Author: Lawrence Cunningham

5

Contorts Anyone?

Grant Gilmore D of C for Blog.jpgLast year, I had the pleasure of teaching Contracts alongside a colleague, Jonathan Turley, teaching Torts, who inspired ways that enabled both of us to play the courses off each other. For example, we compared how the two approach remedies and the nature of the underlying obligations implicated. We even had some fun, in our respective classes with the same group of students, probing whether Contracts or Torts was more coherent, successful or even enjoyable.

With the new semester weeks away and my preparation for teaching Contracts in full swing, I’ve been considering the Contracts-Torts interface again. Doing so seems invariably to recall the notion of Contorts. Grant Gilmore coined the term to designate a field of civil obligation that merged Contracts with Torts, famously quipping that “Contracts is dead.” Everyone knows that Contracts is not dead—and neither is Torts—but whatever happened to Gilmore’s general law of civil obligation, Contorts? Is there a definable subject there? Does anyone teach it?

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2

SEC on the “Performance” of Standards

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Is it useful to ask which performs better, the metric system or the imperial system of measurement? Are meters better than miles? Does one system offer more refined tools to achieve precise results? How useful is it to ask, which performs better, German or Russian? Must it depend on purpose, such as for philosophy or literature? The SEC proposes to ask a version of such comparative performance questions about international accounting versus US accounting at a hastily-called roundtable next Monday.

The SEC’s purpose in holding the roundtable is vague, with its Chairman, Chris Cox, saying it is intended to give the SEC “valuable insights” about how international versus US accounting “performed” amid current market “turmoil” and “pressures.” The roundtable occurs during intense, ongoing debate within the US about whether and on what terms the US should switch from US accounting to international accounting. Chairman Cox and the SEC make it very clear that they favor moving to international standards as rapidly as possible, while investors and others have expressed strong concern about this.

The calling of this roundtable and this framing of the discussion are therefore both interesting and important. Accounting standards are not usually evaluated in terms of their “performance.” They are certainly not evaluated with reference to a particular market environment, such as one in turmoil or under pressure. Accounting standards usually are evaluated in terms of some ultimate purpose, chiefly whether they are reasonably calculated faithfully to capture and fairly report on underlying economic activity. In the US, moreover, that assessment is made according to how useful resulting applications are to investor decision-making.

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1

Hamlet at the SEC

Many are waiting to hear from the SEC about its current views on its much ballyhooed but inchoate flirtations to have US companies use international financial reporting standards (IFRS) and let non-US organizations use US markets without local registration if they are supervised by comparable regimes at home (mutual recognition). Earlier, in speeches, press releases and at roundtables, SEC official talk told us that we’d have formal delineation on these initiatives this summer. Action still may come, but there appears little doubt that efforts are delayed, talk is ahead of action and momentum is far ahead of concrete formulations.

Delay may reflect SEC realization that these initiatives are more difficult in practice than officials would like to believe. Or delay may reflect how the SEC is sidetracked by the credit turmoil, criticism of its oversight effectiveness, and Treasury Department proposals that would substantially reduce the agency’s regulatory role in the future. Either way, investors may benefit from the delay, for SEC statements to date on these subjects suggest approaches that subordinate investor interests in favor of interests of brokers, exchanges and issuers.

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13

The 3-Year JD-MBA

Northwestern University generated extensive discussion recently after announcing a program to let students complete legal studies in 2 years instead of 3, also done at University of Dayton. Less discussed, Northwestern has for a decade offered an alternative that lets students get both the JD and MBA in 3 years instead of the usual 4 or 5. Although analysis applicable to the speedy JD may likewise apply to the speedy dual degree, there may be some differences warranting a separate look.

We considered adapting the fast track dual degree, also done at St. Thomas University, when I was Academic Dean at Boston College . A modicum of reverse engineering was required to connect Northwestern’s bulletin description to the driving regulatory requirements. And special tailoring for specific attributes of BC was necessary. In the end, the BC faculty opted to forego the step. Yet it may work well for some schools in some locations and be of interest to many more students than Northwestern or St. Thomas can accommodate.

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3

Panic or Crisis?

Is Senator Phil Gramm right that economic turmoil is all in our heads, a sort of panic, or are there real problems, suggesting instead a crisis? More generally, how should the current US economic situation be described?

