Property Outlaws puts forth the intriguingly counterintuitive proposition that, in the case of both tangible and intellectual property law, disobedience can often lead to an improvement in legal regulation. The authors argue that in property law there is a tension between the competing demands of stability and dynamism, but its tendency is to become static and fall out of step with the needs of society.

book by Eduardo Penalver and Sonia Kaytal called Property Outlaws: How Squatters, Pirates, and Protestors Improve the Law of Ownership.  In the midst of record foreclosures, their work is a must-read.  Here is the publisher’s description.

Property Outlaws puts forth the intriguingly counterintuitive proposition that, in the case of both tangible and intellectual property law, disobedience can often lead to an improvement in legal regulation. The authors argue that in property law there is a tension between the competing demands of stability and dynamism, but its tendency is to become static and fall out of step with the needs of society.

The authors employ wide-ranging examples of the behaviors of “property outlaws”—the trespasser, squatter, pirate, or file-sharer—to show how specific behaviors have induced legal innovation. They also delineate the similarities between the actions of property outlaws in the spheres of tangible and intellectual property. An important conclusion of the book is that a dynamic between the activities of “property outlaws” and legal innovation should be cultivated in order to maintain this avenue of legal reform.

ARTICLES Property as Process: How Innovation Markets Select Innovation Regimes Jonathan M. Barnett 384 The President and Immigration Law Adam B. Cox & Cristina M. Rodríguez 458 Government in Opposition David Fontana 548 COMMENTS INA Section 242(g): Immigration Agents, Immunity, and Damages Suits 625 Taxing Unreasonable Compensation: § 162(a)(1) and Managerial Power 637

Tradeable carbon emissions allowances are an example of the latter.  There’s a lot to like in the cap-and-trade programs proposed under the Waxman-Markey and Kerry-Boxer bills.  I hope some robust version of them passes and becomes law.  But one sticky issue that needs to be resolved is how [...]]]> If the last two years of American economic life have demonstrated anything, it is that property rights are not static.  Sometimes things that were once private property become public property (see, e.g., Motors, General).  Sometimes things that were once public property become private property, then become public property again, before they presumably become private property again (see, e.g., Mae, Fannie).  And sometimes things that were once considered inherently communal and thus inamenable to private property rights at all, become divided and privatized (see,e.g., the air).

Tradeable carbon emissions allowances are an example of the latter.  There’s a lot to like in the cap-and-trade programs proposed under the Waxman-Markey and Kerry-Boxer bills.  I hope some robust version of them passes and becomes law.  But one sticky issue that needs to be resolved is how initial allowances to fill airspace with carbon gases should be allocated.  Options include auctioning off all of the allowances, giving the allowances to existing carbon producers, and, most politically palatable, something  in between – some mixed proportion of free allocations and auctions.

Economist Robert Stavins, in the Coasean tradtion, has insightfully argued that  (with some caveats, including that transaction costs in this cap-and-trade program are similar to the transaction costs in others) the initial allocation of allowances doesn’t matter in most significant ways:  it will have no effect on the distribution of allowances after trading, and will have no effect on the total magnitude of emissions and their attendant social costs.

But there is another factor economists have not addressed, that could effect the total magnitude of emissions and their attendant social costs, and that may well depend in part on the method of initial allocations: compliance.

Law Professor Christine Parker and political scientist Peter May, among others, have demonstrated that compliance with business regulation is highest when the regulated businesses believe that the regulatory regime is fair.  Lower levels of compliance reduce the effectiveness of the regulation in producing the desired outcome, and increase the costs of achieving it.  In the world of carbon emissions, this would mean a higher total magnitude of emissions and a reduced benefit to the public through the higher costs required to achieve them.

My research into Icelandic fisheries suggests that in moving natural resources from communal to private property through cap and trade programs, initial allocations of rights do have an important effect on the perceived fairness of the regulatory regime, and thus on the willingness of the regulated to comply with it.

In Iceland, the government decided to protect fish stocks by freely allocating tradeable fishing rights and implementing catch quotas.  Permits were issued to fishing vessel owners based on their average catches during a three-year test period.  New entrants to the industry must now buy their way in by purchasing or leasing rights from others through the Icelandic Quota Exchange.  Although the system has been successful in reducing the overall catch, the perception that it is unfair has led to open defiance.  In an extraordinary case before the Icelandic Supreme Court, one fishing company did openly what many apparently do quietly — defied the system on the grounds that it was unfair.  

Transactions costs, of course, are inevitable, but it is not transaction costs that have produced resistance to the Icelandic system.  Rather, resistance is itself is a type of transaction cost, broadly construed, produced by the perceived unfairness of the initial allocation of rights.  In other words, the initial allocation of rights does indeed effect the overall effectiveness of a private property system. 

There has been considerable uproar over the potential free allocation rights to current carbon emissions producers.  Whether or not, as a matter of classical economic theory, the initial allocation of rights should effect the overall effectiveness of the program, the perception of fairness or unfairness will probably effect compliance with the system, and that in turn will effect its overall effectiveness.  It is important, therefore, for policy makers to bear in mind that the perceived fairness of initial allocations of property rights does indeed matter.

