Who Owns Your Fat?

Forbes reports that a Beverly Hills physician who removes human fat by liposuction uses the fat as fuel for two biodiesel SUVs (his Ford model and his girlfriend’s Navigator). Apparently, “A gallon of grease will get you about a gallon of fuel, and drivers can get about the same amount of mileage from fat fuel as they do from regular diesel, according to Jenna Higgins of the National Biodiesel Board.” The irony is almost as good as Fight Club where the miscreants use leftover human fat to create soap which they sell the same upper class folks that were the source of the fat (“about the soap] Tyler sold his soap to department stores at $20 a bar. Lord knows what they charged. It was beautiful.").

Now the physician had a Web site (no longer up) on which he claimed that

The vast majority of my patients request that I use their fat for fuel--and I have more fat than I can use," … Not only do they get to lose their love handles or chubby belly but they get to take part in saving the Earth.

Yet according to Forbes, it is illegal to use human medical waste to power vehicles. Really? We have a law about using human waste to power vehicles? What about the Moore case? That one seemed to say that human waste is just that waste, garbage to which the patient had no claim (although there was a nod to proper disposal of medical waste). In addition, could it be that a doctor could take one’s cells etc and develop new drugs but the law would prevent using one’s fat to fuel a car? Why?

The article notes that an attorney has claimed the doctor in this case “removed too much fat from clients and left them disfigured” and that several others have complained to the state. So is this a conversion claim and a public health question. Maybe conflict of interest? All of them? I am not sure what the policy behind this one is. Most likely there is not a specific ban on this use of human medical waste but rather a general prohibition on use of human medical waste. Nonetheless, the oddity and irony of this one makes me wonder whether a patient should be able to negotiate to take home their fat or get a discount on the procedure for letting a doctor use the by-product as he or she wishes.

Posted by Deven_Desai at 01:47 PM | Comments (1) | TrackBack

Evicting the Blameless Tenant

One of the most pernicious effects of the mortgage crisis has been the eviction of blameless tenants. Leases are usually terminated by foreclosure. Tenants who have never missed a rent payment, and who have no idea that their landlord has not been applying rent payments to their mortgage obligations, suddenly face eviction -- often with no notice.

It is difficult to overstate the trauma of the eviction. Tenants are not only turned out into the streets. Often their personal property is put on the curb or thrown into dumpsters. They don't just lose their homes -- they can lose everything they own. Passing rainstorms or scavengers can turn a lifetime's worth of work into nothing. Children in particular can be traumitized by seeing parents rendered powerless, by losing their possessions, and by the fear of the unknown. Violence is a constant threat.

The problem is so pervasive, and so normatively objectionable, that county sheriffs upon whom the burden of eviction falls have been refusing to carry out the evictions under some circumstances. Most famously, Thomas Dart, the sheriff of Cook County, Illinois, unilaterally imposed a moratorium on the eviction of renters in foreclosed properties, over the howling objections of the banks.

I have written previously, and am writing still, about what happens when legal institutions face a divergence between the legality and social acceptability of behavior. Generally, institutions of enforcement don't enforce the law; they enforce the limits of acceptable deviance around the law (think speed limits). When they are called upon to enforce the law in a manner that conflicts with standards of social acceptability, it is often the institutions that give way rather than the standards.

It is heartening, therefore, but not entirely surprising, to see that the now re-nationalized Fannie Mae has decided to stop evicting tenants in foreclosed properties.

Fannie Mae has urged private mortgage holders to follow suit, but has met with little enthusiasm. Banks don't want to become property managers. They want to sell foreclosed properties as quickly and cleanly as possible.

But the question we should be asking is, between the lender and the tenant, who should bear the risk that a rental property will be foreclosed upon?

To answer that question, we need to answer two others: between the lender and the tenant, who is better informed about the risk of foreclosure? And, between the lender and the tenant, who will suffer greater harm in the event of foreclosure?

Obviously the lender is in a better position to assess the risk of foreclosure. The lender, presumably, is making that risk assessment before lending. Since the lender is better placed to assess the risk that a rental property might be foreclosed upon, it seems both efficient and fair that the lender should bear that risk.

The second question might simply be re-phrased as: risk of what? For the bank, the risk is that it is saddled with the responsibility of property management, and that it might be more difficult to sell the property. For the tenant, the risk is eviction and, possibly, loss of personal property and homlessness. It seems the relative harm to the tenant is higher, and it may well be true that the absolute economic harm to society in general is greater when blameless tenants are evicted because of foreclosure, because eviction of blameless tenants has significant negative externalities for neighborhoods and cities.

It is true that the costs of risk allocated to lenders will be passed on to mortgagees and, ultimately, renters, but that may eliminate low quality mortgagees. In short, it seems to me, that lenders should accept the risk that they may end up managing the rental properties they finance, if they do so unwisely.

Posted by Mark_Edwards at 08:36 PM | Comments (22) | TrackBack

Paradine, WTC, and the beauty of property and contract

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.

Posted by Mark_Edwards at 04:53 PM | Comments (7) | TrackBack

Henry Paulsen as Mary Bailey

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.

