Author: Jeffrey Lipshaw

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“In the Company of Scholars”

Our intrepid library director, Professor Betsy McKenzie, set a note to our faculty a few days ago, and it included a reference to the above-titled book, a personal reflection by Professor Julius Getman of the University of Texas Law School on the status of higher education. I had heard about the book before, and meant to get to it, because my first encounter with a law school class was Jack Getman teaching our small section of Contracts at Stanford in September, 1976.

I recommend the book heartily. Indeed, I read the following passage on the T home last night, and it expressed exactly how I had been feeling in the midst of a peroration on agency and partnership only an hour or so before: “Bruce Mann, who now teaches at the University of Pennsylvania, told me that in his first year, ‘I was constantly afraid that someone would come into the classroom and arrest me for impersonating a law professor.’”

This also struck close to home (and I mean me, not anybody else, even if I’m not young):

… I realized that many students and young faculty members behave in self-defeating ways. . . . They do not believe that they have anything of value to contribute to a high-level academic debate. Often this feeling prevents people from publishing or teaching effectively and sometimes it makes them pedantic, overly abstract, or unnecessarily elegant in the presentation of their ideas. Sometimes I think that the great majority of young academics fall into two categories: the unnecessarily diffident and the infuriatingly arrogant. In more reflective moments, I realize that the two categories are essentially one. Underneath the arrogance so common among young academics, there is generally fear of being exposed as an intellectual charlatan. The feeling is almost universal. The fear reflects, among other things, that deep down almost all of us are aware of how little we know about the subjects we teach. One of the ablest law professors I have ever known, Charles Black of the Yale Law School, told me that whenever he finishes a well-received class, he usually feels one thing: “Well, I fooled them again.”

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The Paradox of Learning and Leadership – A Comment on Brian Leiter’s Question

On New Hampshire voting day, Brian Leiter has asked what law professors make of the Democratic nomination process. I started to comment over there and realized it was turning into an entire blog post.

Disclosure: I just came back from the Obama office in Somerville, MA where I was making phone calls to undecided voters in New Hampshire. I have not done this in many years (I think the last time was when Morris Udall was running in a Michigan presidential primary, so that should date it) and I realized I hated making phone calls (i.e. being phone SPAM) now as much as I hated it then. Bleccch!

Here’s my take. I’ve never been in government, but I’ve been at or near the top in large organizations in times of stress when huge decisions (although not of life) have to be made, usually under pressure of time, with unclear impact of the alternative choices, with multiple inputs and viewpoints, and highly imperfect information. Indeed, to use a metaphor, pulling the trigger and not quite knowing where the bullet will ricochet is one of the hardest things for a leader to do. Ultimately, I think, apart from the issues, our decision has a lot to do with how much we trust the leader at that moment of decision. Some people can’t decide, some people don’t want to decide, some people just consistently make bad decisions, and some people make bad judgments (to cite a lawyer’s example, I’ve written about Bernard Nussbaum’s flawed advice to the Clintons – to stonewall the discovery of documents in Travelgate as though it were hardball litigation and not a political and PR issue).

The problem with arms’-length assessment is that great leadership walks a fine line between the ability to learn and the ability to decide. President Bush (“I am the decider”) may well exhibit the latter trait; nobody will ever confuse him with a learner. Brian Leiter suggests that some of the Obama surge may be relief that there is a viable candidate other than Hillary Clinton, and there may be something to that. Frankly, my worry about her is that she may be a better learner than Bush, and probably would be a good decider, but she’s not that good a learner. I have now read two-thirds of Obama’s The Audacity of Hope and, while his mettle as a decider is wholly untested, it’s not a close question whether he’s the best learner of the bunch. By that I mean he demonstrates a willingness to understand, even if he does not ultimately buy, the positions of his opponents. And, I think, that is what is coming across now as the wave of change. It’s a pipe dream to think anybody is going to “unify” the country – that’s a slogan. But I think he does offer a hope of respectful discourse by doing what a leader ought to do, which is to engage in respectful discourse. And that only comes naturally if you are a learner to start.

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The Law and Economics of the Secondary Market in Structured Settlements

I saw a television ad while working out a bit ago in the fitness room at the New York Hilton, and it must be the influence of all the legal scholars around me, but even though I’ve seen it a zillion times, it now struck me as something that ought to be somebody’s research topic.