They can hide on quiet Sunday streets. They can lurk in the shadows of a perfect fall day.

A couple of Sundays ago, I was walking in downtown Philadelphia at around 3PM when I came upon a traffic attendant writing a ticket for a car parked on the north side of Spruce Street just south of Rittenhouse Square. As I often saw vehicles parked up and down the street on Sundays despite the clear “No Stopping Any Time” signs, I decided to [...]]]> With all of the talk over the last few months about “death panels,” nationalizing banks, and the dangers of trying al Qaeda terrorists on U.S. soil, it is easy to believe that attacks on our freedoms are easy to spot, but often they are not.

They can hide on quiet Sunday streets. They can lurk in the shadows of a perfect fall day.

A couple of Sundays ago, I was walking in downtown Philadelphia at around 3PM when I came upon a traffic attendant writing a ticket for a car parked on the north side of Spruce Street just south of Rittenhouse Square. As I often saw vehicles parked up and down the street on Sundays despite the clear “No Stopping Any Time” signs, I decided to ask what the rule was.

I was told by the attendant that the City tickets cars “after church let’s out.” WhenI pressed the attendant on whether that was the official policy, she told me it was.

Doing a little more research (plucky young academic that I am), I found some interesting details at the website of the Tenth Presbyterian Church. According to the site, “The City of Philadelphia generously permits parking by the congregation in designated areas near the church for Sunday services and for certain types of congregational special events.” To enjoy these “[s]pecial relaxed street parking privileges,” a member of the congregation must pick up a church-issued parking placard from one of the church lobbies and display it in the front windshield. The church goes on to offer to “help resolve” any tickets that are received despite displaying the placard.

Yes, perhaps, I’m just frustrated to not be among the chosen—I do covet a good parking spot—but this doesn’t seem, well, “kosher.”

If the city of Philadelphia does not believe that there are enough parking places in Center City on Sundays, there is any easy answer: remove the parking prohibition on Sundays for all Philadelphians—Christians, Muslims, Jews, agnostics, and atheists alike. There is no reason that a tax-paying secular humanist who wants to take her children to the park ought to get a ticket and a tax-paying Christian who wants to attend services ought not.

As this has piqued my interest, I have vague (and unlikely-to-be-realized) plans to fill out a request for information from the City, but before I do that I think it is best to make outrageous claims and reach unfounded conclusions based solely on the above details. What do you think? Is this totally harmless or . . . an affront to the history of Pennsylvania, a violation of the United States Constitution, and a sure sign that the Rapture is already upon us?

I was watching the NFL Vikings carve up the Bears yesterday, trying to decide what to post about first, and my eyes were drawn not to quarterback Brett Favre, running back Adrian Petersen . . . or even the freak who dresses like a viking and leads cheers inside the Metrodome, the Vikings’ domed stadium.  I kept looking at the shots of the stadium itself, and thinking about two recent court orders. 

One was issued last Monday, lifting an injunction on the previous week’s sale by auction of the 94,000 square foot, 80,300 seat Pontiac Silverdome, along with an adjacent fieldhouse and 127 acres of land.  There were four bids.  The winning bid? [...]]]> I’m very happy to be back adding my two cents to Concurring Opinions.  Thanks very much, Dan, for the invite, and Sarah, for the introduction. 

I was watching the NFL Vikings carve up the Bears yesterday, trying to decide what to post about first, and my eyes were drawn not to quarterback Brett Favre, running back Adrian Petersen . . . or even the freak who dresses like a viking and leads cheers inside the Metrodome, the Vikings’ domed stadium.  I kept looking at the shots of the stadium itself, and thinking about two recent court orders. 

One was issued last Monday, lifting an injunction on the previous week’s sale by auction of the 94,000 square foot, 80,300 seat Pontiac Silverdome, along with an adjacent fieldhouse and 127 acres of land.  There were four bids.  The winning bid? $583,000.  Total.  After auction fees, the current owner — the City of Pontiac, Michigan — will net about $430,000.  When professional sports tenants such as the Detroit Lions left, a property that cost $56 million to build was rendered practically worthless.  In fact, Pontiac was prepared to accept any bid for the property, since maintaining it was costing the City $1.5 million per year. 

The other order was issued in September by Judge Berrigan of the U.S. District Court for the District of Eastern Louisiana, ordering St. Bernard Parish not to interfere with the construction of a mixed market-rate and low income housing project.  The Parish, faced with an influx of low income tenants, had refused to issue building permits for the project, imposed a moratorium on building apartment complexes, and passed an ordinance making it illegal to rent to anyone other than a blood relative without special permission.  The New Orleans area faces an extreme shortage of low income housing, despite the population diaspora from the area generally.  Most of the housing destroyed by Katrina was low income. 

 There’s a lot to ponder about the Silverdome sale:  That there were three lower bids.  That the winning bid was less than the minimum salary for two NFL rookies.  That economically, everything Michigan touches seems to dissolve. 

