Author Archive for jeffrey-lipshaw
Scenes from a Lawyer’s Life
posted by Jeffrey Lipshaw
The Arts Section in today’s New York Times highlights the renewed interest in the work of Diego Rivera, exemplified by a series of exhibitions ongoing in New York. The theme is Rivera’s stepping out from behind the overwhelming interest in his third wife, Frida Kahlo. Our family takes a special interest in all things Rivera and Kahlo as a result of a particular historical interlude: their four year stay in Detroit, beginning in 1929, when, at the behest of Edsel B. Ford, Rivera painted his monumental murals on the walls of the Detroit Institute of Arts.
We have hanging in our living room three prints signed by Rivera, part of a collection of ten he gave to my wife’s grandfather, Nathan Milstein, a lawyer in Detroit, who did work for and befriended Rivera and Kahlo. (Family legend has it that Kahlo made a pass at him, but this is unconfirmed.) Nathan was born in 1907, graduated from Detroit Central High School in 1924, and attended the Detroit College of Law (then the Detroit City Law School and now the Michigan State University College of Law) and Wayne University Law School, receiving his LL.B. at age 21 in 1929. Nathan passed away in 2003, having continued to practice until his late eighties, and his seventy-four year tenure as a member of the bar is supposedly one of the longest in Michigan history.
Alene and I spent many hours going through his voluminous files. One truly appreciates the historian’s and the biographer’s art of distilling the story from the data when looking at records like these. The documents are tantalizing. For example, Nathan was a bachelor until 1946, when he married Alene’s grandmother, who was a widow with two children. Before that, he was supporting his mother and sisters. When the war broke out, he tried for years to find a way to serve without being drafted as a private (which in 1941 paid $21 a month, not enough to support the family.) Ultimately he found a job as a civilian flight instructor, but the file of letters and rejections to almost every branch of the military and government agency is about two inches thick. I have framed in my office my personal favorite: the letter signed by John Edgar Hoover advising Nathan he had failed the F.B.I entrance exam, which I had first interpreted as having been on account of Nathan’s being Jewish while taking it.
The Rivera piece inspired me to go back through some of the files this morning (a quiet Christmas task). I realize now it’s entirely likely Hoover objected to Nathan not only because of his ethnicity, but also because he consorted, in the course of his immigration practice, with all sorts of “undesirables,” and espoused public positions to which the F.B.I. director of long memory must have objected.
As to his practice, I’m just now organizing a series of correspondence relating to his representation in late 1932 of one Halvard Lange Bojer, the son of noted Norwegian author, Johan Bojer. The younger Bojer, an engineer who had emigrated to the U.S. in 1928, was working for General Electric in Fort Wayne, Indiana, when he was arrested by the Immigration Service, and transported to the Wayne County Jail in Detroit, on the grounds that he was a member of the Communist Party. Bojer himself described it to a reporter as follows: “They tell me that I’m a Communist. . .It so happens that I’m a member of the Communist Party Opposition, whose headquarters is in New York. Members of that Party, though glad to take Moscow’s advice, refuse to take Moscow’s dictation. There are other differences, such as our belief that the worker’s solution is in the organization of a Labor Party, comprised of Trade Unions, similar to that of England. Also, we disbelieve in Moscow’s theory that existing labor organizations, such as the A.F. of L., should be wrecked for the formation of Communist units.” (The Communist Party (Opposition), or the Communist Party (Majority Group) as it was originally called, was a splinter group from the main Communist Party USA, organized by Jay Lovestone. Lovestone shows up here; he visited Detroit, and met with Nathan and Bojer.)
The American Civil Liberties Union was interested in intervening on Bojer’s behalf. On December 12, 1932, Roger Baldwin, the ACLU Director, wrote to Nathan, urging Bojer to fight deportation as a test case. Baldwin stated: “The issue is far more than personal to him. This is the first case, so far as we are aware, when a member of his particular Communist group has been held for deportation on the ground of membership. It is worth fighting through because it offers a test of the application of the law to other than members of the Communist Party.” Nathan met with Bojer in the Wayne County jail, where Bojer, “a very affable and highly cultured young man,” advised that he had no desire to appeal the deportation, and was willing to return to Norway. He was released pursuant to a bond posted by his friends in Fort Wayne, and joined an “East bound deportation party” on December 29, 1932.
As to Nathan’s political views, here’s an excerpt from his tribute to Judge Arthur C. Denison on the occasion of his retirement from the 6th Circuit Court of Appeals in January, 1932:
Humanizing the enforcement of existing laws relating to admission and deportation of aliens has become a serious problem confronting social leaders throughout the country. In the present delirium of unemployment when a vague terror seizes the nation, this fear is translated into alien hatred. Public discontent must be directed away from the cause of the unrest and to accomplish this, a counter irritant is administered. The ever oppressed alien is again victimized. The term alien becomes synonymous with undesirable. Deportation “drives” and “spectacular raids” then become common occurrences. Wholesale deportation follows as a panacea for what ails the nation. This national hysteria influences the action of public officials and finds expression in more rigid and relentless enforcement of deportation laws. Even the courts are sometimes swept into the whirling cyclone, marring the annals of juridical science with unprecedented decisions. To espouse the cause of the under-privileged requires great courage. Those who bear the courage of their convictions and refuse to be swayed, belong to the school of Holmes and Brandeis. So few do they number that a loss in the ranks is keenly felt by liberty loving citizens.
Just an ordinary kid from an ordinary school in an ordinary city. Whose parents had been aliens.
(Cross-posted at Legal Profession Blog.)
December 25, 2007 at 11:22 am
Posted in: Civil Rights, History of Law, Immigration
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More Davidoff-Ribstein-Lipshaw on the Cerberus-URI Case
posted by Jeffrey Lipshaw
Steve Davidoff over at M&A Law Profs Blog has more on this opinion, about which I posted several days ago, and with Larry Ribstein’s first and second posts, we may have now beaten the three-headed dog of hell to death. But not quite.