The ad is for J.G. Wentworth, which buys structured settlements. There’s a pitchman who ought to be every law firm’s managing partner (gray hair, jut jaw, gravelly voice) and the tag line “It’s Your Money; Use It When You Want It.” Structured settlements are appealing to insurance companies and tort defendants because of the gap between the absolute value of the settlement to the recipient and the present value to the payor. It’s effective to close out a negotiation where, say, the plaintiff is at $800,000 and the defendant is at $500,000 by structuring a settlement that is closer to $800,000 in total dollars paid over the life of the settlement but closer to $500,000 in present value.

Let’s take my hypothetical numbers as an example. The plaintiff gives up $300,000 in present value to get a settlement. I suspect there is risk averseness at play there in two respects – the certainty of settlement versus trial, and the greater value of the current money to the later money. I don’t know how much of the discount is due to litigation risk and how much is time value of money, but there’s no doubt some of each.

So the plaintiff gets the structured settlement, decides she needs the money now, and goes to J.G. Wentworth, which factors it for her. That means J.G. Wentworth is going to take an additional [?] discount [?] to give the plaintiff a lump sum now and collect in the plaintiff’s name over the balance of the structured settlement. This is speculation, but I suspect plaintiff now collects less than the $500,000 the defendant/insurer was willing to pay in present value originally. Would Wentworth’s discount rate, if you applied it to the original $800,000, tell us how much of the $300,000 haircut was due to litigation risk and how much due to time value? I don’t know and I’m quickly getting in over my head here.

I’d be the last person in the world (perhaps) to suggest that there ought to be a governmentally imposed restriction on the right of anybody to sell a financial instrument. I’d also be skeptical of attempts to regulate the practice by cognitive means like disclosures and warnings. But this strikes me a weird market, and if an SSRN key word search and a Westlaw search of the form [(structured /2 settlement) /p (secondary /2 market)] are any indication, nobody has written on it.

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What Was Old is New – Narrative and Social Science in Law, History, and . . . Mergers and Acquisitions?

Dave Hoffman’s very interesting post below on the future of corporate law scholarship – as to which I posted a comment about “narrative” – got me to thinking about the reality of what goes on in a very complex corporate life, and academic attempts to distill that reality into meaningful scholarship. What follows incorporates some thoughts and text from a blog post I put up on Legal Profession Blog several months ago.

First, a disclaimer. I’m still sorting my way through the concept of narrative (see Cover’s seminal Nomos and Narrative), and I have been bugging my office next door neighbor, Jessica Silbey, about it as well. Narrative, as I understand it, at least in the context of legal studies, works from the viewpoint of the participants in (of victims of) the legal process. It stands as a contrast to third-party theorization, and has been a central feature of critical studies, because it gives voice to those historically under-represented – minorities, the poor, the uneducated, etc. But narrative is not exclusively the province of critical legal studies. Jessica’s most recent piece, The Mythical Beginnings of Intellectual Property Law (George Mason Law Review) uses narrative as an alternative approach to intellectual property law. Jessica’s ambitious thesis is that utilitarian (read: economic) theories of intellectual property law do not fully account for its importance. She posits a narrative significance to creativity, supported by intellectual property rights, as a form of the “origin myths” or “origin stories” (I think of Horatio Alger, or George Washington and the cherry tree, or Abraham smashing the idols) that serve as models for human behavior and give meaning to our lives.

Second, a context. Yesterday, the New York Times picked up again on the Cerberus-URI decision, linking it to speculation that targets in acquisitions will seek stronger contractual protection against deals falling through because of diminished force of reputational impact on an acquiror who backs out. What struck me again, as it did when I commented originally, was how hard it is for a participant in a deal negotiation that stretches over several weeks or months to reconstruct all of the ebbs, flows, ups, downs, inserts, deletions, morphs, retrenchments, amendments, flare-ups, deal-breakers, and compromises that invariably occur. It was no surprise to me that the lawyer for URI, on cross-examination, threw up his arms and testified that “anything is possible.”