There’s also a lot to ponder about the Louisiana case:  The race and class issues implicit in the development of low income housing.  The institutional role of courts as a check on the popular will.  The possibility that some of those in need of that housing once spent time sheltering in a hellish environment inside yet another domed stadium.  

But as a law professor who teaches property, I was also struck by was the extraordinary difference in power between commercial and residential tenants.  In Pontiac, the lack of willing commercial tenants for the Silverdome reduced the value of the property to a nominal amount.  In St. Bernard Parish, despite an abundance of ready and willing residential tenants, a court order was required to get a what should be a profitable property developed.  This week I’m teaching my students about the gradual importation of contract law concepts into the law of leasehold estates.  I tell them that those contract law doctrines tend to protect residential tenants, recognizing what is often unequal bargaing power between residential tenants and lessors.  They are less protective of commercial tenants, because commercial tenants often have as much bargaining power as lessors.

Watching the Vikings on Sunday, oddly enough, brought that lesson home.

Jon Gosselin and his wife had a “reality” TV show about their life with their eight children.  But now they are estranged, and Jon recently got fired from the show, which is to be renamed “Kate plus 8.”  Not taking this lying down, Jon has demanded that TLC, the network filming the show, stay out of his house.  If they enter to film, he claims he’ll have them arrested as trespassers.

Sheesh, [...]]]> Those celebrities just can’t stay away from strange legal theories.  After Roman Polanski claimed last week that his sex crime should be excused because he’s a great artist, Jon Gosselin, former star of “Jon & Kate Plus 8,” is now claiming the right to exclude television crews from the home he owns jointly with his wife.

Jon Gosselin and his wife had a “reality” TV show about their life with their eight children.  But now they are estranged, and Jon recently got fired from the show, which is to be renamed “Kate plus 8.”  Not taking this lying down, Jon has demanded that TLC, the network filming the show, stay out of his house.  If they enter to film, he claims he’ll have them arrested as trespassers.

Sheesh, if I were TLC’s general counsel, I would tell Jon, “ooh, we’re scared.”  How about some basic property law?  Every law student knows that joint owners of property (known in property law as “joint tenants” or “tenants in common”) each own an “undivided interest” in the whole property and each has a right to occupy the property without the consent of the other.  Heck, each of them has a right to lease the property without the consent of the other. 

In 1861, the California Supreme Court considered the case of a lessee who had leased property from a joint owner and was then asked to leave by the other joint owner.  The Court said, “We have no doubt that one tenant in common may occupy the common premises, and as little that he may permit another person to occupy a part of them; and it is impossible for us to see how that tenant in common could sue such person, so lawfully entering or occupying, as a trespasser, or how his cotenant could maintain such suit.”  Ord v. Chester, 18 Cal. 77 (1861).

More recently, a California court considered a case quite like the Gosselins’:  an estranged husband and wife jointly owned a home, which the husband leased to a third party.  The wife showed up and tried to oust the lessee.  The court said:  “A cotenant has no right to oust a person who holds possession with the consent of another tenant in common.  . . . When a joint tenant leases to a third party he confers upon the latter the same right of possession that he himself has.”  Verdier v. Verdier, 152 Cal.App.2d 348, 313 P.2d 123 (1957).

If one of the estranged spouses can lease the property without the consent, and indeed over the objection, of the other, then either can certainly invite guests onto the property without the consent and over the objection of the other.

So if I were TLC, I would tell Jon to get lost.  Kate’s permission is all they need.

One interesting feature of the Sotomayor hearing was the number of questions she was asked about Kelo.  I am not a property scholar (I find that blogging often requires me to qualify comments by saying “I’m not an expert on this”), but I find the policy debate over Kelo perplexing.  Let us assume that Kelo was right in holding that a constitutional “public use” if a state or local government takes property (say, somebody’s house) for a private development project such as a shopping mall.  Should state law be amended to bar that practice?

Well, the ongoing foreclosure crisis suggests that the answer is no.  There are many cities that  now have swaths of empty homes (including the house next to mine.)  And this is imposing significant [...]]]>

One interesting feature of the Sotomayor hearing was the number of questions she was asked about Kelo.  I am not a property scholar (I find that blogging often requires me to qualify comments by saying “I’m not an expert on this”), but I find the policy debate over Kelo perplexing.  Let us assume that Kelo was right in holding that a constitutional “public use” if a state or local government takes property (say, somebody’s house) for a private development project such as a shopping mall.  Should state law be amended to bar that practice?

Well, the ongoing foreclosure crisis suggests that the answer is no.  There are many cities that  now have swaths of empty homes (including the house next to mine.)  And this is imposing significant costs on communities, including a loss of tax revenue, declining property values, and higher levels of crime.  If a private developer wants to use a block of these houses to build a commercial project, why should the use of eminent domain to facilitate that be prohibited?  Put another way, which is more problematic — the harm that results when people who live in homes are forced to move against their will (and might be cheated on the value of that property, as often happens when “just compensation” is awarded) or the harm that results from empty houses that just sit there when a transaction cost solution (i.e. eminent domain) would bring them back into productive use?