Posted by Mark_Edwards at 11:47 PM | Comments (4) | TrackBack

Volume Liver Transplants

Of all the issues raised by the Wall Street Journal’s recent reporting on volume liver transplants, those concerning property law may be the least salient. But the questionable behavior of Amadeo Marcus, the former director of clinical transplantation at the University of Pittsburgh Medical Center (UPMC), reminded me of the infamous Moore v. Regents of the University of California. In Moore, the California Supreme Court decided an individual has no property right in his excised cells. Moore helps introduce students to questions of commodification and inevitably leads to discussions about whether people should be allowed to sell organs and other bodily materials. Regardless of their position on this question, students sometime need to be reminded about the extent to which such bodily materials have already been commodified. The next time I teach Moore, I’m going to use recent events at UPMC to amplify this point:

The transplant program is a source of both profits and prestige that UPMC leverages to attract star doctors and build its other businesses, which include a health-insurance arm. Hospitals charge $400,000 to $500,000 for a liver transplant. UPMC's transplant program produced $130 million of revenue in its latest fiscal year . . . .

Liver-transplant volume in Dr. Marcos's first full year [at UPMC] jumped to more than double the volume in the year before he came, according to data from the United Network for Organ Sharing, or UNOS. But the way he boosted it raised questions for some colleagues.

A shortage of transplantable organs from cadavers is a perennial constraint on the number of liver transplants. Dr. Marcos overcame this in part by using organs from so-called expanded-criteria donors -- deceased people who had been older or sicker than preferred liver donors. . . . Dr. Marcos put some of these organs into patients who were in the early stages of liver disease. . . . These were patients, [some experts say], who sometimes didn't need a transplant. . . .

Besides using more expanded-criteria livers, Dr. Marcos sharply increased the number of transplants from living donors. In these, part of the liver of a healthy person is cut off and grafted into a sick patient. If all goes well, both pieces eventually grow to normal size. The procedure is controversial because it could be risky for the otherwise healthy donor.

UPMC did 150 such surgeries while Dr. Marcos was there, according to UNOS. No donors died. However, in 69% of the cases, the recipient had [various medical indicators suggesting] that UPMC was putting some living donors at risk to do transplants on patients in which the risks of the operation may have outweighed the benefits.

Posted by Sarah_Waldeck at 01:40 PM | Comments (4) | TrackBack

Drop Everything and Emulate, III

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.

Posted by Mark_Edwards at 01:00 PM | Comments (6) | TrackBack

Nightmares, Norms and Negative Equity

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.

Posted by Mark_Edwards at 12:20 AM | Comments (7) | TrackBack

Heller on Ubiquitous Market Failures

Via Tyler Cowen, Michael Heller's book The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives. From the Amazon Page:

25 new runways would eliminate most air travel delays in America. Why can’t we build them? 50 patent owners are blocking a major drug maker from creating a cancer cure. Why won’t they get out of the way? 90% of our broadcast spectrum sits idle while American cell phone service lags far behind Japan’s and Korea’s. Why are we wasting our airwaves? 98% of African American–owned farms have been sold off over the last century. Why can’t we stop the loss? All these problems are really the same problem—one whose solution would jump-start innovation, release trillions in productivity, and help revive our slumping economy.

Usually, private ownership creates wealth, but too much ownership has the opposite effect—it creates gridlock. When too many people own pieces of one thing, whether a physical or intellectual resource, cooperation breaks down, wealth disappears, and everybody loses. Heller’s paradox is at the center of The Gridlock Economy. Today’s leading edge of innovation—in high tech, biomedicine, music, film, real estate—requires the assembly of separately owned resources. But gridlock is blocking economic growth all along the wealth creation frontier.

Heller has been a tireless chronicler of market failures and this looks like a particularly timely book. Consider, for instance, how hard it is to deal with the subprime mess as the slicing and dicing of pools of mortgages has made it very difficult to trace who owns any particular loan. And on a more mundane level--consider how "[e]xtending Amtrak service [114 miles] from Boston to Portland[, Maine] . . . has taken longer than building the transcontinental railroad."

Posted by Frank_Pasquale at 08:32 PM | Comments (4) | TrackBack

Attention All Flatlanders, Fudgies, and Other-State Equivalents

This post uses my guest stint to try to collect information for a project about the inheritance and management of family cottages. As the graphic suggests, at least my inquiries are seasonally-appropriate!

I began to think about family cottages in an academic way last summer. While browsing in a small resort town, I saw the local bookstore had more than 20 copies of a text entitled Saving the Family Cottage on its reserve shelf. When I commented on the book’s apparent popularity, the shopkeeper informed me that it was outselling the new Harry Potter. I was intrigued, but not surprised. In this place where visitors boast about the length of their family’s connection to the town, discussions about the fates of family cottages are popular pastimes.

Family cottages go by many names. They are called summer houses, or cabins, or referred to by their location: the lake, the Cape, up north, the shore. They are where families gather to vacation, often at the same time year after year; where grandchildren visit their grandparents; and where cousins play with cousins. As Professors Judith Huggins Balfe and Kenneth Huggins have explained, they are “‘family houses,’ sometimes more than the year-round home” and often “the places of our strongest memories, childhood and adult.” Some of these properties are grand and others are modest. Some are owned by wealthy families, others by families who could not afford them but for an investment made by an ancestor.

Notwithstanding its sentimental glory, the family cottage can be a source of tremendous angst about what will happen when its current owners die, or how the place is currently used and managed, or both. In the absence of more sophisticated estate planning, at some point these cottages are likely to be governed by the law of a tenancy in common. That is, the property is devised in equal shares to siblings, who may hold the cottage long enough to pass it on to their children, and so forth. My project explores the norms and traditions that govern these sorts of households, the role that property law plays, and what, if any, legal reforms should be made in this context.