So the question to me is the relationship between the kind of scholarly theorization Dave catalogued and the relevance (or impact) of that theorization to (or on) the corporate actors. I still recall the graduate student instructor (my long time friend and current University of Houston history and social work professor Andy Achenbaum) in the first session of the small section of my first U.S. history course describing the paper requirements, and telling us that we should think of them as “legal briefs.” As I had no idea what a good history paper nor a good legal brief looked like, it was not, at the time, particularly helpful advice. But I know now that all scholarship, implicitly or explicitly, makes an argument linking data through some structure or process of theorization.

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Attention Law Review Editors

I had a delightful hour yesterday afternoon here at the AALS with one of the proprietors of this blog who suggested I use the space to pitch a piece for publication, and, well, why not? So if you are not a law review editor, feel free to skip the rest of this post. Indeed, PLEASE skip the rest of this post because the combination of shameless and humiliating huckstering, self-aggrandizement, and groveling is likely to make you lose your lunch.

Here’s the deal. Over the summer, I posted a 9,000 word essay on SSRN entitled “Memo to Lawyers: How Not to Retire and Teach,” providing observations and advice to the long-time (or not so long-time) practitioner who might be contemplating a move to the academy (the first piece of advice being never to utter the disqualifying words: “I’d like to retire and teach.”) Based on feedback from colleagues, I feel confident in saying it is one of the resources, for better or worse, along with Brad Wendel’s classic “The Big Rock Candy Mountain: How to Get a Job in Law Teaching,” to which aspiring legal academics turn.

As of yesterday, it had been downloaded well over 1,300 times, making it the number 8 all-time paper in the Legal Education journal. At one point over the summer, it was number 4 in all of SSRN. I regularly get e-mail notes from academics (including several law school deans, one of whom told me how much he/she enjoyed it but hoped I was also doing serious work) and practitioners about the essay.

I’ll pass on trying to explain (because I don’t understand the rationale) why it was deemed not eligible for submission to the one really natural specialty journal. I will note that I submitted it broadly to general law reviews via ExpressO in the August submission season, and completely struck out. (This was not up there with the – deservedly – pitiless trashing of a book manuscript I foolishly and prematurely submitted to a major university press – see blog posts to come on learning to fail well – but it was not a highlight of my life either.) I’ve now had several questions here at the AALS meeting (including from my virtual host) about where I placed it, and my sheepish reply is that I did not. I will also pass on the rest of the rationalizing about why, and simply say that the article is still on the market for a law review that would like a gift that keeps on giving (in reprints perhaps if not in citations).

Any law review editor looking to fill out a volume with something that people actually read and spare me any more sheepish responses ought to drop me a note at jlipshaw-at-suffolk.edu.

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Check Availability for 2008

Happy New Year! The New York Times is off to a good start, featuring Timur Kuran and Cass Sunstein explaining on New Year’s Day how most of what we will react to in the coming year will be the effect of an availability cascade, sort of the availability heuristic on steroids. The availability heuristic, identified by Tversky and Kahnemann, is the cognitive phenomenon by which people base their estimate of the frequency or likelihood of an event occurring by how easily it is brought to mind.

The focus was on global warming alarms, and in that arena, according to the article, the brokers of the cascade will be the “what social scientists call availability entrepreneurs: the activists, journalists and publicity-savvy scientists who selectively monitor the globe looking for newsworthy evidence of a new form of sinfulness, burning fossil fuels.” The point is that even if greenhouse gases are warming the earth, and even if it that warming is dangerous (concede both for the sake of what follows), most of what gets cited as an effect of global warming is not evidence of global warming. For example, while some ice in the poles is melting, at other spots, it is at record thickness. Again, this is not to minimize global warming; it is to take stock of what is and what is not evidence of a trend.

My particular peeve in the availability cascade is the corporate governance “crisis.” I will be doing my best to assess whether I’m matching the correct evidence to the correct conclusion, and I wish the same to everybody else for the New Year. In the meantime, I’m stocking the cellar with canned food and bottled water in honor of the 100th anniversary (on June 30) of the Tunguska event.

See you at AALS.

