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Guest Post: Jonathan Lipson on the Mess in Detroit

Lipson_WebPhotoSorry to interrupt the symposium, but this is in the way of a breaking law-news update.  I asked Jonathan Lipson (Temple), a former guest blogger here and all-around bankruptcy superstar, to offer our readers some thoughts on the recent decision out of the Detroit bankruptcy.  Here are his views:

Detroit: Kicking the Federalism Question Down the Rhodes

Yesterday, Bankruptcy Judge Steven Rhodes stayed a state court suit to derail Detroit’s chapter 9 bankruptcy.  While Judge Rhodes may ultimately dismiss the bankruptcy petition on his own, the decision forestalls one of the harder questions underlying the filing: To what extent may an Article I bankruptcy judge approve a bankruptcy plan that (may) conflict with state constitutional protections for municipal union members?

The answer will be difficult for several reasons, mostly having to do with the recursive interactions between federal and state law in this context. Bankruptcy Code § 943(b)(4) permits a bankruptcy judge to approve a “plan of adjustment” (as it is called) if the “debtor is not prohibited by law from taking any action necessary to carry out the plan.”

While chapter 9 case-law is sparse, one court has interpreted this to mean that it could not approve a plan that altered state-law priority-protections for bondholders. In re Sanitary & Improv. Dist. #7, 98 B.R. 970 (Bankr. D. Neb. 1989). Municipal union members may cite this, and then point to Michigan’s constitution, which provides:  “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.” Mich. Const. Article IX, § 24.

Because the plan proposed by Detroit’s emergency financial manager, Kevyn Orr, apparently reduces accrued benefits significantly, retirees would argue that the plan would diminish and impair their contractual rights.

But Orr may respond in three ways. First, he may cite the recent City of Stockton case, and argue that state law cannot prevent a municipal debtor from “adjusting” (i.e., reducing) debts, because federal law is supreme.  See In re City of Stockton, 478 B.R. 8, 16 (Bank. E.D. Cal. 2012).  Of course, if the federal law in question (the Bankruptcy Code) defers to conflicting state law, this argument doesn’t get him very far.

So, his second move may be to argue that a plan that diminished accrued contractual benefits would not violate the law, because it has long been accepted that the Bankruptcy Power is far greater with respect to contract rights than property rights.

As I (and others) have explained elsewhere, this distinction seems foundational.  Michigan’s constitution may protect municipal union members’ contract rights, in other words, but that’s all they are: contract claims, subject to “adjustment” under federal bankruptcy law.  If municipal retirees had really wanted solid protection, Michigan’s constitution should have characterized their accrued benefits as “property,” not “contract,” rights.

Third, and most instrumentally, the Michigan constitution does not appear to prevent Orr from exiting current agreements prospectively.  Bankruptcy Code section 365 would give Detroit the power to reject such contracts if they are burdensome (there are actually a couple different rejection standards, but it seems likely he could meet them).  Even if Orr’s hands are tied as to accrued obligations, the argument would go, he could terminate large numbers of current employees, some of whom he may rehire at lower wages.  If municipal employees want their jobs back, they (or their unions) would have to compromise accrued benefits claims.

This would in effect pit current employees against former ones (retirees).  Like those who have successfully reorganized mass-tort, Orr may be able to use this tension to extract concessions from the unions.  Or, the unions may be able to use this same tension to get a better deal than the one that’s on the table.

Either way, setting up these sorts of bargains is, in my view, one of the most important federal interests here.  I have argued in the context of the Catholic Church bankruptcies, for example, that that should be the system’s overarching goal, especially in normatively difficult cases.

Yet, further confounding the analysis are the mixed signals the Supreme Court has sent on the interaction between Congress’ Article I powers (especially bankruptcy court power, in cases such as Stern v. Marshall) and “states’ rights.”  On one hand, cases such as Seminole Tribe and Alden (and, indirectly, Stern) suggest that the Court takes state sovereignty seriously:  the federal government has limited powers to intrude into states’ affairs, which may include interpreting their constitutions (okay, let’s ignore Bush v. Gore).  On the other hand, cases such as Hood and Katz suggest that the Court will make an exception for bankruptcy, discharging state claims and permitting suits against states to recover preferential transfers, respectively (okay, let’s ignore Stern).  Perhaps Judge Rhodes will have a relatively free hand here.