So here’s my first request: if you are involved in a family cottage, tell me your story. How many generations has the property been in your family? How do you handle carrying costs, improvements, scheduling and use? Is your cottage governed by a tenancy-in-common or other legal arrangement? Is your arrangement rocky or smooth? Some first-rate sociology has been done in this area already, but I would like to supplement with some casual empiricism. So write a comment or send me an email at waldecsa@shu.edu. (One of the things I’ve been struck by while working on this project is how many people have a story to tell.)

Here’s my second request: if you are attorney who advises clients about family cottages, I’d be very interested in talking to you about the sort of advice you give and the legal vehicles you tend to favor. Please send me an email at waldecsa@shu.edu so that we can get in touch.

P.S. For the uninitiated, a "fudgie" is a person who vacations in northern Michigan. A "flatlander" is a tourist from Illinois. Sometimes (as here) these terms are used with affection, but usually they are not intended to be kind!

Posted by Sarah_Waldeck at 04:00 PM | Comments (2) | TrackBack

Eminent domain, equity and efficiency, and subjective values

Over at Volokh, Ilya Somin highlights an interesting WaPo article about takings. The U.S. Army wishes to expand its training ground in Colorado, and this will require taking land from several ranchers. The WaPo piece discusses rationales for the taking, as well as various property-holder objections. In his own take, Somin seems quite doubtful of the propriety of this particular taking. He writes,

As a legal matter, there is no doubt that this potential use of eminent domain is constitutional . . . However, the fact that the Army's plan is constitutional doesn't necessarily mean that it is equitable or efficient.

From there, Somin makes two arguments. First, he argues that taking of private land should be avoided where other options exist:

There remains the question of whether a facility of comparable quality could be built without resorting to condemnation. The U.S. government already owns hundreds of millions of acres of desert property in the Western states, much of which is not being used. Perhaps the Pentagon could build a new training facility on land the federal government already owns; if so, that would be far preferable to displacing private property owners.

Second, he suggests that, where property is taken, property owners (these owners in particular) should receive over-market compensation intended at least in part to make up for loss of subjective property value:

Market value compensation often fails to fully replace the owners' losses. If they valued the land at the market price or less, they presumably would have sold it already; their decision to hold onto it is an implicit signal that they place a "subjective value" on the property above its market price. In this case, subjective value concerns are particularly serious. Many of the owners' families have lived on the land for generations, and would lose most of their livelihood if forced to move. Even if the Court is right to hold that fair market value compensation is all the Constitution requires, this is one case where the feds should pay more.

In a number of areas, Somin's analysis seems problematic.

First, Somin is not clear about how to employ the factors of equity and efficiency. He writes, "as a legal matter, there is no doubt that this potential use of eminent domain is constitutional . . . However, the fact that the Army's plan is constitutional doesn't necessarily mean that it is equitable or efficient. " This implies that equity or efficiency or some combination of the two ought to be a factor in takings decisions.

This argument potentially has some merit; after all, it may make sense to force government actors to act efficiently or equitably or both, and it is easy to criticize actions that are neither. However, it is also clear that any such test would require elaboration. How _much_ should equity and/or efficiency weigh in the decision? Should only one be required, or both?

And such an approach is not without its own costs. For example, a strong rule could be articulated to include both of Somin's suggested factors, along the lines of, "no exercise of eminent domain is permitted unless the government can show that the action is both equitable and efficient." That would give weight to both of Somin's factors. It would also seriously limit government ability to act. That may be a consequence that Somin or other commenters view as positive, but it would probably not be universally viewed as a positive result.

So, an initial question relates to Somin's implied endorsement of an equity/efficiency test of some sort. Just what kind of implied test is Somin proposing, and how does it work? (As we'll see, this matters for the analysis.)

(As an aside, Somin seems rather cavalier about the analysis of efficiency in this case. In particular, he hints that this taking may be inefficient and that other property may be equally amenable to this particular use. Yet, his blog post (which cites other portions of the WaPo piece) does not mention the multiple statements in the WaPo article about the proximity of _this_ land to a major military base that is one of the largest training hubs in the Western U.S. Even if that is not dispositive, it seems like relevant information in any calculus of efficiency.)

A second critique relates to Somin's apparent articulation of a rule favoring use of existing government property.

There remains the question of whether a facility of comparable quality could be built without resorting to condemnation. The U.S. government already owns hundreds of millions of acres of desert property in the Western states, much of which is not being used. Perhaps the Pentagon could build a new training facility on land the federal government already owns; if so, that would be far preferable to displacing private property owners.

Somin does not explicitly set out a reason why this would be preferable. His statement suggests an interesting potential rule: If the government already owns land which could be put to a particular use -- an acceptable substitute -- then it should not condemn private land for that use.

Again, that seems inuitively sensible -- why take private land for a use, if an acceptable substitute in public land is available? But again, it seems the devil may be in the details. For one thing, this rule seems to invite disagreement about the definition of acceptable substitute.

For instance, suppose that the government wants to build a road from Point A to Point B; that private land lies directly between A and B; and that a circuitous, snaking chain of government land could also be used to connect A to B. Should the government be required to use government land and the indirect route rather than taking private land for the direct route? Would this apply even if the result was a winding and difficult (possibly dangerous?) road, or the creation of extra miles of difficult driving? If it creates extra road-building expense? Is it really an acceptable substitute to build on government land if that means a road from Times Square to Rockefeller Center, via Queens?