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An Ethics Puzzle

My friend and Suffolk colleague Andy Perlman has a neat little question in ethics and morals over at Legal Ethics Forum. I recommend it heartily. (Personally, I think this is an easy application of the Categorical Imperative, but decide for yourself!) But while you are over there, ignore the crass pandering for votes, and if by some chance you do click through to the ballot for best blog in the “Lawyers Behaving Badly” category, think about how much your support would mean to my Legal Profession Blog colleagues, Alan Childress and Mike Frisch.

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Da Plane, Da Plane

I’m sitting at home, recovering from minor surgery this morning (Q: What is minor surgery? A: Surgery on somebody else) and reflecting on Dave Hoffman’s eminently sensible post about the executive jet. Like most things, the use of corporate aircraft is far more nuanced than people with agendas make it out to be; nevertheless, access to the company plane, even for company business, probably got its status as Target Number One for populist demagoguery the old fashioned way: it earned it.

You may want to pull out your air violin on this, but first, there are private jets and there are private jets. If you are flying in a Gulfstream V or a Falcon 900, you are pretty comfortable. If you are flying in a Citation V with all the seats occupied, you are not, particularly if you need to use a bathroom. Add to that the far greater effect of weather and turbulence on a small airplane plus the fact that in crowded airspace big airliners are given first priority for the smooth air, and you can have a pretty wild time. My worst flying memory was all of that packed into a landing in Teterboro, New Jersey where we circled and circled through head-jarring turbulence, all the time listening to the TCAS up front squawking “traffic, traffic, traffic.” A three Xanax flight.

Second, many companies use private aircraft because it is far more efficient than commercial. Our headquarters was in Indianapolis and our largest facility was in El Dorado, Arkansas. With the Citation V, anybody (not just the CEO) could get there and back in two hours; flying commercial meant you committed three days (change planes in Memphis or St. Louis to Little Rock, then drive 2-3 hours).

What makes the company plane an attractive populist target, even if you can compensate the executive in lieu of the jet and the compensation is fully disclosed, is that ordinary people simply cannot get this kind of compensation. Flying privately is a perk that almost defines the executive class – it is largely unavailable to most people and it IS easier, less time consuming, and spares one almost all of the indignities of modern air travel. Even when the company plane is generally available for all legitimate business purposes in the company (and most are), the CEO usually has first call on it. (I can’t remember where I saw it, but I didn’t make this up – you also have the GE style Thomas a Becket problem. The joke was that if Jack Welch asked for a cup of coffee, somebody at GE ended up buying Brazil. That is to say, even if the CEO wanted to give up the plane for a more efficient use, it wouldn’t be uncommon for his or her minions – personal assistant, traffic coordinator, whatever – to insulate the CEO from the competing request because that’s what the minion thought the CEO wanted the minion to do.) I spent eleven years at a senior level in two big companies, both of which had dedicated Citations, and I don’t remember the CEOs of either (one divisional and one of the corporation) ever flying commercial within the lower 48 states. So while we “C levels” got to use the company plane a lot, we still had the occasional commercial flight to experience how the other half lived.

And that’s apart from the provision in the CEO’s employment contract – never anybody else’s – that says you get X hours of personal use of the aircraft, with the hourly cost added to your taxable income, and that compensation grossed up.

In short, the political bang is not in the cost, but the exclusivity.

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Caught Between the Infinite Regress of Rational Choice and Psychological Determinism

I neglected to mention, in my original commentary on the Cerberus opinion, that I am indebted to Frank Pasquale (the real one!) for directing me to Paradoxes and Inconsistencies in the Law, edited by Oren Perez and Gunther Teubner. I’m now doubly indebted to Frank because he pointed out another blog post that makes for an interesting counterpoint about practical reason – how we decide (particularly as lawyers) what to do.

In his introductory essay to Paradoxes, Oren Perez (Bar-Ilan) makes a point about rational calculation, in the context of the Learned Hand formula for negligence, that had never occurred to me, and which seems to make sense. (I invite anyone to explain why it is wrong!) This has broad application because it gets at the heart of the core relationship between the ex post outcome of cases (like Cerberus’ “lessons” on eliminating ambiguities in drafting) and the ex ante calculation in respect of that outcome that lawyers (those most rational of actors) are supposed to make.