I want to address Larry’s suggestion that Chancellor Chandler has issued a warning to lawyers using “notwithstanding” and “subject to” clauses in complex agreements not to do so because they create ambiguities that effectively require the court to go beyond the document to things like the “forthright negotiator” doctrine. That argument depends on the following thought process actually occurring in the mind of a lawyer about to propose a change to an agreement: “Chancellor Chandler in Delaware has suggested that it is inartful drafting to have a syntactical and grammatical correct overriding of a provision where the content of the two provisions is contradictory. Rather than handle the deal-making problem in this way, which is NOT ambiguous, but merely Rube Goldberg-esque (linguistically speaking), I should confront the other side head-on with the issue, recognizing that we may have a purer document. In doing so, I have decided that the risk of this issue being screwed up by a court in the event of litigation weighs more than the risk of doing something to cause the deal not to close (e.g., triggering further discussion of the provision, losing a face-saving way of resolving a disagreement, causing another round of revisions in a time-sensitive environment, etc.)”
It’s an interesting situation where theory, I think, has to give way to practice. My casual empiricism says lawyers make that calculation doing deals all the time, in one form or another, but that the conclusion is almost always to let either difficult construction or even ambiguity stand for fear of wrecking the deal. (That’s the gist of John Coates’ expert report.) If I were to resort to behavioral psychology and economics, I’d suggest that risk aversion accounts for the ex ante choice – between taking the present deal and the risk of either losing the deal or having an adverse outcome in litigation, we select the certainty of doing the deal – and hindsight bias accounts for the ex post analysis.
In my day, I negotiated some of the most arcane and difficult risk splitting provisions possibly in the history of contract drafting – for example, multiple overlapping indemnification buckets for different kinds of risks like environment, patent, product liability, and so on – all on the thesis that getting cash for the business now outweighed the risk that we somehow had either royally screwed up the contract, or that some unknown liability would come crashing down on us in the future. Most deal lawyers never want to look at an agreement once the deal is closed, because as I’ve said, you pays your money and you takes your chances, and just hope to hell that it all works out.
Or as one of the finest deal lawyers I ever knew, my former boss and later colleague at AlliedSignal, Martin Cohen, used to say, when you are selling a business, the best insurance against lawsuits is that the buyer succeeds wildly with it.
December 24, 2007 at 9:42 am
Posted in: Contract Law & Beyond, Corporate Law
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The Cerberus Case and Lessons in Law, Society, and Language
posted by Jeffrey Lipshaw
Over in the M&A world (that’s mergers and acquisitions for all you non-corporate types), there’s a recent decision from the Delaware Chancery Court, written by Chancellor William Chandler, that is getting a fair bit of play in the blogosphere, including from my friends Larry Ribstein and Steve Davidoff.
One of the reasons I love complex acquisition agreements as the subject of contract theory is that, like life, they are incredibly complex. No mere agreement to buy 100 bushels of wheat in thirty days at X dollars per bushel here! No, the agreements attempt to map a highly contingent future, one in which the environment or the businesses can change, financing may not be available, bet the company lawsuits can be filed, shareholder actions begun, and so on. I’ve argued before that language is often a blunt instrument used to capture the fine lines of an understanding.
I’ve not fully studied the opinion, but it is a fine piece of analysis, even where in very subtle ways I disagree with it. And with all due respect to Larry Ribstein and Steve Davidoff, I think Chancellor Chandler has a better feel for the limitations of law and language. Yes, this could be “sloppy drafting,” but as I alluded in an earlier post, lawyers, for all their pretensions of being at the center of a deal are often flies swarming around the galloping steed that is the deal itself, and the focus on the contract as the source of the problem is merely a fly’s-eye view.
In simple terms, what is the issue? Section 9.10 of the agreement says that the merger target (i.e. the company whose shareholders are going to walk away with cash – let’s call it the seller for ease of reference) has the right to enforce the agreement by injunctive relief for specific performance for a whole bunch of things, including forcing the deal to close. But Section 9.10 says it is “subject to” Section 8.2, which says “notwithstanding” any other provsion in the agreement, the seller’s sole remedy if the buyer walks away is a $100 million termination fee. The buyer walks away, and the issue is simply whether it must close under 9.10 or can walk away for a price of $100 million under 8.2. Got it?
Chancellor Chandler’s opinion says (i) the language is ambiguous on the walk-away right, but (ii) the circumstances of the negotiation make it clear that the seller understood its rights were limited to the $100 million walk-away fee. The crux of the ambiguity (and the source of the “sloppy drafting” criticism) is the fact that one provision (the “left hand”) appears to be taking away what another provision (the “right hand”) is giving. Why would that happen? And, indeed, there was testimony to the effect that it would have been clearer if one of the provisions had been deleted rather than having this “subject to/notwithstanding” trumpery.
I have read the two provisions, and I don’t think they are ambiguous. From the standpoint of the logical construction, the contract is doubly clear that the walk-away right dominates over the injunctive right. This, it seems to me, is as close as we come in the law to a semantical paradox, like the Liar’s Paradox (“this sentence is false”). The problem is that the grammar and syntax are absolute clear, but we rebel against the contradictory content. In short, why is it there? Try this: “Underlying the semantical paradoxes is our naive intuition that ‘paradoxical sentences because they are not ungrammatical, vague, or sortally suspect and encompass no false presuppositions, must yield statements when used.’” (Oren Perez, “Law in the Air: A Prologue to the World of Legal Paradoxes,” in Perez & Teubner, Paradoxes and Inconsistencies in the Law, quoting L. Goldstein, “A Unified Solution to Some Paradoxes,” in Proceedings of the Aristotelian Society.)
Perhaps it is because I have actually been in the shoes of an M&A lawyer trying to craft a linguistic solution, or have been the client of M&A lawyers trying to craft linguistic solutions for me, that I chuckle at the charges of “sloppy drafting” as though lawyers have the absolute power (a reductive, rational, scientific, but unrealistic assumption) to control all outcomes through language. One of my rules of thumb in negotiating language was to change as little as possible to achieve the desired outcome. That’s an art not a science, and Cerberus’ lawyer’s judgment ultimately bore out in this case. Who knows what would have happened if he tried to make the change by deleting rather than trumping?
Moreover, we don’t know what the lawyers were saying to their clients. We do know from the testimony that the seller’s lawyers understood that the walk-away right essentially created a $100 million option. How do we know that the following conversation did not occur in the seller’s executive suite or boardroom – “look, we aren’t going to do much better than this – we will be able to make an argument there’s an ambiguity on the walk-away right, but Cerberus is probably going to win it in the end. On the other hand, the worst thing that happens if we lose is that we get $100 million, and that should be a sufficient litigation war chest if we want to pursue an injunction.”
