about the choice to exit the search and the subway, which is in tension with the opinion’s recognition of the subway’s central importance to the life of ordinary New Yorkers. But still, it seems like a very small price to pay for increased safety.

Also, when reading the decision it occurred to me that the police likely were happy to be sued in this case, because it increased attention paid to the program, got extra media exposure, and generally made it somewhat more likely that the program will have the deterrent effects its boosters claim for it.

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Mexico To US: We’re Sorry About Calling You Barbaric

That seems to be the message of the Mexican Supreme Court’s recent decision to allow extradition to the U.S. of life-imprisonment eligible accused criminals. Duncan Hollis, my colleague and friend who is guest blogging at Opinio Juris, has the whole story. He suggests that Mexico is being compelled to forgive us by recent Congressional conditional appropriation legislation.

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Weird E-Bay Auction

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Via one of my contracts students, I found this bizarre ebay auction. The winning bidder paid $611.00 for the following item [emphasis added]

This is the PREMIUM BUNDLE BOX only. It would include bonus accessories, if it were the actual PREMIUM XBOX 360! DOES NOT Come with 20GB Hard Drive, Console, HD Cables, Wireless Controller, Headset! In other words for those of you who do not understand, YES YOU ARE GETTING AN EMPTY BOX SO DO NOT ASK! Great for gags! DO NOT bid if you don’t intend to buy! No excuses, I will not retract bids for you! You will be reported to eBay if you backout after winning the auction. I Cannot be more clear! This is not even a factory made xbox 360 box. I made it myself, just a few minutes ago. It does not contain an Xbox 360 console, just the Xbox 360 home-made box. this box is great hand made by me says XBOX right on it[.] It doesn’t look anything like the picture I included in the auction. It looks much better, in my opinion.

The student (rightly) noted that a disappointed buyer would have a hard time making out a fraud claim. Other defenses and excuses (mistake, unconscionability, no meeting of the minds, etc.), seem similarly problematic. The only possible wriggle-room I can think of – if the buyer does in fact feel aggreived when she or he receives the empty box – is that the auction history seems to bear some marks of puffing.

So, I guess someone is getting a $600+ empty box (not even an XBox Box!) under the tree, or by the menorah, this holiday season. They better appreciate it.