As Jacqueline Lipton noted Google Maps has enabled the persistence of race discrimination. Google [...]]]> Space the final frontier. These are the voyages of … ah, you know the rest. Exploration and the idea of frontiers seem to capture an important part of the human experience. The possibility of finding something new, of entering uncharted territories excites people. And, although one may want to keep the secret of the Northwest Passage or the Straits of Magellan a secret, sooner or later a map is created to increase the amount of benefit that can be extracted from the discovery. Yet with the world seeming to collapse into one connected place, the role of maps has changed. In short, maps are a new frontier for property and privacy.

As Jacqueline Lipton noted Google Maps has enabled the persistence of race discrimination. Google Maps has also spawned some other curious creations and connections. For example, I wrote about the flap over what is a true IMAX screen and that folks put together a map of IMAX screens with information about the screen size. The H1N1 (aka swine) flu epidemic revealed an interesting dual use for maps. One person created a frequently updated map with information about claimed incidents. I was curious about the source and found that one person at, what else, a bitotech company focused on recombination and disease, was behind the map. In addition, a group called Health Map seeks to offers a map that connects “disparate data sources to achieve a unified and comprehensive view of the current global state of infectious diseases and their effect on human and animal health.” On the light side, Total Film has a feature that uses Google Street view to show 25 favorite film locations.

As seems always to be the case, folks will probably soon argue about who owns what. The more interesting point might be the way maps show the malleability of information. In some hands, maps show fun things like where a film was shot. In other hands, maps provide useful epidemiological information. Yet, certain home owners may not be pleased about having tourists show up to gawk at what had been a quiet abode. Cities, counties, and even states may be upset if lay people assume that suspected or even confirmed outbreaks mean they should create a de facto or quasi-quarantine. Last, knowing where specific racial, religious, and other groups are can all too easily lead to mob behaviors.

The information mill churns. We have to sort it out. Old tools have new impacts. Today maps pose challenges. Tomorrow it will be something else. I am never certain that the law is the best way to manage these changes. Nonetheless, we have to consider what they are and how they function in case the law is asked to do so. On that note, please share any other creative and/or challenging uses of maps of which you are aware.

Last here is a little music for the trip:

Maps And Legends – R.E.M.

ROBIN MALLOY

Law and Entrepreneurship offers many opportunities for interdisciplinary work and for finding common ground among the various categories of property (real, personal, intangible, cultural, IP, etc.) The recent Conference at Wisconsin [...]]]> I recently wrote about the Creativity, Law and Entrepreneurship Workshop at the University of Wisconsin in which I participated. One of the speakers, Robin Malloy who is the E.I. Chair and Distinguished Professor of Law at Syracuse University College of Law,  emailed me and about the ideas he presented. I am quite interested Robin’s ideas and approaches to this area of the law, so I asked whether he would mind writing a short piece to share with our readers. He was gracious enough to agree. So I am pleased to offer Robin Malloy:

ROBIN MALLOY

Law and Entrepreneurship offers many opportunities for interdisciplinary work and for finding common ground among the various categories of property (real, personal, intangible, cultural, IP, etc.) The recent Conference at Wisconsin on Creativity, Law and Entrepreneurship highlighted this exciting possibility. In thinking about property transactions and entrepreneurship I believe there are at least four central starting points, all of which can be expanded. 1) It is important to get beyond definitions of property and look at what we can do with property… to look at transactions in exchange (asking not just what is property but also, and more importantly, what can we do with property). And from the perspective of market exchange theory asking how we capture and create value from transactions in property. 2) Entrepreneurship requires us to develop a more complex vocabulary. We need to start thinking about a variety of types of entrepreneurship instead of always dealing in an abstract sense with just one big category called “entrepreneurship”, as if all entrepreneurship is of the same type or kind. We need to develop more nuanced categories of entrepreneurship based on different observable patterns of behavior and motivations as they might relate to different types of transactions and different categories of property. 3) Creativity is key to entrepreneurship and this requires us to incorporate a theory of interpretation because creativity requires both an understanding of current boundaries of meaning and a recognition of a possibility for setting new boundaries. Recognizing something as new, of course, requires a cultural-interpretive reference point and, thus, interpretation theory is key to understanding a set of given relationships and to imagining the potential for something new and different. 4) The relationship between law and entrepreneurship requires a dynamic approach to market theory. Traditional efficiency analysis is not entirely helpful since it is really a status quo analysis with little application to creativity. Efficiency is directed at thinking about ways of allocating already known resources and not about the market conditions under which creativity, innovation, and discovery are best facilitated. This means that there is a need to think creatively about the meaning of markets and the tools we use to understand law in a market context.

The other blogs?  In addition to madisonian.net, which is familiar to many law professors who work in IP (and which is the part-time home of Co-Op first teamers Frank Pasquale and Deven Desai), I [...]]]> Thanks to Deven for the generous introduction and to Dan and the Co-Op team for inviting me to spend some time here this month.  The introduction intentionally saves space by not including a couple of things that I’ll talk about during my stay:  My other blogs, and my appointment as Research Dean at Pitt.  Both have something to do with my current work on commons institutions.  Over the course of this guest stint I hope to explain some of the connections and to generate suggestions and feedback that might help me see others.