My point is that the contract, as important as it is, is only a piece of the entire social system that is a complex business acquisition. There can be sloppy drafting, but that’s an easy default.
For those interested, I’ve addressed this previously in two respects: (a) the illusion that there was an original mutual intention of the parties when a contract is later capable of colorable conflicting interpretations (The Bewitchment of Intelligence: Language and Ex Post Illusions of Intention, 78 Temple L. Rev. 99 (2005), and (b) the lawyers’ illusion that a contract is the deal (i.e. the game), when in fact it is just a model of the deal.
UPDATE: Larry Ribstein has an insightful follow-up to my comment here, and Steve Davidoff offers a detailed analysis here.
December 22, 2007 at 9:57 am
Posted in: Contract Law & Beyond, Corporate Law, Current Events, Legal Theory
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It’s Not the Size of the Gift, But the Rationalization that Counts
posted by Jeffrey Lipshaw
When I was at Tulane last year, I got a call from the Times-Picayune to comment on what has now become this story about the Fifth Circuit’s recommendation that Federal Judge Thomas Porteous be impeached. The issue on which I was asked to comment was the propriety of an alleged $1,000 hunting trip to which the judge was treated by a defendant company in a pending maritime injury case, and which was not disclosed to the plaintiff.
Looking back at my comments, I now recall what seemed so odd about the whole thing.
“Federal judges by and large have the reputations of being absolute paragons of integrity,” said Jeffrey Lipshaw, a visiting professor at Tulane University Law School. “The perception is that they bend over backwards to avoid even the appearance of impropriety.”
Lipshaw said Porteous, who makes $165,200 a year, might have considered the value of the excursions so trifling that they would not be seen as swaying his conduct in court. If the judge thought there was something improper about the trips, Lipshaw said, why would he disclose them on his financial reports, which are submitted to the Judicial Conference and remain public record for five years?
* * *
“It is entirely possible that the gifts in fact did not influence him,” Lipshaw said. “But even if in your own mind you know they did not make any difference, and you are just as likely to rule for or against on the merits, the very reason it smells funny is the reason you should not do it.”
Yes, why take the tiny benefit and then disclose it? Assuming the allegations are borne out, this is not as simple as saying a person is crooked. I see the option backdating issue the same way. You have managed either by frame of reference (model or game?) or by internal advocacy (call it rationalization) to put aside that moral tickle (“hmm, should I take that hunting trip when I have a case pending with the company; gosh, it’s only a $1,000 and I will disclose it on my yearly report?” or “hmm, what’s wrong with creating a document that says the options were granted when they weren’t; I’m just correcting what is a stupid accounting anomaly?”)
David Brooks had an insightful New York Times op-ed on Barack Obama a few days back, and I think piece captures the essence of the theme. Your sense of right and wrong has to predate and transcend the context or the frame. Brooks observed: “Many of the best presidents in U.S. history had their character forged before they entered politics and carried to it a degree of self-possession and tranquillity that was impervious to the Sturm und Drang of White House life.”
You can make an argument for anything, but there’s still that smell test.
(Cross-posted at Legal Profession Blog.)
December 21, 2007 at 12:31 pm
Posted in: Current Events
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ECCO Shoes, Transaction Costs, Reputational Norms, the Limits of the Legal System, and Internet Disintermediation
posted by Jeffrey Lipshaw
On October 15, 2007, at the recommendation of my wife, I bought a pair of ECCO shoes at what, for me, was an ungodly amount to pay for a pair of shoes. The reason for the investment is that we live in a city now, and I do a lot more walking. (For comparative purposes, I buy all of my shirts from Lands’ End, and my pants are whatever Dockers – pants for the bigger butted man, as my daughter Arielle and Dave Barry say – are on the table at Costco. So buying shoes at a chi-chi store on Newbury Street was an unnatural act.)
About six weeks later, I happened to notice that the heel had worn through. I wear these shoes a fair amount, but it didn’t seem to me that a pair of shoes at this ungodly price should wear through in six weeks. You can’t just take shoes back to the ECCO store, however. You have to order a prepaid bag from customer service, and send the shoes away to an outsourced “warranty service,” which makes a unilateral judgment whether ECCO will do something about the problem. I duly packed them up and send them away.
The warranty service received them yesterday, and the following is now posted online under my repair ticket: “WEAR IS NOT A DEFECT NORMAL WEAR NO DEFECT.”
From time to time, I teach contracts! I think there’s at least a fact issue whether a sole wearing through in six weeks of relatively normal wear on a pair of $190 shoes constitutes a breach of the implied warranty of merchantability under Section 2-314 of the U.C.C. I channeled Ronald Coase a few minutes ago, and he told me that in the absence of transaction costs, clear default rules, and freedom of contract, the initial allocation of legal rights as between ECCO and me would be irrelevant to an efficient outcome. And when I channeled Frank Easterbrook, he referred me to Hill v. Gateway 2000, and told me I was bound by a warranty disclaimer that was available on the ECCO website if I had read the sales slip and clicked my way through to find it before I wore the shoes.
I am not finding either of those results particularly satisfying at this minute. But wait! I also channeled Lisa Bernstein who has studied diamond brokers in New York City, and they don’t rely on formal law. Do a deal, say “mazel v’broche” (luck and blessing), and reputational norms will do the rest. Hmm. I wonder what that means, if anything, in a world of internet information disintermediation. I’m kind of a “you pays your money and you takes your chances” on this kind of stuff anyway. Personally, that’s the last pair of ECCO shoes for me. But you can make your own decision.
December 20, 2007 at 9:27 am
Posted in: Contract Law & Beyond
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Reprise of Son of “Hume v. Kant” Redux Again
posted by Jeffrey Lipshaw
Pardon my redundancy, but some debates just aren’t going to go away. Dennis Overbye, the very fine science writer for the New York Times, has an article/essay today that once again poses the essential Kantian-Humean issue – is there a priori knowledge by which we order sensory data (Kant) or is what we presume to know of the universe’s regularities merely a conclusion we reach by induction from all the past regularities (Hume)? Here’s a taste:
Paul Davies, a cosmologist at Arizona State University and author of popular science books. . .asserted in [a New York Times op-ed piece] that science, not unlike religion, rested on faith, not in God but in the idea of an orderly universe. Without that presumption a scientist could not function. His argument provoked an avalanche of blog commentary, articles on Edge.org and letter to the Times, pointing out that the order we perceive in nature has been explored and tested for more than 2,000 years by observation and examination. That order is precisely the hypothesis that the scientific enterprise is engaged in testing.