How this will unwind in Detroit is difficult to predict, but seems likely to matter to the outcome. In the meantime, we will have to wait for Judge Rhodes to decide whether to permit Detroit’s case to go forward at all.  Bankruptcy Code section 921(c) provides that the bankruptcy “order for relief” cannot be entered until resolving objections to the petition.  This can include an objection that the filing “does not meet the requirements of this title.”

The unions are likely to argue that Detroit’s bankruptcy petition flunks because Orr’s plan would violate the state constitution, as “incorporated” by Bankruptcy Code section 943(b)(4).  Orr would respond by arguing the supremacy of federal bankruptcy law, perhaps along the lines noted above . . . . And so on.

Given these complexities, it would be understandable if Judge Rhodes wanted to kick the federalism question further down the road, in the hope that all major stakeholders—e.g., bondholders and employees—can avoid the costs of litigating these questions, and settle them in a plan they agree on.

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Diversity on the Supreme Court

While in recent decades the Court has become more diverse in some areas, such as gender and race, presidents have also appointed Justices with increasingly uniform educational and professional backgrounds. This lack of professional and educational diversity may be sub-optimal. Adrian Vermeule, for example, offers a carefully-reasoned argument for having at least one Justice with training in another discipline (he suggests appointing a Justice with a PhD in economics). At its most extreme, Vermeule’s argument insists that the professionally-diverse Justice have no training in law, to correct for correlated biases held by lawyer Justices.

My research suggests, however, that the extreme step of eliminating formal legal training will introduce a particular bias which some will find objectionable. In the past, Justices who did not attend law school were significantly more politically predictable than Justices who shared the benefit of formal legal education. Today, of course, a president choosing a Justice who did not attend law school would likely select a person who also has expertise in another field. But it is not clear a Justice with an advanced degree in economics or another discipline would exhibit the same political restraint as a Justice who went to law school. It seems more likely that Justices who attend law school will be either better-equipped or more inclined than others to vote independently of their personal political views. This may be reflected in greater levels of judicial restraint, incremental decision-making, and application of doctrines such as stare decisis.

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Dronenburg and Reasonableness

San Diego County Clerk Ernest Dronenburg filed a petition yesterday seeking to prevent California county clerks from issuing marriage licenses to same-sex couples until a set of legal issues have been clarified. A reporter from the Union-Tribune called me to discuss the filing, and I ended up being quoted for the idea that the filing was “reasonable” because of legal uncertainties, as a sort of counter-balance to an Aaron Caplan quote that the request will not not “go far.”

Both of which are, I think, correct — but in different ways. Due to the limits of the newspaper medium, a twenty-minute phone interview ended up condensed into a soundbite which — well, which may not seem reasonable. I suspect that this has to do with word limits and editors and the need for a news story with a particular narrative balance. (“I mostly agree with what the other guy said” is a boring article.) But here on blog, we can elaborate in more detail on exactly which ways the Dronenburg filing may or may not be reasonable. Read More

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Have Presidents Gotten Better at Picking Ideologically-Compatible Justices?

Do Justices vote independently of all political forces surrounding their appointments? My earlier post discusses how, even in recent decades, Justices’ votes have been surprisingly independent of the ideologies of Senates to which they were nominated. Even so, it may be that presidents fared better than the Senate and recently enhanced their ability to appoint ideologically-compatible Justices.

History is rife with examples of Justices who disappointed their appointing presidents.   As recounted by Henry Abraham, Teddy Roosevelt complained vociferously about Justice Holmes’ ruling in Northern Securities, Truman called Justice Clark his “biggest mistake,” and Eisenhower also referred to Justices Warren and Brennan as “mistakes.”  My earlier study finds frequent grounds for presidential disappointment, based on voting records for eighty-nine Justices over a 172-year period. Just under half of these Justices voted with appointees of the other party most of the time. Still, of the last twelve Justices, only two, Stevens and Souter, aligned most often with appointees of the other party. This low number calls into question whether the frequency of presidential disappointments has diminished recently.

My recent paper identifies change over time using regression analysis and more nuanced measures of presidential ideology. The analysis shows ideologies of appointing presidents did not significantly predict Justices’ votes before the 1970s, but they gained significant predictive power thereafter. This enhanced success coincides with Presidents Nixon’s and Reagan’s efforts to prioritize ideology in appointments to the bench. While earlier presidents did not uniformly ignore nominees’ ideology, they lacked modern technological resources. By the Reagan administration, computerized databases allowed presidential aides to quickly assemble and analyze virtually all of a nominee’s past writings. The improved information may have enabled presidents to better anticipate nominees’ future rulings.