Some descriptive financial terms have fairly settled definitions, although exact classifications can remain contestable. For example, a recession, formally two successive quarters of negative growth, is rarely recognized until an economy is in one. At present, economists are split on whether the US economy is in or near one. A bear market, formally a 20% decline in general equity market prices, is easier to measure, and under that measure, US stock markets are in bear territory (indeed, price levels are not much higher than they were a decade ago).

The terms panic and crisis seem less susceptible to formal definition. Financial panic generally signals an irrational response to perceived economic conditions while crisis, which can include the results of panic, tends to connote a more substantive condition in which structural, cyclical or other forces pose actual acute financial adversity.

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5

The Coming Regulatory Revolution

As participants in the banking, futures, securities and insurance industries know, traditional US administrative procedure is cumbersome, time-consuming, requires public notice and comment, and often results in complex, detailed, mandatory rules. Federalism often adds multiple state layers to any federal regulation. Critics of contemporary US regulation, especially in these industries, who lament complexity, rules, mandates, and anti-competitive effects, will welcome a revolutionary new approach that is simple, uses principles, makes compliance optional, and has built-in competitive edges.

In the new approach, Congress preempts all state laws and consolidates all power in a senior regulator in Washington. That regulator, in turn, delegates all its functions to self-regulatory organizations from the respective supervised industries. These, in turn, adopt their own regulations, self-certify them for speedy adoption, with limited public notice or comment, and use broad vague statements rather than detailed rules.

This approach, the philosophical heart of the US Treasury Department’s March 2008 blueprint for changing US financial regulation, is procedurally revolutionary and would no doubt revolutionize the substance of the law in these fields.

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4

Roars on Auditor Liability

Amid revolutionary proposals to renovate US financial regulation, auditing firms continue to push for caps on their liability for bothced audits. In a report to the Treasury Department’s Committee on the Auditing Profession, the profession’s lobbying affiliate, Center for Audit Quality, collates pending cases against large firms to dramatize their campaign.US treasury_department_4.jpg

They report 90 pending cases asserting aggregate damages exceeding $140 billion, with a third of the cases seeking more than $1 billion apiece and 7 alleging more than $10 billion. The firms say these claims, altogether, support their view that their liability exposure is unfair to them and dangerous for the financial system. The only solution, they urge, is having Congress set statutory dollar caps on claims against them, along with exclusive federal jurisdiction over these cases using a light standard of liability, scienter instead of negligence.

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9

Law Professor Duties

How do law professors spend their time? Duties are traditionally divided into categories of teaching, scholarship and service (consulting is outside the traditional division). How investment is allocated among the three varies.

Teaching Hours Burden Post.jpgIt could be difficult to generate reliable information about varying allocation by individuals, but it may be possible to identify implicit allocations across schools. The American Bar Association reports annual teaching loads of all ABA approved law schools. A table (after the jump) reports for the most recent academic year available to me (2004-05). The average that year for all law schools with FTEs between 700 and 1000 is 10.2 credit hours.

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2

Cardozo and Posner on Contracts and Torts

Several recent inquiries (for example, here and here) investigate aspects of judicial decision making, including empirical studies of influence, reputation and productivity.

Posner picture.jpgA decade ago, I wrote an article inquiring into the comparative contributions to Contract law of Judges Cardozo and Posner. This was inspired by the former’s dominance of Contracts casebooks and the latter’s ascendency. Ranking judges by the frequency with which their opinions were reproduced in Contracts casebooks, Cardozo was firmly number one, followed by Traynor, with Posner a close third, beating out Hand, Holmes, Swan, Peters and other luminaries.

This affirmed Judge Posner’s enormous influence. It also suggested a small bit of formal evidence of a shift from legal analysis characterized by thickly textured doctrinalism to one consciously focused on instrumental and pragmatic method (although Cardozo showed hints of a proto-pragmatist). Notably, Cardozo’s and Posner’s reproduction frequency shared a couple of similarities. Each had an aggregate of 13 opinions reproduced in the casebooks and 6 of each of these had appeared in just 1 casebook apiece. On the other hand, Cardozo had 2 opinions that were clearly canonical, being reproduced in nearly every casebook, while Posner’s most frequently reproduced opinion appeared in only 2/3 of the books.

This summer, I’m beginning a like inquiry on comparative judicial contributions to Torts. Some similarities and some differences from the Contracts study appear in the preliminary data (being ably developed by my research assistants, Matt Albanese, Dana Parsons and Paul Stepnowsky).

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