The difficulty of deciding on acceptable substitutes ties in to a broader point: A general rule of using government instead of private land every time could itself be highly inefficient. Should the city really be proscribed from condemning my $100 acre of rural property to build its power plant, and instead forced to build that plant on a high-value ($2000) city-owned acre downtown? We're where the rubber hits the road (and back to question 1, really) -- what matters more here, equity or efficiency? If we truly force a rule of "use public land first" in all cases, aren't we giving a kind of subsidy (failing to take) to certain property owners, at the expense of the general public?

And to apply that question to this case: If it would cost $10 million to take the privately owned Colorado land, and $20 million for a next-best option of building an equivalent infrastructure on available public land in Nevada -- should we really apply a strict rule of "use public land first" and simply pass the extra cost on to taxpayers? (What if the next-best option costs $40 million? $100 million?)

I'm really unconvinced that Somin's use-government-land-first approach makes sense as a broad rule. It has obvious flaws from an efficiency standpoint; and depending on the size of the subsidy, it may not make sense from an equity standpoint, either.

Finally, I was surprised by Somin's analysis of subjective values.

Of course, property owners often attach subjective value to their property, and thus the value to an owner is often greater than market value. That's why the property is still in the hands of _these_ owners, after all. Courts (including the Supreme Court) and commenters have discussed this matter, and it has come up in cases like Lutheran Synod. And in general, courts have _rejected_ (on workability grounds, among others) the idea of paying subjective values, instead keeping to the rule of fair market value. (The general rule is subject to exceptions, such as where the property value is unascertainable or where paying market value would result in manifest injustice.)

Is Somin saying that all property owners should be paid subjective value? He initially seems to be headed that direction, suggesting that these property owners deserve over-market compensation, and writing that "market value compensation often fails to fully replace the owners' losses. If they valued the land at the market price or less, they presumably would have sold it already; their decision to hold onto it is an implicit signal that they place a "subjective value" on the property above its market price."

If Somin is really arguing that compensation should generally be subjective, he's got his work cut out for him. That would be a major change in takings law, and would affect vast numbers of takings, since many property owners attach some subjective value to their property.

However, Somin then scales it back: "In this case, subjective value concerns are particularly serious. Many of the owners' families have lived on the land for generations, and would lose most of their livelihood if forced to move. Even if the Court is right to hold that fair market value compensation is all the Constitution requires, this is one case where the feds should pay more."

Okay, so only _these_ owners deserve extra compensation. Still, it's not completely clear why. Perhaps Somin is implicitly making a replacement-value argument by noting the loss of livelihood -- that is, an argument that fair market value would leave these owners unable to replace the property, and that they should be paid replacement value instead. Unfortunately, that approach would go directly against Supreme Court statements that replacement value is not the legal standard. Or perhaps Somin is making a more limited argument, that market value here would result in manifest injustice. That's probably a tough one to convince a court. (Or perhaps an argument that there really is no adequate market for this particular property?)

Somin may be right in his conclusions that this particular taking is a bad idea, or that extra-market compensation should indeed be paid. But I don't find his current analysis, as set out in his post, to be convincing support for those conclusions.

Posted by Kaimipono at 02:14 PM | Comments (2) | TrackBack

Flakes on a Train

The yammer-jammer I described over the weekend incites a spirited discussion at the NY Times letters page today. Here are two interesting responses:

I’m usually trying to read when someone near me starts talking on the phone and I can’t concentrate. (Why is it that people on the phone are so much louder than anyone else talking on the bus? Something about loss of inhibitions, I guess.) Anyway, I just start reading my book out loud. Loud enough so that I can hear myself over the cellphone talker. My favorite part is when the confronted cellphone talker replies, “Well, this is public space!” Since when did it become O.K. to be more obnoxious in public than you’d ever be in private?

Others are more direct:

[Someone the middle of the train] in which I was riding . . . . was blabbing loudly and nonstop on her cellphone. As my fellow riders rolled their eyes and gritted their teeth, I turned my head slightly over my shoulder and yelled (I have a pretty strong yell), “Shaddup already!” It not only had the intended effect, but it also was perfectly legal, and I saved the 200 bucks of a jammer.

Another writer suggests that "train conductors be empowered to issue a summons to the blabber-mouths." But I have a sense that the wireless lobby may well get the FCC to preempt such laws. Who knows, perhaps it won't be satisfied till retaliatory book readings and spirited "shaddup"s are banned as interference with the rights of the yellular.

Posted by Frank_Pasquale at 07:58 AM | Comments (2) | TrackBack

Real Estate Appraisals and Copyrighting Facts

As reported by the Washington Post, an interesting intellectual property dispute is brewing in the real estate appraisal business. On one side are traditional real estate appraisers, who charge several hundred dollars for an appraisal that typically involves an onsite inspection. On the other side are online appraisal services that, relying on their databases and some algorithms, offer lenders an instantaneous appraisal at a small fraction of the cost.

The traditional appraisers are upset because the online services may be extracting information from their appraisals and using that information to improve their databases (and thus the accuracy of their online appraisals). Taken to its logical extreme, as online appraisers get better databases by capturing data from the traditional appraisers’ inspections, traditional appraisers will destroy their own industry.

Not surprisingly, the traditional appraisers are looking for ways to preserve their market niche, and intellectual property doctrines can be great tools to hinder marketplace competition. So the WaPo article mentions that the traditional appraisers are considering their copyrights in their appraisals. After all, traditional appraisers put in their sweat of the brow, so shouldn’t they be rewarded? (The article provides some good quotes reflecting this paradigm).