The other blogs?  In addition to madisonian.net, which is familiar to many law professors who work in IP (and which is the part-time home of Co-Op first teamers Frank Pasquale and Deven Desai), I write for and administer Pittsblog (on the futures of Pittsburgh, PA, with a special focus on economic development) and for Blog-Lebo (a community blog that challenges the traditional suburban orthodoxy of Mt. Lebanon, PA, where I live).  As Research Dean at Pitt, I write the Pitt Law Faculty Blog, which chronicles the scholarly activities of our faculty.  And because the IP field is bursting with conference activity, I use a blog platform to maintain a conference and workshop calendar for IP and IT law events for scholars in the US and, occasionally, elsewhere.

Each of these started in a distinct way and for distinct reasons, but over time I’ve come to see them as part of a pattern, as a set of informal institutions that serves different communities or groups in related ways.  Exploring that pattern and teasing out those relationships is the theme of my current scholarship, too, so while it might appear to some that I push myself in lots of disparate directions, I usually feel that I’m working on one big thing that has lots of specific payoffs.

For an illustration and lead-in to my next post, here’s a link to my most recent writing, which is a comment in the Virginia Law Review’s online “In Brief” that responds to Dotan Oliar’s and Chris Sprigman’s very interesting article in the Virginia Law Review, There’s No Free Laugh (Anymore): The Emergence of Intellectual Property Norms and the Transformation of Stand-Up Comedy. (My piece is called Of Coase and Comics, or the Comedy of Copyright.) I suggest that social norms alone can’t explain the apparent absence of formal copyright claims among modern stand-up comics. Comics’ “no plagiarism” norms emerged roughly around the same time that comedy LPs became million-sellers, in the early 1960s.   Is there a connection?  I suspect that there is, and I suspect that connections among record albums and comics’ norms are related in some way to connections among blogs and communities.

More shortly.  In the meantime, a bit of trivia:  Historians of comedy usually think of Mort Sahl and Lenny Bruce as pacesetting stand-up comics.  In researching Of Coase and Comics, I was pleasantly surprised to learn that the first comedian to have a gold record was accountant-turned-comedian Bob Newhart, the same Bob Newhart who later acquired iconic status for communities of college students via the phrase “Hi, Bob” and who eventually uttered the immortal TV sitcom line, “You really should wear more sweaters.”

Here’s a scenario reported by the New York Times that is seemingly too straightforward to use on an exam. The National Park Service wants to build a park on the Pennsylvania site where Flight 93 crashed. The Park Service and a group representing Flight 93 families own or control approximately 1,300 of the 1,700 acres that the Park Service wants to acquire, and is in negotiations for roughly 430 acres, including the site where the plane actually crashed. Flight 93 families are eager for a transfer of the property because construction must begin by Fall 2009 [...]]]> Property professors spend so much time talking about regulatory takings and the post-Kelo definition of public use that it’s easy to forget about good old-fashioned eminent domain.

Here’s a scenario reported by the New York Times that is seemingly too straightforward to use on an exam. The National Park Service wants to build a park on the Pennsylvania site where Flight 93 crashed. The Park Service and a group representing Flight 93 families own or control approximately 1,300 of the 1,700 acres that the Park Service wants to acquire, and is in negotiations for roughly 430 acres, including the site where the plane actually crashed. Flight 93 families are eager for a transfer of the property because construction must begin by Fall 2009 for a memorial to be ready by the tenth anniversary of 9/11.

So just take the land, right? Not so fast. The 2002 legislation authorizing the memorial stated that no land could be acquired through eminent domain. (Perhaps because we value property rights more than extraordinary heroism which prevents a second terrorist attack on Washington, D.C.?) A provision in a September 2007 spending bill finally authorized the use of eminent domain, but the Park Service has continued to try to negotiate with the landowner. What a surprise that they can’t agree on a price.

Usually land is not transferred by eminent domain until a court decides its fair value, which can take a long time. Thus Flight 93 families have asked President Bush to issue an executive order that would allow the government to take immediate possession of the land and allow a court to determine fair market value after the fact. There is plenty of precedent for this sort of quick take procedure, which is supposed to be used when the government has an urgent need for the land.

I suppose we can argue about whether building a memorial by September 11, 2011 counts as urgent. But quick take procedures have been used in situations that are far, far more marginal than this one. (Remember Poletown?) Moreover, I’m not sure that quibbling about the definition of urgent is appropriate when one considers the final hour aboard Flight 93.

So just take the land. Or give the landowner whatever he is asking and consider it the price the federal government has to pay for being foolish enough to take the option of eminent domain off the table back in 2002, when there was plenty of time for a court to decide fair value market value.

As I stumbled through it, my classmates giggled at the absurdity of the facts. For those who don’t remember, the facts are these: in 1642, Jane had leased land from Paradine, with rent owing at “the four usual feasts.” Shortly thereafter, the land was occupied by [...]]]> One of my most vivid memories of my 1L year was being called upon to present Paradine v. Jane in my property class. I had escaped my stern professor’s lottery system for almost the entire semester. Nervously briefing the case, I discovered that it was (a) written in clipped, indecipherable, Shakespearian English and (b) about as relevant to my life as the second law of Hammurabi. Naturally, I was called upon to explain it.