I think the latter view (i.e. the Humean view) simply ignores too many unresolvable questions and paradoxes, like whence come scientific hypotheses, and the relationship of the scientific hypothesis to categories, analogies, and metaphors, but I also recognize that you don’t have to engage in meta-thinking about hypotheses to come up with hypotheses. Apropos of this is another quote in the article, this one attributed to Richard Feynman: “Philosophy of science is about as useful to scientists as ornithology is to birds.”
I have been thinking about that quote this morning and trying to decide if philosophy of law or jurisprudence is about as useful to lawyers as ornithology is to birds. Is it a good analogy for either scientists or lawyers? We start with the relationship of the two concepts in the source which are linked by “usefulness”: ornithology is the science concerned with the classification and the properties and vital phenomena of birds; is it ornithology not useful to birds because they are incapable of thinking about ornithology, or because ornithology wouldn’t help them flourish as birds even if they could think about it? I think the former is the primary characteristic of birds, and I am hoping it’s the latter Feynman (if in fact he’s the author) wanted to imply about the primary characteristic of scientists as the target of the analogy.
To flip it around, suppose I said ornithology is about as useful to birds as physiology and anatomy are to human beings. That can’t be right, because physiology and anatomy are important to human beings. And I do think there are ethics of science and ethics of law that are part of meta-reflection about those disciplines, even for pure doers, that go beyond being birdbrained.
I guess my main problem with pure empiricism and pure pragmatism is that they give a great big shrug to the paradoxes and inconsistencies, probably because they are, for many people, too disturbing to consider. And to judge by a number of my family members, who roll their eyes and head for their iPods when I bring up these subjects, they are probably happier for it!
December 18, 2007 at 10:31 am
Posted in: Philosophy of Social Science
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Seasonal Advice for Sedentary Lawyers
posted by Jeffrey Lipshaw
We’re having a nor’easter on top of a ten inch snowfall from the other day, and my son reports there’s a lot of snow in Ann Arbor. When you get to my age, you take these warnings seriously. . .
December 16, 2007 at 12:20 pm
Posted in: Current Events
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A Quick Primer on the Hearsay Rule for the WSJ Law Blog
posted by Jeffrey Lipshaw
The Wall Street Journal Law Blog has a post on the Mitchell Report, and I thought I would do a public service by explaining the hearsay rule in response to this observation: “Well now, the names of 89 baseballers are forever besmirched, courtesy of an extra-judicial investigation which relied on hearsay evidence (e.g., unsworn testimony of clubhouse staffers).” This echoes the objection raised by Rusty Hardin, Roger Clemens’ lawyer, to the effect that the Mitchell Report “threw a skunk in the jury box.”
Federal Rule of Evidence 801(c) defines “hearsay” as follows: “‘Hearsay’ is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.” Let’s put aside for the time being the “trial or hearing” phrase, because the fair question, looking particularly at the allegations regarding Clemens, is whether anything offered up by Brian McNamee (a strength and conditioning coach) was hearsay in the context of giving evidence to Mitchell.
- McNamee’s statement that he personally injected Clemens is not hearsay. The declarant is McNamee. He is describing an act, not a statement.
- McNamee stated that Clemens asked McNamee to inject him. Now Clemens is the declarant. But the statement is not be offered for the truth of an assertion. It is being offered for the fact of the request itself, which would seem to be relevant to the question whether Clemens knowingly used a steroid.
- At some point, according to the report, Clemens told McNamee that the steroids “had a pretty good effect on him.” Again Clemens is the declarant. The statement is not being offered for the truth of the assertion that the steroids did or did not have a good effect. The statement is being offered for the fact of the statement, which is relevant to whether Clemens used the steroids. [UPDATE: Views offered by several commenters below, including Howard Wasserman and Michael Risch, persuade me that this could be hearsay. After reflecting on this for a day or so, I'd agree that Clemens' alleged statement is asking the listener to add the implicit presupposition that he used the steroids. If you take the implicit requested presupposition as an implicit assertion, it is offered for the truth. But how does it differ from the following? The issue is whether a person was high on recreational drugs. The witness testifies that the declarant stumbled out of a room, and said "oh, wow, that was good shit." Put aside whether an exception (like excited utterance or present sense impression) applies. That just doesn't feel to me like a statement offered for the truth of the matter asserted.]
- Jose Canseco told Mitchell that he had conversations with Clemens about the benefits of Deca-Durabolin and Winstrol, including how to cycle and stack the steroids. In itself, this has marginal probative value, if any, as to the actual use of steroids. It is corroborative of McNamee’s testimony, however. But it is not hearsay.
The funny thing about this is that the WSJ Law Blog introduces the complaint by suggesting that a few non-lawyers said they agreed with Hardin’s objection. My experience is that lay people rely on repeated statements of a non-present declarant all the time, often consider it quite reliable, and are confused (as are many lawyers) about why it’s excluded only when it relates to the truth of the matter being asserted. Assuming that McNamee were to testify at a trial in which Clemens’ use of steroids were at issue, Hardin could cross-examine McNamee on the accuracy of McNamee’s own perception of the events or statements, but he wouldn’t be able to keep them out as hearsay.
December 14, 2007 at 11:34 am
Posted in: Current Events
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The Irrelevant, the Revolutionary, and the Well-Cited
posted by Jeffrey Lipshaw
Concurring Opinions co-proprietor Frank Pasquale has an interesting reflection on a recent critique of the explosion of law review articles and the possibly autopoietic self-referentiality of citations (it seems to me it is a fair interpretation of the largely irrefutable evidence Paul Caron has gathered on the “long-tail” of legal scholarship.) I think Frank is onto something, particularly in this Age of Rankings: we are once again seeming to look for the silver bullet indicator of something that is probably irreducibly complex. What is important or an advancement is not going to be determined conclusively by the number of times the article gets cited (the popular equivalent of which leads to something like the conclusion that Ann Coulter is the most important mind at work today, and Britney Spears the most significant cultural icon) nor is it necessarily going to determined by the high priests of whatever “law and…” sub-discipline is at issue, but both have some bearing.