We know how this argument goes. Copyright doesn’t protect the labor invested to generate facts. Appraisers probably can copyright the report in its entirety, and they may even be able to copyright their specific price estimate (see, e.g., CDN v. Kapes), but there should be no way for appraisers or anyone else to obtain copyright protection for a home’s basic specifications (e.g., square footage, age, number of rooms). As a result, copyright law does not provide appraisers with any effective way to restrict online databases from extracting facts from their reports. Thus, if traditional appraisers are looking for a tool to restrict competition from online factual databases, copyright law may not be very helpful.

Even if copyright law isn’t availing, traditional appraisers have other tools at their disposal, including:

* providing services that online database providers can’t, such as the increased accuracy associated with the onsite inspections.

* restricting access to the appraisals. Right now, it appears that the biggest online database service gets some data by providing an online tool for appraisers to submit their reports to lenders—thus, allowing them to extract facts from appraisals that cross the network. Traditional appraisers could try to discourage lenders from using this delivery service, thereby making it harder or impossible for the online service to see the appraisals. Alternatively, if they keep using this delivery service, traditional appraisers could negotiate a contract that limits the service’s ability to extract facts. (The contract is probably some standardized click-through agreement, but it’s negotiable in theory).

* if traditional appraisers really think they are losing money, they could just increase their fees to lenders to cover the lost value (good luck!).

But despite these options, the long-term prognosis may not be very good. A good appraisal always will need an onsite inspection, but just about every other aspect of the appraisal business can be replicated or eliminated through online mechanisms. Thus, it could be that the Internet is disintermediating the appraisal industry, and no amount of rear-guard intellectual property saber-rattling will change that fact.

Posted by Eric_Goldman at 11:59 PM | Comments (6) | TrackBack

Scentvertising, Bubbles, and the Battle for Mindshare

I serendipitously encountered two bellwethers of commercial culture today. The WaPo looks at retailers' increasing use of fragrances to enhance consumers' moods. Is this effort to get people in a buying mood a bit like subliminal advertising? Some unexpected nuisance issues arise:

The American Lung Association has received several complaints about scented stores, spokeswoman Janice Nolen said. The fragrances have triggered flare-ups for asthma sufferers and those sensitive to certain chemicals. "I don't want to sound like the Grinch," Nolen said, but "sometimes these fragrances can be a barrier to people." Evelyn Idelson . . . is one of them. She first noticed that her laundry detergent was scented. Then her dishwashing liquid. Now, she said, everything smells. "I can't stand it," she said. "I think it's an invasion of personal space."

The California Milk Processor Board has responded to such complaints, removing ads that smelled like cookies. "Taunting [the obese] with the smell of off-limits cookies was just cruel, they said." Given the parlous state of many Americans' finances, perhaps Debtors' Anonymous should launch a similar campaign for all luxury goods.

But then again, we'd never say the same thing about images of products, would we? Perhaps it turns out that scent is more visceral than sight:

"You smell a rose, and your brain doesn't go, R-O-S-E," said Charles S. Zuker, a researcher with the Howard Hughes Medical Institute. "Your brain recalls what a rose is like." Daniel Lieberman, an associate professor of psychiatry at George Washington University, called smell the most "primitive" of the senses. Odor receptors in the nose are actually brain cells, he said.

So I suppose scent is in a category of its own.

But for those frustrated with all-pervasive commercial culture, there is another alternative: self help. Harvard's Berkman center recently had a panel on "culture jamming," including many leaders in cyberactivism. I was intrigued by Ji Lee's bubble project, which encourages renegade "taggers" to scrawl commentary, in bubbles, on ads:

Our communal spaces are being overrun with ads. . . . Once considered "public," these spaces are increasingly being seized by corporations. . . . Armed with heavy budgets, their marketing tactics are becoming more and more aggressive and manipulative. The Bubble Project is the counterattack. . . . Once placed on ads, these stickers transfom the corporate monologue into an open dialogue.

I suppose many will deem the Bubble Project illegal art, or mere graffiti, and may even think Ji guilty of inducing copyright infringement. But I think it's worthwhile hearing his side of the story, and thinking about the ways in which ordinary citizens can try to avoid (or undermine) a barrage of commercial messages. As Hannibal Travis notes, there is a "battle for mindshare," whether we like it or not.

PS: This is a very interesting disclaimer from the FAQs of the Bubble Project:

Q: Is it legal to place bubbles on top of ads?
A: No, it's illegal. It's consider[ed] vandalism to deface any public or private message. If you are caught, you may be subject for fines and even get arrested. You figure it out on your own. I'm not responsible for your actions.

Art Credit: Aric Obrosey, The Symbolic Lotus of a Thousand Colonels [Sanders]

Posted by Frank_Pasquale at 06:18 PM | Comments (0) | TrackBack

Was Johnny Cash a Law Professor?

I have posted before about the music of the law. Of late I have been prepping and researching to the music of Johnny Cash, and I wonder if perhaps his songs were meant as law-exam issue spotters. Here are two examples. First, in the "The Boy Named Sue," Cash tells the story of a man who tried to kill his father for naming him "Sue," a sobriquet that apparently resulted in a life time of torment. Suppose, however, that the boy named Sue, rather than trying to kill his father in a honky-tonk brawl had instituted a law suit. Is there a cause of action for tortious naming?

Second, in "One Piece at a Time," Cash tells the story of a factory worker who over the course of two decades steals a Cadillac piece by piece by piece from the factory. He and his friends then assemble the car, which proves difficult due to the constant evolution of car models. (There is no doubt some point about planned obsolesce in here as well.) He then sings:

About that time my wife walked out
And I could see in her eyes that she had her doubts
But she opened the door and said "Honey, take me for a spin."