As I stumbled through it, my classmates giggled at the absurdity of the facts. For those who don’t remember, the facts are these: in 1642, Jane had leased land from Paradine, with rent owing at “the four usual feasts.” Shortly thereafter, the land was occupied by an army that had “invaded the realm,” commanded by the ruthless Prince Rupert. Jane did not regain possession of the land for 3 years. When he regained possession, Paradine sued him for back rent. Jane refused to pay, arguing that he was not liable for rent for land he couldn’t use and possess through no fault of his own.

The court found for Paradine, holding that the lease included an implied covenant to pay rent, come hell, high water, or invading princes. The court reasoned that Jane could have avoided liability under such circumstances by contracting to avoid it; that risk allocation was presumably reflected in the price of the lease; and that since Jane stood to take the upside of unanticipated profits, he must also assume the downside of unanticipated losses. The case is often taught in contracts courses as an impossibility case, but the facts struck me as just a bit unlikely to resemble any issue I might confront in practice.

My doubts about the continuing relevance of Paradine v. Jane were erased by the attacks on September 11, 2001. On that day, a contemporary Prince Rupert attacked again. At the WTC, lessees were deprived of use and possession of land through no fault of their own, and would be for years. As in Paradine, the question arose: who should bear the cost?

Paradine and the WTC attacks are, I now believe, ideal vehicles for teaching several critical concepts about the roles property and contract law play in society.

To see how, it helps to examine the terms of the lease between the owner of the WTC properties, the Port Authority of New York and New Jersey, and their lessee/sublessor, Silverstein Properties. In July, 2001, the Port Authority entered into a 99-year net lease with Silverstein for WTC building 1, 2, 4 and 5. The terms of the lease required a $600M up-front payment, followed by rent of $102M per year, plus a percentage of revenue. The lease provided that Silverstein would be responsible for restoring the buildings in the event of casualty, and that rent would not abate during the restoration period.

The deal nearly fell apart several times during negotiations, in part because Silverstein was required to obtain sufficient insurance to meet its obligations. At first, students usually think that Silverstein got the short end of the stick. But the price he paid reflected carefully planned risk allocation.

And when disaster struck on September 11, the duties and obligations of the parties were relatively clear, and the web of risk allocation was relatively stable. It’s true that there have been many disputes – including, most famously, whether the attacks constituted one or two “events,” and therefore whether Silverstein was entitled to $3.5B or $7B from the insurers – and several modifications to the terms of the lease as rebuilding commences. Silverstein eventually settled with the insurers for $4.6B. In 2006, the Port Authority reacquired rights to WTC 1 and 5 from Silverstein, while Silverstein acquired rights to WTC 3. After several false starts, the Port Authority and Siverstein agreed to a framework and timeline for reconstruction of the complex, as well as construction of a memorial and the proposed Freedom Tower.

But, on the whole, the system of duties and obligations designed through our property and contract law traditions absorbed the disaster and allowed the social and economic system to continue working. The expectations of the parties were reflected in the bargain they struck in July, 2001, including the allocation of risk, and those expectations were enforced. Because it was foreseeable that those expectations would be enforced, the parties took sufficient measures to insure that risk. As horrific as the attacks were, the social and economic duties defined through property and contract law held. The system absorbed the shock and moved on.

There’s a beauty in that system, because it is the product of hundreds of years of careful, thoughtful and democratic human endeavor. It’s undoubtedly wishful thinking, but I like to imagine Al Qaeda frustrated. They planned a massive, ambitious attack for years. They sacrificed 20 of their most ardent adherents. They pulled off a once-in-a-lifetime spectacular blow, toppling WTC 1 and 2, in the economic hub of the United States, murdering thousands of innocent people. And what result? Economic collapse? Civil war? Rioting? None of the above. When we needed it most, law worked. It took Al Qaeda’s worst blow and shook it off.

To my mind, where we have gone wrong in fighting Al Qaeda is where we have decided that our legal traditions are inadequate to the task of coping with this “new reality.” Some have claimed that we must operate under a new system that permits us, among other things, to listen to private conversations without warrant, to detain people indefinitely without charge or trial, to torture, to act in “pre-emptive self-defense.” The lesson of Paradine v. Jane, and of the WTC leases, is that a thoughtful, predictable and just legal system can absorb almost any blow, and preserve the social bonds upon which it is based.

The disjointed and ad hoc reaction of the Bush administration to this mortgage crisis stands in stark and disappointing contrast to the systemic reaction of the Roosevelt administration to the last similar mortgage crisis. Henry Paulsen seems to have been assigned the role of Mary Bailey during the bank run scene from It’s a Wonderful Life: rushing into the room with a wad of cash, but with little thought of the future.

The Obama administration would be wise to approach the crisis much as the Roosevelt administration did – as a set of difficulties each requiring a specific institutional tool dedicated to its correction, which should function together as a whole to create a new (and hopefully this time, lasting) housing finance superstructure.