That complexity is reflected in the observation that there’s a fine line between the irrelevant and the revolutionary. I’m reading Walter Isaacson’s biography of Einstein (with a grain of salt now because Isaacson so badly messed up Kant’s view of analytic and synthetic knowledge and the relationship of either to the a priori), but he observes that Einstein probably benefited from the fact that he did his work in the patent office, where he wouldn’t have been co-opted by the received views of the time. Although, again, there’s a chicken and egg issue – Einstein’s basic iconoclasm and impudence no doubt contributed to the fact that he couldn’t get a job as a professor!
December 14, 2007 at 9:54 am
Posted in: Law School (Law Reviews)
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Correlation and Causation in Lawyer Depression
posted by Jeffrey Lipshaw
The Wall Street Journal and its Law Blog focus again today on what seem to be irrefutable statistics on the higher incidence of depression among lawyers than among the general population. I don’t mean at all to make light of this; too many family and friends deal with this issue, and I realize how complex a combination of biochemistry and environment depression is. I wonder sometimes if environmental stimuli to depression outpaced the evolution of the human body’s ability to generate seratonin. (Hmm. Were people clinically depressed, in our modern sense, five hundred years ago?)
But do lawyers become depressed, or do people with a biochemical predisposition to depression become lawyers?
[Cross-posted at Legal Profession Blog]
December 13, 2007 at 11:37 am
Posted in: Law and Psychology
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Flies and Horses: Thoughts on the Law of Entrepreneurship
posted by Jeffrey Lipshaw
My friends Gordon Smith and Darian Ibrahim have posted an interesting short paper on whether there is a “law of entrepreneurship” (“Entrepreneurs on Horseback: Reflections on the Organization of Law“). The first half pokes some fun at the stodgy view that there is nothing (and never will be anything) new under the sun – hence, there is no Law of the Horse, Law of Cyberspace, Law of Entrepreneurship. (For a detailed tracing of the Law of the Horse allusion from Llewellyn to Wellington to Easterbrook to Lessig, see the first few footnotes of the article.)
I can’t deny that there is some unique law to entrepreneurship (the most prominent being the effect of the so-called “down round” which invokes the anti-dilution clause of the venture capital agreement, on which Gordon has written a perspicacious article), as well as a host of legal skills and disciplines (many of which Gordon and Darian ably summarize) that need to be in the “toolbox” of any lawyer who hopes to do work for entrepreneurs and startup companies .
Not to beat a dead horse, but if horse is the image du jour, then I can’t help thinking of lawyers and law, at least in the traditional way of thinking about lawyers and the law, as flies buzzing around (and trying to keep up with) the galloping steed. Gordon and Darian are absolutely right to highlight the necessarily interdisciplinary nature of the study of entrepreneurship, but I keep thinking that focusing on the legal is the fly’s-eye view – one that is not invalid or wrong, but pretty much of primary interest to the fly. (I’ve read Ronald Gilson’s iconic piece on Value Creation by Lawyers, and I’m still not fully persuaded on the “transaction cost engineer” model, at least from the examples Gilson gives in a sophisticated M&A agreement. The one place I do think lawyers serve a cost-reducing function is in the transmission of information about what is “market” in VC term sheet boilerplate. But that’s informed intuition, on my part, not rigorous data. And, as Gilson points out, there’s no reason particularly why lawyers as opposed to VCs have to be the repositories of that information.)
Does the horse even notice the fly? Well, I’ll let you ponder that while I change horses in the middle of this stream of consciousness, and continue below the fold about some really interesting work outside the legal academy on the subject.
December 12, 2007 at 11:03 am
Posted in: Corporate Law
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The Rule of Law (Professors)
posted by Jeffrey Lipshaw
I admit that I keep a relatively limited list of RSS feeds because I try to have a life. But a quick scan this morning seems to indicate that I am the first person to note the following insight: it is possible that within the next couple of years two of the most powerful leaders in the world could be [cough, gasp, ahem, cough, cough] former law professors. We know about Barack Obama’s tenure at the University of Chicago, but it has now been revealed that Dmitri Medvedev, Vladimir Putin’s hand-picked successor, is also a former law professor.
I am trying to imagine a world governed by law professors. Comments are welcome, but my first thought is that anyone with more than five or six years experience in the real world will be considered disqualified for cabinet positions.
December 11, 2007 at 11:02 am
Posted in: Politics
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Playing the Accounting Game
posted by Jeffrey Lipshaw
The Weekend Edition of the Wall Street Journal was rich with interesting stuff today, including the left side of the editorial page (the neo-Neanderthal part) bashing the Bush Administration’s incompetence, and the right side featuring a piece by Barack Obama on mortgage lending issues, and a really depressing opinion on the situation in my hometown, Detroit. And, if you are into it, Phil Simms on how to throw a football.
At the risk of going over the top with shameless self-promotion (oh, gee, why not?), I was particularly gratified by the story in Section B, entitled “This Game Theory is a Cautionary Tale,” since it confirmed one of the problems I discussed in Models and Games. Discussing financial service companies, Donn Vickrey (who used to be an accounting prof) of Gradient Analytics says: “I think for a number of years they played games.” One of the alleged gaming tactics was “gain on sale” accounting, in which loans were packaged and sold to other investors.
The article doesn’t discuss it, but the issue here is really the anomaly created by accrual versus cash accounting. When you sell and ship a widget in March, you get to record the sales price as revenue in March, even though the other accounting entry is not to cash, but to accounts receivable. That receivable is an asset, and when the cash comes in later, you reduce the receivable and increase the cash (in journal entries this is debiting and crediting, but those terms don’t mean to accountants what they might mean to you and me). The reason for doing it this way is that you want to match the costs incurred in making that sale as closely as possible with the revenue from that sale. So you will also reflect in March the cost of the widget, which you record by reducing your inventory by the cost of one widget (on the balance sheet) and reflecting the cost of one widget as a “cost of goods sold” on your income (profit and loss) statement. Suffice it to say that if you do cash accounting, and you spend all the money to make the widgets, say, in 2003, and collect all the cash in 2006, your 2006 accounts will accurately reflect cash, but they won’t really tell you how profitable the sale was, because the costs are not matched to the revenues.