So we drove up town just to get the tags
And I headed her right on down main drag
I could hear everybody laughin' for blocks around
But up there at the court house they didn't laugh
'Cause to type it up it took the whole staff
And when they got through the title weighed sixty pounds.

How exactly did he get title to the car? More importantly, what crime -- if any -- is he guilty of. The parts for the car were taken over a period from 1949 to 1973. How many larcenies have there been here? To the extent that the crime depends on the value of the item taken, should defense counsel argue that there is a single crime or hundreds of crime committed seriatim. (Can he avoid any under the statute of limitations?) What of special crimes dealing specifically with cars. Is it grand theft auto if you take it one piece at a time?

Posted by oman at 01:29 PM | Comments (5) | TrackBack

Nazi Stolen Art Claims Pervade Record Auction

Welcome to the season of the major art auctions in New York. The New York Times (11/9/06) reported:

In a landmark sale, the biggest in auction history, nearly half a billion dollars’ worth of art changed hands last night at Christie’s sale of Impressionist and modern art. Soaring prices for blockbuster paintings by Klimt and Gauguin left thousands of spectators, who came to watch and to buy, gasping.

Not me. Instead I’m gasping at all the legal back stories involved in Wednesday night’s auction.

The most current one involved Christie’s lead item: Picasso’s “Portrait de Angel Fernandez de Soto” a.k.a. “The Absinthe Drinker.” On Monday, SDNY judge Jed Rakoff dismissed a suit brought against the auction house by an heir of a prominent Jewish Berlin banker who had owned the painting during WWII. The suit claimed title to the painting and sought its return or $60 million plus attorneys fees. Although Judge Rakoff ruled that the federal court had no jurisdiction over the matter, he hinted at his opinion on the merits stating, “I know that no one in the art world is just interested in money or in buying and selling paintings for profit. They’re guided by their belief in truth and beauty. But nevertheless, one might suspect that this is just a fight about money.” That suspicion was first raised by Christie’s who publicly questioned the motivation of the plaintiff in waiting 70 years to bring suit and then only days before this major auction. Christie’s attempted to take the high ground calling the plaintiff’s actions “a disservice to the restitution community."

The painting has been owned by the foundation of Sir Andrew Lloyd Weber’s (of “Cats” fame) since 1995. According to the plaintiff, his ancestor consigned the painting to his Swiss art dealer who sold it in the last months of his life. Christie’s contends the painting was sold after his death, but argues that either way it was a legal sale. The plaintiff’s suit rests on his claim the sale of the painting was under duress by the Nazis; a so-called “forced sale.” In this case, it seems that the Nazis seized the banker’s assets thereby forcing him to sell the art in 1934 in a depressed Berlin art market. This set of facts departs slightly from successful forced-sale claims in which art was sold in “Jew auctions” where Jewish art dealers were prohibited from making sales other than through Nazi-organized art auctions.

The lawsuit was re-filed in New York State Supreme Court on Wednesday. Finally, just hours before the auction, Christie's announced it was withdrawing the painting because “of eleventh-hour claims” that cast a “cloud of doubt” over title to the painting. The painting was estimated sale at $40 to $60 million. This means that if the painting were sold at say $50 million (all the other works sold exceeded their estimates), Christie’s lost $6 million, or its 12% commission (the lower commission charged for expensive works).

Also part of Wednesday’s auction were five Gustav Klimts that were the subject of a 2004 Supreme Court case, Austria v. Altmann, 541 U.S. 677. In that case, Adele Bloch-Bauer, the subject of one of the paintings, willed the paintings to the Austrian Museum upon her husband’s death. She died, the WWII ensued and the paintings were seized by the Nazis. After the war, her husband willed them to their nieces and nephews. The Supreme Court ruled that the 1976 Foreign Sovereign Immunities Act could be applied retroactively to Altmann’s case, thus paving the way for Altman to sue the Austrian Government in US Courts. In April of this year, the Austrian National Gallery was compelled by a national arbitration board to return the five paintings to Maria Altmann, the niece of the original owner. On Wednesday night, the portrait of Adele Bloch-Bauer sold for $87.9 million, a Klimt record and almost double its estimate. The room reportedly exploded in applause.

Still another work in Wednesday’s auction was the subject of a legal dispute. “Berliner Strassenszene” by Ernst Ludwig Kirchner was only recently was turned over to the heirs of Jewish shoe factory owner Alfred Hess by the Bruecke-Museum in Berlin, where it hung since 1980. In that dispute, Hess’ widow contended she was intimidated into bringing the painting back to Germany from safety in Switzerland.

Posted by Christine_Farley at 05:20 PM | Comments (3) | TrackBack

Baseball, books, and property rights

Alan Schwarz has an interesting new article in the New York Times on the baseball statistics case. (The article cites, among others, Eugene Volokh.) A few of the more interesting snippets (this is all fair use, I tell you!):

"If anything, this case is even more impactful if the court rules for the players, because it will speak to any time you use a name in a commercial venture," said Eugene Volokh, a professor of law at U.C.L.A. "What if you use a historical figure's name in a historical novel? Or other games, like Trivial Pursuit? How about 'Jeopardy!'? Would they be liable as well? That seems to be the logical consequence of this. How do you identify what is news, and other times when there's communication of factual information?" . . .