Perez’s argument goes like this. The potential tortfeasor, informed by the case holdings, knows that she will be liable for the injury she causes if the cost of precaution is less than the probability of an accident times the magnitude of the accident. For the model to work, it has to assume that potential tortfeasors and judges are perfect welfare maximizers with perfect information. But information and deliberation are not costless. So maximizing actors need to make a decision about whether to invest costs in obtaining the necessary information and spending the time deliberating about the choice. That decision is itself not costless; one needs to gather information about whether gathering information and deliberating is a fruitful way to spend one’s maximizing time. And so on to the infinite regress.

This appeals to my intuition in the same way as, and seems to be related to, at least analogically, the idea that rules cannot determine their own correct application. (If there were a rule for the application of a rule, then what would the rule be for the application of the rule for the application of a rule, and so on to the infinite regress.)

Perez’s conclusion is that this is why we have rules of thumb for deciding what to do – they sit somewhere between unsatisfying calculation and pure intuition.

But wait. Maybe we don’t calculate or intuit. Maybe we just frame, conform, and comply. That’s a thesis proposed by Sung Hui Kim (Southwestern) over at The Situationist, a law and psychology blog affiliated with the Project on Law and Mind Sciences at Harvard Law School. In Part II of a series speculating on why lawyers acquiesce in the frauds of their clients, Professor Kim says:

Inside counsel, as employees of the firm, are inclined to take orders and accept the “definition of the situation” (a phrase coined by Milgram) from their superiors. These superiors happen to be a cohort of non-lawyer senior managers vested with the authority to speak on behalf of the organization and entrusted to give direction to inside counsel. They create the reality for inside counsel: they define objectives, identify specific responsibilities for inside lawyers and, ultimately, determine whether an inside lawyer’s performance is acceptable.

And accepting management’s “definition of the situation” means accepting management’s framing of the inside lawyer’s role and responsibilities. This framing provides that compliance responsibilities be segmented. Although inside counsel’s duties include a prominent role in corporate compliance, it is business management that jealously guards the right to decide whether to comply with the law, which is seen as the ultimate risk management decision. For inside counsel to challenge management’s decisions or management’s authority to make decisions would then amount to clear insubordination.

Obedience in the corporate context will be substantial, so we should not be surprised by the banal tendency to listen to superiors.

Full disclosure. I spent eleven years of my career as an in-house lawyer, so it’s entirely possible that I resemble that remark. (Professor Kim can also call on real-world experience as outside and inside lawyer, and in fairness, her very thoughtful and interesting Fordham Law Review article on the subject, which I recommend heartily, is more nuanced than the blog post.) But I’d be a lot more comfortable accepting this sweeping conclusion were it made on broad empirical evidence of actual in-house lawyer conduct rather than on what appears to be a combination of inference from the Milgram conformity lab tests and well-known examples of lawyers behaving badly. I knew a lot of in-house lawyers, and while I can’t say how they would have performed in the electric shock tests, and can’t deny the impact of framing on decision-making, I sure saw a lot of thoughtful and courageous pushback to management on lots of legal and moral issues. Indeed, my casual observations were that individual moral choice and leadership in context, while certainly more elusive in its measurement, showed up more than just from time to time. I can’t determine whether that was the exception or the rule. Indeed, I applaud the coda to Professor Kim’s bio: “I tell my students that there are two questions that every lawyer should ask when counseling a client about a proposed course of action. The first is: ‘Is it legal?’ The second is: ‘Is it right?’”

But how do you make that call? I struggle with the line between psychological “truths” and moral free agency. I am willing to accept the conclusion that we are hardwired to seek and justify physical and material well-being, and hence, a natural inclination for people, not just lawyers, is to comply and avoid conflict. I don’t like, however, blanket statements about in-house lawyers doing this and that, and having this and that tendency. If I may engage in another exercise of shameless self-promotion, the point of my piece, Law as Rationalization: Getting Beyond Reason to Business Ethics, was to explore the difference between lawyers using reason to justify a desired material world outcome, and lawyers using reason as autonomous moral agents trying to discern ethical obligation.

The implication is that I don’t think you can change things by incentives (more cheese for the rats). My answer is there has to be personal engagement in a continuing struggle to ask questions with the hope of getting answers along the way. To borrow from Robert Louis Stephenson, sometimes it is better to travel hopefully than to arrive.

(Cross-posted at Legal Profession Blog.)