More than you ever wanted to know about the subtleties of accounting below the fold.
December 8, 2007 at 11:00 am
Posted in: Corporate Law
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Decision 2008: What We Can Learn from Annie the Dog
posted by Jeffrey Lipshaw
We have two dogs, Max and Annie. We rescued both from shelters about a year apart. Max is kind of a lovable lug, not too bright, but even-keeled as the day is long. Annie, on the other paw, while extremely pretty, has, shall we say, “issues.” She was brought into the Indianapolis Humane Society as a stray, and had BB wounds in her leg. She weighs about 60 pounds now, but was about 42 pounds when we brought her home. The first time I took her out for a walk on the nearby rail-to-trail she trembled. All of this is to say she is what is known as “dog-dog aggressive;” a sweetheart to people but lacking in social skills with other dogs. She gets along fine with Max, but has a hair-trigger fear reflex, and a “good offense is the best defense” strategy.
I can’t even begin to count up the hours and dollars we have spent on training with Annie. We have gone from the choke collar correction to positive reinforcement methods and back and forth again. I have watched endless hours of Cesar Millan, the Dog Whisperer, until I became convinced that most of his method is wrong, and this begins my point of departure that is going to end up, believe it or not, in a discussion of the 2008 U.S. Presidential race. Bear (or dog) with me.
Our current trainer is Vera Wilkinson of The Pet Needs Company here in the Boston area. Her primary method is using positive reinforcement (in the form of treats, namely chopped up Red Barn dog food) to get Annie to connect with me in the face of distraction, like other dogs. We work on basics, like sit and stay and come, all with the object of getting her to look first to me when she is either distracted or fearful. I’d say we’ve made a fair amount of progress.
The main objection to Cesar and others is the attempt to psychoanalyze the dog, and the anthropomorphizing of the dog’s behavior. Dogs don’t want to please their owners. They respond to pain and pleasure. They understand “safe” and “dangerous.” They are black boxes that we train not by thinking of them as human, but by operant conditioning. (I want to make it clear that I think dogs have souls, but agree with Douglas Hofstadter that compared to humans they are “smaller souls.” This is why I have dogs and not mosquitos as pets.)
Well, if you want to find out how this all segues into Decision 2008, unless you’re reading this on your RSS feed, you’re going to have to continue below the fold.
December 6, 2007 at 6:34 pm
Posted in: Politics
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Jeremy Waldron (and F. Scott Fitzgerald?) on the Rule of Law
posted by Jeffrey Lipshaw
In this wonderful period of time after the end of classes, and randomly looking at pieces on the Rule of Law far less mystical than my own ruminations, I happened upon Jeremy Waldron‘s reflections (Is the Rule of Law an Essentially Contested Concept (in Florida)? in Law and Philosophy 21:137-164 (2002)). He was inspired by the repeated use of that phrase by both sides in the dispute over the 2000 Florida Presidential vote count. This is a wonderful approach: he takes a small segment of a real world issue, and unpacks it to the core, and in the process, makes a far more universal observation about truth and argumentation. I suppose the only down side of the approach is that it sounds topical, but it’s really not.
Professor Waldron draws on the work of linguistic philosopher W.B. Gallie to treat “the Rule of Law” as an “essentially contested concept.” What this means is that the concept being bandied is, at its core, not susceptible to a single, crisp, resolution, even though participants in the argument seem to be contending that it is. Such a concept, like “the Rule of Law” or “Justice” or “democracy” or “Jewish” (my particular addition to the list) is both normative and complex, such that there is room for contestation within the concept.
Is this another way of seeing F. Scott Fitzgerald’s dictum from The Crack Up (1936), particularly when you look at the entire quote? “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. One should, for example, be able to see that things are hopeless yet be determined to make them otherwise.” How can something be true and not true at the same time? As Waldron observes, this is usually the point at which the relativists or radical indeterminists step in to say there are no universals, but he opts instead for the more difficult (and Kantian) view, answering in the affirmative the following questions: “Is it possible to engage in one of these debates [e.g., about whether a particular decision affirms or undermines the Rule of Law] as a partisan of a particular view but also as a theorist who knows why disputes of this kind are intractable? Can one acknowledge that a concept is essentially contested and still claim that one’s own view is right and one’s opponent’s view wrong?”
The fundamental paradox of the Rule of Law is that a system of laws overcomes the rule of men. The Rule of Law is supposed “to supersede the role of human discretion;” nevertheless, without people, “how can we make the law rule?” I admire (and share) Professor Waldron’s optimism, even about something as intractable as the Florida dispute:
My point at this stage is just to emphasize. . .that disputation can make things better whether or not the participants are in position to associate that process with anything like the idea of essential contestability. Perhaps it is best to say, then, that we should call an idea essentially contested when we find that contestation about its definition helps deepen and enrich our sense of what is at stake in a given area. We should not suppose that this deepening and enriching effect depends upon a prior characterization of the concept as essentially contested or that it depends upon the parties accepting such a characterization. Their arguments play a part in the process whether they do so self-consciously or not.
In other words, unlike the participants who are citing the Rule of Law instrumentally, we third-party observers see something that we can call the Rule of Law even in the bizarre twists and turns of what became Bush v. Gore.
December 5, 2007 at 6:29 am
Posted in: Legal Theory, Politics
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A Nod to Angie’s List as an Alternative to Contract Law
posted by Jeffrey Lipshaw
As I’ve written in Models and Games, I think contract law is often a poor template and, hence, a poor solution for issues in transactions.
My lousy experience with builders and contractors is the stuff of legend. I was walking home from the Porter Square T station, looking at the old Cambridge houses, and wondering how, in the view of the general level of competence out there, any building actually manages to withstand entropy. We have a brand new house in Cambridge, and notwithstanding my contractual right to have an entire punch list of repairs done, and notwithstanding the builder’s one year warranty, and notwithstanding his earlier promises to show up, he has disappeared with only a voice mail message as evidence that he ever existed.