"Fantasy leagues are an intermediate case," said Rod Smolla, dean of the University of Richmond Law School. "This could become like the Grokster case in the music-downloading world, where the Supreme Court could be asked to draw that line between the benefits of public use and ownership of property." Fame, Mr. Smolla said, "belongs in part to the people who earn it and the public that gives it.

There you have the basic arguments. The difficulty comes in determining the place of baseball statistics on a continuum. On one end of the continuum are items that look a lot like property, such as detailed compilations of Derek Jeter's batting average over the past ten seasons. On the other end are basic facts known to every Tom, Dick and Harry at every sports bar in America, like the fact that Ted Williams was the last player to hit .400. A detailed list of World Series winners back to 1901 looks more property-like; "the White Sox won it last year" doesn't. And so forth.

Complicating matters further, the statistics case will play out in a world where ideas about property itself may be somewhat in flux. An interesting piece by Kevin Kelly ran in the NYT magazine last Sunday, about the effects of digitizing intellectual property. Kelly's article argued that:

In a regime of superabundant free copies, copies lose value. They are no longer the basis of wealth. Now relationships, links, connection and sharing are. Value has shifted away from a copy toward the many ways to recall, annotate, personalize, edit, authenticate, display, mark, transfer and engage a work. . .

Copies don't count any more. Copies of isolated books, bound between inert covers, soon won't mean much. Copies of their texts, however, will gain in meaning as they multiply by the millions and are flung around the world, indexed and copied again. What counts are the ways in which these common copies of a creative work can be linked, manipulated, annotated, tagged, highlighted, bookmarked, translated, enlivened by other media and sewn together into the universal library.

There's a lot of truth to Kelly's argument, and it applies to much more than just books. It certainly applies in the baseball statistics case, and that reality is going to be the backdrop that determines how the case affects property rights.

Thus, Eugene's 'Jeopardy!' example is a good one. We can all imagine Alex Trebek and a 'Jeopardy!' answer of "This baseball player was the last to hit .400." ("Question: Who is Ted Williams?") The real emphasis is not on the definition of property per se, but rather on what are acceptables uses of the property. This is because in a world of low-marginal-cost copying, no one can prevent me from going to MLB.com and assembling lengthy lists of player statistics. And I don't harm MLB or anyone else if I collect such copies. What MLB wants is control over how I can use such lists.

Posted by Kaimipono at 02:09 AM | Comments (7) | TrackBack

Relative Deprivation, Location, and Lawdenfreude

As a recent buyer of a “luxury” (read: habitable) condo in a not-so-fashionable precinct of Jersey City, I obsessively read about the “housing bubble.” It’s about as irresistible as kitschy old TV shows. The latest installment is this interesting piece by Dean Baker, arguing for governmental intervention designed to pop the purported bubble “sooner rather than later:”

If mortgage rates were pushed back to more normal levels (e.g., 7 to 8 percent), it would almost certainly lead to a sharp reduction in housing prices. Deliberately destroying trillions of dollars of wealth may seem like perverse policy, but it is important to recognize the context. If there is in fact an unsustainable run-up in housing prices, then the question is not whether prices will fall, but rather when prices will fall. The wealth is not really there. It is an illusion.

Housing economists can have a field day debating the wisdom of this proposition as a policy matter—I defer to their opinions. What piques me is the notion of “illusory wealth.” The housing bubble story reveals something fundamental about “wealth creation” via certain assets that mainstream economic measurement tends to ignore. For the 68% or so of people who own a house, rising real estate prices bring security and well-being. But for the rest, they can cause real anxieties. In many commodities markets, rising prices can induce more suppliers to meet the demand. But in many urban centers, there is little space left next to public transit or desirable amenities. Supply can’t rise to meet demand. So what we really have is a bidding war for prime space. Does this have any implications for law?

I think so, for a few reasons. First, these bidding wars focus our attention on how “growth” or “expansion” in one area of the economy may not reflect its efficiency or value, but merely its proprietors' power to grab a bigger “slice of the pie.” Does a CEO’s salary really reflect his contribution to the well-being of the firm? Or merely his power over the compensation committee?

Housing prices often appear to reflect little about the actual utility of the underlying asset; rather, they’re driven by interest rates, financing options (anybody hear about the zero-down ARM? 40-year mortgage?), fashion, and panics (both to buy and to sell). Laws designed to stop risky financing are not mere paternalism; rather, they properly undermine an “arms race” that auction theory predicts will occur without outside intervention.

Anup Malani pushes insights like these in a way that deeply challenges conventional economic accounts of prices. According to Malani, “The value of a law should be judged by the extent to which it raises housing prices and lowers wages.” That may sound implausible, until one thinks of the extremes to which people are willing to go to live in a place like Tokyo or London. Once again, housing’s price is based less on the value of the underlying asset than on all manner of intangibles affecting perception of the value of the asset.

Second, the bubble discloses some of the distortive effects caused by inequality. For example, to have true deterrent effect, a fine should consume some percentage of income. But the U.S. tends to fine in fixed dollar amounts. A speeding ticket of $300 sends a much different signal to someone in the top 1% of wage-earners than it does to someone in the bottom half. A rising group of the “ultra-rich” will find it much easier to speculate in real estate than those who are merely rich. Both the wealthy speeder and real estate dabbler are engaged in potentially destructive behavior at above-optimal rates because the deterrents to such behavior (such as fines or housing market “crashes”) affect them far less than they affect the “average Joe.” To the extent we raise fines to stop the wealthy speeder, we may well be over-deterring poor Joe. I call this effect a "buying power externality" arising out of inequality, generating harms as real (and unreflected in market prices) as pollution or nuisance.