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The Senate’s Influence over Supreme Court Appointments

Thanks, Sarah, for the warm welcome. It is a pleasure to guest blog this month.

With pundits already speculating about President Obama’s next Supreme Court nominee, it seems a good time to discuss relationships between political forces surrounding Supreme Court appointments and Justices’ decisions. Justices sometimes disappoint their appointing presidents, and ideologically-distant Senates are often blamed for presidents’ “mistakes.” For example, David Souter and John Paul Stevens turned out to be far more liberal than the Republican presidents who appointed them (Bush I and Ford, respectively). These presidents both faced very liberal Senates when they selected Souter and Stevens.

Are nominees like Souter and Stevens anomalies or part of a larger pattern of senatorial constraint? My recent article in the Hastings Law Journal offers the first empirical analysis of the Senate’s role in constraining presidents’ choices of Supreme Court nominees over an extended period. It considers ideologies of Senates faced by nominating presidents and measures whether the ideologies of these Senates predict Justices’ voting behavior. The analysis substantially qualifies earlier understandings of senatorial constraint.

Earlier empirical studies consider only limited numbers of recent nominees (see article pp. 1235-39). They suggest that the Senate has constrained presidents’ choices, and many scholars theorize that the Senate has enhanced its role in the appointments process since the 1950s. Analysis of a larger group of nominees shows the Senate’s ideology has had significant predictive power over Justices’ votes in only two isolated historical periods. Senatorial ideology was last significant in the 1970s, shortly after the filibuster of Abe Fortas’s nomination to be Chief Justice, but then it actually lost significance after the Senate rejected Bork in 1987.

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Recommended Reading: Garrett and Kovarsky’s New Casebook on Federal Habeas Corpus

A new casebook co-authored by University of Virginia law professor Brandon Garrett and my brilliant colleague Lee Kovarsky is the first to comprehensively cover habeas corpus, particularly exploring the topics of post-conviction review, executive and national security detention litigation, and the detention of immigrants. The book, just published by Foundation Press, is titled “Federal Habeas Corpus: Executive Detention and Post-conviction Litigation.” 

The privilege of habeas corpus — which ensures that a prisoner can challenge an unlawful detention, such as for a lack of sufficient cause or evidence — has grown increasingly complex and important. Just this week, the Supreme Court decided important habeas cases recognizing an innocence-exception to habeas time-limits, and making it easier for state inmates to use habeas corpus to challenge the ineffectiveness of their trial lawyer. See Garrett and Kovarsky on ‘Two Gateways to Habeas’)

Here is an excerpt of an interview of Professor Garrett and Professor Kovarsky posted on the UVA website:

“In writing this casebook, our goal was to create the subject,” Garrett said. “There is something deep connecting different parts of habeas corpus that are often taught in far-flung parts of courses or are not taught at all. Habeas corpus is now an extremely valuable and exciting course to teach, and we thought the subject demanded a rich set of teaching materials.”

Garrett, who has taught habeas corpus at UVA Law for eight years, co-wrote the book with Kovarsky, a 2004 Virginia Law graduate and a leading habeas and capital litigator who joined the University of Maryland’s Francis King Carey School of Law as an assistant professor in 2011.

“A few years ago, I started talking to Lee about habeas corpus,” Garrett said. “Lee writes insightful scholarship about habeas corpus, and is also a longtime habeas practitioner; he still works on high-profile death penalty cases in Texas. I sent him my course materials because he was starting teaching as a law professor at Maryland. And he immediately said that this should be a casebook.”

Kovarsky said he and Garrett decided to work together on the project to identify — and establish — a habeas canon that was “divorced from any immediate political, ideological or institutional objective.”

 “The decisional law and academic literature is polluted with too much erroneously accepted wisdom about the [writ of habeas corpus'] essence and, by implication, its limits,” he said. “That accepted wisdom, in turn, fuels legally substantial narratives that are, in many ways, best explored, challenged and modified in a classroom.”

Traditionally, Garrett said, law schools have taught habeas corpus as a short segment in federal courts or criminal adjudication courses rather than as a full class. Yet these brief segments, he said, are no longer sufficient.