Contract law is not going to solve my problem, except in the most indirect sense. Because I have a contract, I can sue the builder, get a judgment (I assume it will be a default judgment in small claims court), and have the judgment satisfied by a guaranty fund that the Commonwealth of Massachusetts established with the builders’ license fees. Other than that, the accepted wisdom is that you never resort to the contract in arguing a money issue with your builder. You may win the battle, but you will lose the war, particularly if you never manage to get inside the walls to discover he used 1/4 inch rather than 3/4 inch plywood or a lower grade of insulation to make back what he lost in the other battle.
An even better tack is to deal with people who will do what they say will do regardless of the contract. In that regard, let me recommend Angie’s List. This was founded by a person in Indianapolis, where we used to live, and has spread around the country. We got referrals for the electrician and the plumber from the list of A-rated companies, and I just finished posting excellent reviews of both.
December 4, 2007 at 12:01 pm
Posted in: Contract Law & Beyond
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Corporate Governance – Some Reflections and Some Data
posted by Jeffrey Lipshaw
One of my pet peeves is the typical introduction to a paper on corporate governance, in which the author, whether by political inclination, the availability heuristic, or naivete, assumes there is a crisis in corporate governance, and proceeds to spend the next 25,000 words or so proposing a legal solution. For better or worse, I tend not to think of companies either as the unnamed “they” or as black boxes. People run companies in groups, and the groups are subject to the usual dynamics that militate doing things well sometimes, badly sometimes. Moreover, the groups are made up of individuals, and all individuals are not created equal in their charisma, their courage, their complacency, their decisiveness, their passiveness, etc. I’m not inclined to think that complex regimens of rules would improve the decision-making of corporate management and boards. A tinker here, and a tweak there, sure. But as I have said here, what really makes the world go ’round is too complex to capture in a one-size-fits-all rule. (That feeling is particularly acute when you consider how different kinds of organizations govern themselves. I’ve participated in the governance of a public corporation, a major religious institution, a leading private school, a community organization or two, and now a faculty. Nothing says a business can’t be a democracy, just like nothing says a law school class can’t be a democracy. The model just doesn’t work very well compared even to more or less enlightened schools of thought on leadership, management, or pedagogy.)
What prompted this reflection was my receipt of the 2007 Spencer Stuart Board Index, a database on the governance practice of the Standard & Poors 500 companies, which includes details on board size, compensation, retirement age, independence, gender, composition, process, organization and many other aspects of corporate governance. Here are some interesting highlights:
1. Active CEOs constituted 53% of all new independent directors in 2000, and 41% in 2002. In 2007, the figure was down to 33%. The report contains a discussion whether that is a favorable or unfavorable trend.
2. The number of new independent board members who are at the next level down from the CEO (i.e. leaders of major divisions and functions) is up from 7% in 2002 to 21% in 2007. I know that we had at least one director who was a CEO heir apparent at another company; his own company encouraged it as a learning experience, and he was one of our best and most insightful directors.
3. Even though only 16% of all S&P 500 directors are women (up from 12% in 2002), there are women on 91% of all S&P 500 boards.
What is particularly interesting about this report is the breadth of opinion it reflects. It contains interviews not only with Ira Millstein, a long-time Weil Gotshal partner and corporate governance guru, and David Swinford, the CEO of Pearl Meyer & Partners, probably the leading executive compensation consultant in the U.S., but also Nell Minow, one of the original founders of Institutional Shareholder Services, and the founder of The Corporate Library.
The best thing about the material is that it takes one beyond prescription by the pathological – the idea that the regulatory schemes around public company governance should be shaped by, rather than responsive to, Enron and the other usual suspects of companies behaving badly.
December 2, 2007 at 12:09 pm
Posted in: Corporate Law
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Taking a Bit of My Own Advice About Failing Well
posted by Jeffrey Lipshaw
I happened to see two quotes yesterday that seemed apropos to the subject of success and failure, which has caught my attention over the last couple days. The first comes from Winston Churchill: “I am always ready to learn although I do not always like being taught.” The second is attributed to Henry James: “No man like to have his intelligence or good faith questioned, especially if he has doubts about it himself.”
It’s appointments season, so considerations of success and failure smack you in the face whether you like it or not. If my reaction is at all typical, you have to wonder, in the abundance of talent seeking jobs in the legal academy, how you yourself ever got hired. (Well, I am sure there are a few people out there who don’t have to wonder.) In the midst of a hiring season induced bout of impostor syndrome, I received a rejection e-mail from a peer-reviewed journal on a piece I had submitted six months ago. It’s pretty clear it was rejected at the editor level, not after being sent out for review (my experience from having had rejected a book manuscript that richly deserved to be rejected is that if the latter, you see the reviews). So I am here thinking out loud about taking my own advice, liberally offered to others, about failing well.
1. It’s not bad to fail ambitiously. I was attempting a difficult placement, and it was something of a flier when I started it. With six months reflection, I see my own weaknesses better (too many thoughts crammed into too little space; not enough accommodation to the concrete versus the abstract, hesitation about my own voice, etc., etc.).
2. Like Winston Churchill, I don’t mind learning, but I don’t always like being taught. What I think is more accurate in my case is that I don’t mind learning, I don’t even mind being taught (by a kind teacher), but I really don’t relish the prospect of being taught or criticized, which is always far worse in the anticipation than in the doing. And that, I think, is because of a slight variation on Henry James’ offering, which is that we Type-A, hyper-competitive, perfectionist, impostor-syndrome-affected sorts don’t like to anticipate our intelligence being questioned (which it rarely is!), especially when we have doubts about it ourselves.
3. It’s probably a bit of jargon, but in my prior life I always liked the idea of a learning organization as corporate model. It’s really, really tough to do, because it’s idealistic and aspirational, and the realities always come back to undermine it. Nevertheless, it’s a powerful enough concept that GE installed Steve Kerr as its Chief Learning Officer a number of years ago (he since moved on to Goldman Sachs doing the same thing). Learning in this context is more than being educated. This is from Peter Senge’s The Fifth Discipline, which attracted quite a following. The idea is “personal mastery,” the kind of self-view we’d expect both from leaders and those led in a learning organization:
People with a high level of personal mastery live in a continual learning mode. They never ‘arrive’. Sometimes, language, such as the term ‘personal mastery’ creates a misleading sense of definiteness, of black and white. But personal mastery is not something you possess. It is a process. It is a lifelong discipline. People with a high level of personal mastery are acutely aware of their ignorance, their incompetence, their growth areas. And they are deeply self-confident. Paradoxical? Only for those who do not see the ‘journey is the reward’.