To contrast the [...]]]>

The disjointed and ad hoc reaction of the Bush administration to this mortgage crisis stands in stark and disappointing contrast to the systemic reaction of the Roosevelt administration to the last similar mortgage crisis. Henry Paulsen seems to have been assigned the role of Mary Bailey during the bank run scene from It’s a Wonderful Life: rushing into the room with a wad of cash, but with little thought of the future.

The Obama administration would be wise to approach the crisis much as the Roosevelt administration did – as a set of difficulties each requiring a specific institutional tool dedicated to its correction, which should function together as a whole to create a new (and hopefully this time, lasting) housing finance superstructure.

To contrast the Bush and Roosevelt approaches, it is useful to recall the ingenious public/private hybrid housing finance system the Roosevelt administration developed. Consider:

The Roosevelt Administration recognized that — just as today — credit was frozen for home lending institutions. It empowered the Federal Home Loan Bank (FHLB) to provide loans to these institutions, so that they in turn could lend to home buyers. The greater availability of loans from home lending institutions could lower the cost of borrowing for home buyers. More home buyers could create demand in the housing market and slowly raise home values (which had plummeted). Rising home values could allow some homeowners to refinance their mortgage loans to avoid foreclosure.

But, the Roosevelt Administration realized, many delinquent mortgages could not be saved by refinancing, if home owners had to wait for home values to rise. So, it created the public/private hybrid Home Owners’ Loan Corporation (HOLC) (financed partly publicly, and partly through tax-favored private investment). This institution had a simple but crucial mission: buy delinquent mortgages from home lending institutions, then work with home owners to refinance them on less risky and more responsible terms. As a result, banks were able to sell mortgages they most wanted to be rid of, reducing their bad debt and increasing their liquidity. For homeowners, short-term, adjustable rate, and balloon mortgages were converted to long-term, fixed rate mortgages. Borrowers were required to present proof of sufficient income relative to their debt to qualify for the restructured loans.

To encourage similar responsible lending standards by home lending institutions, the Federal Housing Administration (FHA) offered to insure mortgages that met its quality and risk standards. The FHA required that the loans it insured were fixed-rate, long-term, and had a minimum loan-to-value ratio of 80% (in other words, a 20% down payment was required of home buyers).

The creation of the Federal National Mortgage Association (now known as Fannie Mae) was a masterstroke. The FNMA created a secondary market in which home lending institutions could sell mortgages that met FNMA quality standards. In other words, the FNMA would buy mortgage loans from home lending institutions at some percentage of their present value. The lenders would receive a one-time cash payment and be relieved of any risk from the home buyer’s potential default. That risk was transferred to the FNMA. Not only did banks receive a great incentive to increase their home lending activity, the FNMA was able, through its purchase standards, to impose quality standards that lasted for decades.

The system as a whole created the structure that became the invisible backbone of the American dream. The FHLB provided liquidity, the HOLC purchased and refinanced delinquent mortgages, the FHA insured quality mortgages, and the FNMA created a secondary market on which quality mortgages could be sold, increasing lender liquidity, removing risk, and standardizing quality.

The Bush administration, by contrast, seems to have empowered Henry Paulson to spend $700 million as he sees fit. To date, he seems unable to decide how best to proceed. At first we were told the money was to be used to buy bad debt, which was once half of HOLC’s function. No mention was made of the other half of HOLC’s function — refinancing delinquent mortgages. Now, Paulson seems to have reversed course, intent instead on infusing lenders with liquidity, similar to the function once provided by the FHLB, but directed at commercial banks rather than home lending institutions. The FDIC has stepped out of its traditional mission to propose a system for refinancing delinquent mortgage loans, the other half of HOLC’s function, but it has been rebuffed. And the FNMA, privatized for 40 years, rather than being a tool available to help solve the crisis, became one of its earliest victims.

In short, Roosevelt’s administration either created or empowered a series of housing finance institutions, each designed to address a specific need revealed by the mortgage crisis, and to work in tandem with each other to create a new housing finance superstructure that allowed the market to function while imposing, and thus guaranteeing, quality standards. Let’s hope the Obama administration can do the same.

It’s a simple question, but answering it has ripped entire nations into pieces, including the United States. It was U.S. Senator Henry Clay, arguing that abolishing slavery would be a massive taking that would require just compensation to the slave-owners, who said, “that is property which the law declares to be property.”

Once they realize the context of his statement, most students disagree with Clay. But that begs the next question: if the law doesn’t give us the final word on rights, including [...]]]> Here’s a question I pose to my property students when we begin to study takings: is that property which the law declares to be property? Or, are there some things that can never be property, no matter what the law says?

It’s a simple question, but answering it has ripped entire nations into pieces, including the United States. It was U.S. Senator Henry Clay, arguing that abolishing slavery would be a massive taking that would require just compensation to the slave-owners, who said, “that is property which the law declares to be property.”

Once they realize the context of his statement, most students disagree with Clay. But that begs the next question: if the law doesn’t give us the final word on rights, including property rights, then what does?