The law of habeas corpus became significantly more complicated after Congress passed the Antiterrorism and Effective Death Penalty Act in 1996, which was passed in the wake of the Oklahoma City bombing and the first World Trade Center bombing. Read More

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Proxy Patent Litigation II

Previously I posted on the issue of proxy patent litigation. Basically, mass patent aggregators (entities which own or control a large number of patents that they have acquired from elsewhere) litigate only a few of the patents in their portfolio against a large accused infringer. The litigated patents serve as proxies for the quality of their entire portfolio. If the aggregator is successful on the merits (or at least in preliminary rulings, such as defeating the accused infringer’s motions for summary judgment on invalidity and non-infringement), it strengthens their hand considerably in negotiations for a license for the entire portfolio. The proxy litigation is also only one part of a broader dynamic from the aggregator’s perspective:  the aggregator’s success in court against one practicing entity not only puts it in a stronger bargaining position against that entity, it may also do so with the rest of industry as well (i.e., other firms may be willing to pay more for a portfolio license).

I now attempt to answer a question I posed in my previous post. Specifically, if the court understood the underlying dispute was litigation-by-proxy, would it (or could it) proceed any differently?

I think it is useful to consider this question through the prism of the classic project management triangle. According to theory, a project has three core attributes: speed, quality, and cost. There is tension among the three attributes, and consequently, one can never maximize more than two of them. For instance, if one wants a project of the highest quality in the fastest time, then it can’t be cheap. Alternatively, if one wants a project fast and cheap, then it can’t be of the highest quality.

Now let’s translate the project management triangle into the judicial process. Several core attributes of a case are speed of resolution, depth and thoroughness of the analysis, and accuracy or correctness of the decision. If the project management triangle is correct and applies to the courts, then all three of these can’t be maximized at once. While the court and litigants want speedy, thorough, and accurate justice, not all are possible in a case.

Now turn back to the proxy litigation by patent aggregators. I submit that the optimal level of speed, thoroughness, and accuracy may be different in proxy litigation than run-of-the-mill litigation. The depth and thoroughness of the opinions may be of less importance in proxy litigation because the adjudicated dispute is not the entire dispute between the parties. Accuracy may be more important since the results of the single dispute will be used to determine the value of a larger portfolio.

Thoughts on the analysis?

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Proxy Patent Litigation

In the last decade or so, patent litigation in the United States has undergone enormous changes. Perhaps most profound is the rise in enforcement of patents held by people and entities who don’t make any products or otherwise participate in the marketplace. Some call these patent holders ‘non-practicing entities’ (NPEs), while others use the term ‘patent assertion entities’ (PAEs), and some pejoratively refer to some or all of these patent holders as ‘trolls.’ These outsiders come in many different flavors: individual inventors, universities, failed startups, and holding companies that own a patent or family of patents. 

This post is about a particular type of outsider that is relatively new: the mass patent aggregator. The mass patent aggregator owns or controls a significant number of patents – hundreds or even thousands – which it acquired from different sources, including from companies that manufacture products. These mass aggregators often seek to license their portfolios to large practicing entities for significant amounts of money, sometimes using infringement litigation as the vehicle. Aggregators often focus their portfolios on certain industries such as consumer electronics.

Mass aggregator patent litigation and ordinary patent litigation appear to differ in one important aspect. Mass aggregators sue on a few patents in their portfolio, which serve as proxies for the quality of their entire portfolio. The parties use the court’s views of the litigated patents to determine how to value the full patent portfolio. By litigating only a small subset of their portfolio, the aggregator and potential licensee avoid the expense of litigating all of the patents. But the court adjudicates the dispute completely oblivious to the proxy aspect of the litigation. Instead, the court handles it like every other case – by analyzing the merits of the various claims and defenses.

If the court understood the underlying dispute was litigation-by-proxy, would it (or could it) proceed any differently? I will discuss my thoughts on this question in another blog post. For now, I have a question: does proxy litigation occur in other areas of law?

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The Varying Use of Legal Scholarship by the U.S. Supreme Court across Issues

While patent law is my core area of scholarly interest, I have also studied the use of legal scholarship by the courts. My co-author Lee Petherbridge from Loyola-LA and I have conducted several comprehensive empirical studies using large datasets on the issue. More precisely, we have analyzed how often federal courts cite to law review articles in their decisions. We have empirically analyzed the issue from a variety of angles. We have studied the use of legal scholarship by the U.S. Supreme Court (available here), by the regional U.S. Courts of Appeals (study available here), and by the Federal Circuit (available here). I won’t recount the finding of those studies here. Instead, I will report some new information and ask readers for potential explanations of the data.

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