The great irony here, of course, is that schools are not necessarily learning organizations, particularly for faculty, but that’s a subject for another time and another place. Suffice it to say that in a learning organization we would talk about the relationship between failing ambitiously and succeeding cautiously.
December 1, 2007 at 12:25 pm
Posted in: Education
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Corporate Governance, the Rule of Law, and Glimpses of the Infinite
posted by Jeffrey Lipshaw
Non-sequitur alert. Try to figure what the next two segments have to do with each other. I will get back to you about it below the fold.
* * *
The other day I posted what at the time I thought was a grumpy comment to a post by Jennifer O’Hare of Villanova over at Conglomerate. The gist of her post was whether the failure of a corporation to have a “succession plan” for the CEO position could be laid at the doorstep of the board of directors in the form of liability for breach of fiduciary duty – I suppose either the duty of care or the duty of loyalty in the sense of the more recent Delaware decisions. The genesis for Professor O’Hare’s post was a report in the Wall Street Journal that only 50% of public and private corporations had “succession plans.” I remind my students from time to time that I’m an ex-corporate shill, and to take any view I profess with that in mind, so readers here are advised similarly.
* * *
I seem to have gotten fixated over the last few weeks on the words “Justice” and “Rule of Law.” This all started back in July at the Law & Society Association annual meeting in Berlin, first at an “Author Meets Readers” session about Brian Tamanaha‘s Law as a Means to an End, and later at a roundtable on which I was honored to participate about the New Formalism. Larry Solum organized both sessions, so it’s appropriate to hearken back to my paraphrase at the time of his words capsuling the issue: “We grapple with an antinomy between a sense of permanence or immanence or determinacy in the legal rules by which our social relationships are regulated or constituted, on one hand, and our manipulation of those rules to achieve individual purposes on the other – in a word, instrumentalism.” Or to put it in the context of the sociology of Niklas Luhmann (about which there was a concurrent series of sessions going on): it’s only within the legal system that the participants operate under the delusion there is Justice or Rule of Law. From the outside looking in, the paradox is obvious: we want to believe there is either a transcendent or immanent, but more importantly, objective right answer, even while we argue from subjective and instrumental positions. The only way the legal system works is with a kind of doublethink; believing in this dialectic that objective truth can somehow arise out of the clash of instrumental interests (to which, of course, Brian Tamanaha objected).
We are, like everyone else, in the faculty appointment job talk part of the year, and I have now heard the idea of Justice and Rule of Law discussed several times in different contexts. One set of job talks had to do with the idea of juvenile justice. Juvenile lawyers (and in our case, juvenile legal clinicians) have to deal with two competing concerns, the best interest of the child, and the obligation of zealous representation in delinquency trials. To put it more plainly, confession may be good for the soul, for healthy development, and for the making of good citizens, but it’s bad for the juvenile defendant and his lawyer.
The idea surfaced again in a job talk about school desegregation, and the fact that Brown v. Board of Education (Brown I) was cited in support of three different positions in the recent Supreme Court case on school desegregation (i.e. colorblindness, integrationist, and a hybrid view). The candidate had an interesting thesis: that Brown has a colloquial or popular meaning apart from its technical legal holding. I like that idea, but it seems to me all it is saying is that Brown has become a shorthand reference for “Justice” or the “Rule of Law” in the context of racial equality. So it’s no more surprising that everybody cites Brown than than everyone insists, in an instrumental way, that its view is the one consistent with justice or the Rule of Law.
* * *
Well, I have some street cred on the subject of corporate governance, and almost none on juvenile justice or school desegregation, but I am still fixated on these paradoxes in the ideas of Justice and the Rule of Law. So below the fold, I’m going to ramble a bit about corporate governance, the paradoxes of the Rule of Law, and glimpses of the Infinite.
November 30, 2007 at 11:34 am
Posted in: Corporate Law, Legal Theory, Sociology of Law
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Models and Games
posted by Jeffrey Lipshaw
This seems like an auspicious occasion to announce that, following in the Larry Solum model of developing a paper from blog post to short idea piece to full-blown article, I’ve posted on SSRN the complete version of what was known in a prior iteration as “Aboutness, Thingness. . . .” The last thing to go was the old title, and the second to last were the first several paragraphs of the old introduction, I suppose because the words are like children, these particular words had been around since I first put fingers to keyboard, and, if truth be known, I thought they were really clever. But these are all aspects either of self-deception or unwillingness to make choices, and who of all people inspired me but Katie Holmes (or at least her character in Wonder Boys, Hannah Green) who observed to Michael Douglas (as Grady Tripp) that writing was about making choices and he had made none in the manuscript of his second novel.
The gist of the piece, if I were to put it blog-colloquially, is how some modes of making sense of cause-and-effect, particularly in the realm of human behavior, just plain miss the boat. In natural science, an example would be trying to explain dog behavior and conditioning at the level of physiology. That level of explanation might suffice for a physiologist who is interested in measuring muscle contractions at feeding time, but it doesn’t tell the microbiologist much, nor does it do much to explain at the level of operant conditioning. In the social sciences, the distinction would be (courtesy of historian Thomas Haskell), the difference between explanatory cause and attributive cause. If you ask the thug why he beat the old man, an answer that involves neural pathways and muscular contractions may explain cause and effect at one level, but it doesn’t make sense in the same way this answer does: “because I wanted his wallet full of money.”
The part of the piece with which I had the most fun was where I applied the foregoing to the 2003 Yale Law Journal article by Alan Schwartz and Bob Scott on contract interpretation. In a nutshell (but you will have to read the piece to see why), my claim was that their mode of explanation simply missed the boat in the same explanatory versus attributive way.
The article is Models and Games: The Difference Between Explanation and Understanding for Lawyers and Ethicists. The abstract follows the fold.
November 29, 2007 at 10:30 am
Posted in: Contract Law & Beyond, Economic Analysis of Law, Legal Theory, Philosophy of Social Science
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