I then take the opportunity to introduce them to a dapper young attorney who argued that that certain fundamental rights inhere in man – including property rights, and in particular the just allocation of property rights in natural resources.

He was the first attorney of non-European heritage to practice law in South Africa. He later returned to his home country, India, where he became an advocate and leader in a struggle for independence, democracy and the fair allocation of property rights. A critical turning point in the struggle was a protest against the monopolization of an extremely important natural resource in his country: salt.

His famous Salt March to the Sea, which embodied his philosophy of civil disobedience and nonviolence, became the inspiration for Martin Luther King Jr.’s strategy. We study the Fair Housing Act, of which Martin Luther King was an advocate. It was passed one week to the day following Martin Luther King’s assassination, to honor him. In that way, I tell them, Gandhi’s legacy is so profound that it reaches all the way to this course to you.

Gandhi himself had been assassinated 20 years before Martin Luther King. How much of an impact for good did this lawyer have on the world? Consider the words of Prime Minister Nehru, informing the people that Gandhi had been killed: “The light has gone out of our lives and there is darkness everywhere. . . . We will not run to him for advice, or to seek solace from him, and that is a terrible blow.”

It’s far too much, of course, to ask students to be a Gandhi. We can’t all be the light of other people’s lives. But we can , occasionally, work for justice. And an attorney can be someone to whom others run for advice and solace, a wise counselor. That’s part of the tradition of our profession, and Gandhi embodied it.

For a Property professor, these are riveting times. The mortgage nightmare continues. As in much of the country, here in Minnesota, thousands of houses stand vacant and decaying. Parts of Minneapolis have been devastated. But the problem may have crested in the cities.

Not so in the suburbs. Five-year subprime ARM loans that were originated in 2004 and 2005, when McMansions were popping up in suburbs like dandelions in my lawn, are not due to re-set their rates until 2009 and 2010. If home values haven’t improved by then, many of those borrowers will have negative equity – that is, they’ll owe more than their homes are [...]]]> Thanks, Sarah, Dan, and everyone at Concurring Opinions for inviting me to guest blog.

For a Property professor, these are riveting times. The mortgage nightmare continues. As in much of the country, here in Minnesota, thousands of houses stand vacant and decaying. Parts of Minneapolis have been devastated. But the problem may have crested in the cities.

Not so in the suburbs. Five-year subprime ARM loans that were originated in 2004 and 2005, when McMansions were popping up in suburbs like dandelions in my lawn, are not due to re-set their rates until 2009 and 2010. If home values haven’t improved by then, many of those borrowers will have negative equity – that is, they’ll owe more than their homes are worth. That means they’ll be unable to re-finance for as much as they owe, because lenders won’t lend more than the house is worth.

Legal and economic institutions seem at a loss to cope with the crisis, but not for want of trying. There are lots of plans out there, but none seems satisfying. From an academic’s standpoint, it’s fascinating. Rational choice, on the one hand, and norms of fairness, on the other, are interacting in odd and sometimes surprising ways.

Homeowners with negative equity can be divided into four groups: those who can’t pay their loans, those who might not be able to pay their loans in the near future, those who can pay their loans but don’t want to, and those who can and do pay their loans.

Lenders and government agencies agree that the best choice for dealing with homeowners who can’t pay their loans is to re-work their loans so they can. Lenders don’t want abandoned, unsellable homes, and government agencies don’t want homelessness to spread. Moreover, the presence of one foreclosed house lowers the value of neighboring houses, and increases the risk of more foreclosures.

The FDIC and commercial banks are working frantically on plan to to re-work loans. The problem is that ultimately, in order to make these loans affordable, they’re going to have to be re-valued at the current value of the home. In other words, the principal owed on the house will have to reduced – in many cases, reduced by a lot. It’s an economically rational choice: everyone involved – the homeowner, the lender, the government agency — is better off.

But there are significant negative externalities, and not all of them are cold-bloodedly rational. First, by re-valuing homes now in danger of foreclosure, agencies and lenders could push other homes into danger. Think of it this way: if your neighbor’s nearly identical home is now worth $200K, yours probably is too. And that may push your home into negative equity, and if you need to refinance that ARM, you won’t be able to do it. So by saving one house from foreclosure, we may create the need to save another; and we’ve spread the crisis from our first group into the second. Foreclosures beget more foreclosures, but re-valuing homes to avoid foreclosure may also beget more foreclosures.

Second, the rational choice for our third group – the folks with negative equity who can pay their loans but don’t want to — is to pretend they can’t pay the loan, so that the lender will re-value the home and lower the principal due. And there’s plenty of evidence that those people intend to do just that.

Which, not surprisingly, infuriates the people in our fourth group – people with negative equity who can and do pay their loans. To them, it seems blindingly unfair that similarly situated people are treated preferentially, just because they are unwilling to live with the bad bargains they made. And yet, folks in the fourth group are no worse off whether or not people who can pay but don’t want to get their loans reduced.

But governments violate strongly-felt norms of fairness at their peril. The nightmare, and the tug-of-war between rational choice and social norms, continues.