Finally, the bubble highlights problems of relative deprivation. As housing prices in certain areas rise to extraordinary levels, they become more than a way of determining the worth of an asset. Rather, they encourage a form of economic apartheid. An address becomes a badge of honor (or dishonor). When I worked at a big Washington firm, some colleagues would occasionally ask in disbelief “you live on the Green Line?!” I doubt they’d have made it to my dinner parties (if I’d had time to throw any!)

If this is all true, it adds one more reason why Robert Frank and Cass Sunstein should be declared the winners of their debate with Besharov and Viscusi. But that’s another post…and perhaps another article….

Posted by Frank_Pasquale at 10:33 PM | Comments (1) | TrackBack

Monument Law

Ah, public monuments. They're how we remember important events and help define who we think we are. Dan Solove's recent posts on courthouses reminds me of how much we're concerned with presenting the right image to communities. And there's been a lot of writing about the function that courthouse architecture has served in American history. Moreover, lots of folks are writing these days about monuments and their meaning. Sanford Levinson's charming book, Written in Stone covers a lot of ground in a little bit of space. And people are talking more about removing monuments from parks or renaming them (such as the Nathan Bedford Forrest Park in Memphis). Sewanee: The University of South is going through something like this right now.

I haven’t seen any serious commentary (in the blogosphere or elsewhere) on the United Daughters of the Confederacy v. Vanderbilt University, decided last May by the Tennessee Court of Appeals. Perhaps, though, it warrants a little bit of attention. It has some things to say about long-term contracts, the right of donees to alter monuments (like changing the names of buildings), and even how we remember the Civil War. The case arose from the effort of Vanderbilt University in 2002 to rename a dormitory on its campus from “Confederate Memorial Hall” to “Memorial Hall.

According to the court of appeals' opinion, Chancellor Gordon Gee began efforts to change the name when he arrived at the University in the summer of 2002. People on campus had been talking about renaming the building for some years; some thought it was appropirate. Not surprisingly, others did not. Now, name changes are incredibly controversial, and I have mixed feelings about them. There’s something to be said for keeping names up because we want to honor folks who contributed money or whose accomplishments deserve honor. Even in the case those who engaged in what some might now think of as rather reprehensible conduct, we might still want to continue to honor, because of other contributions they made. And because a name on a building is part of a tradition. On the other hand, names convey messages to folks; and sometimes those messages are unfriendly, even if not everyone sees them as unfriendly.

Chancellor Gee's plans included changing the name of "Confederate Memorial Hall" on campus maps and on the front of the building to "Memorial Hall." The United Daughters of the Confederacy (UDC) sued to prevent the change. The factual background is, well, a little complex. The UDC contributed $50,000 towards the building cost in the 1930s. But the history goes back to the 1910s, when the UDC was instrumental in building monuments and putting up plaques to the Confederate dead. The UDC's history is well worth a read.

In the 1910s, the UDC began talking with Peabody College about providing funding for a dormitory. There were contracts (in 1913 and 1927), which together called for the UDC to provide $50,000 to build a dormitory. In return, Peabody would call the building "Confederate Memorial Hall" and allow the UDC to nominate young women who were descended from Confederate veterans to live rent-free in the building.

The UDC had trouble raising money. Then in 1933 there was a new contract drafted (which ratified the previous two), calling for $50,000 from the UDC and the rest of the money from the National Recovery Administration, a New Deal Agency. It provided that the agreement was void if the NRA didn't provide funding. Turns out, that contract was never signed (that we can tell) and Peabody ended up getting funding from a bond they floated when the NRA said they wouldn't provide money to a private school. Peabody went ahead and built the dormitory, named it "Confederate Memorial Hall" and housed young women nominated by the UDC free of charge.

Then, in 1979 Peabody, skirting the rim of bankruptcy, was acquired by Vanderbilt. As part of the acquisition agreement, Vanderbilt agreed to accept all liabilities of Peabody. But after 1979, they no longer accepted any new nominations from the UDC to house young women rent-free in Confederate Memorial Hall.

The Tennessee Chancellor found (p. 10 of majority) that it was "impracticable and unduly burdensome for Vanderbilt to continue to perform that part of the contract pertaining to the maintenance of the name 'Confederate' on the building and at the same time pursue its academic purpose of obtaining a racially diverse faculty and student body." The UDC appealed.

Now watch these moves by the Judge William C. Koch for the majority of the Tennesee Court of Appeals, because I think they're pretty interesting.

First, the court (following the Chancellor) reads a contract into the parties' course of dealings. That is, even though the 1933 contract was never signed (and even if it had been, the NRA never provided funding), the court found that there was a contract through Peabody's acceptance of the $50,000, through the naming of "Confederate Memorial Hall," and through their acceptance of women to live in the the hall.

Second (see especially note 13), it found the contract was divisible between the UDC's right to nominate women to live rent-free and the name of the Hall. If those rights weren't divisible, then the statute of limitations would have run on the UDC's right to enforce the contract in the early 1980s. Not surprising here. But that leads to a strange result when , third, the court awards damages on the entire $50,000. That is, while the contract was divisible into parts for purposes of statute of limitations, it was not divisible for purposes of damages.

There is a lot more than one might say about the majority opinion. One of them is: it converted the Chancellor's interpretation of the contract as creating a charitable trust, which is subject to cy pres or other equitable modification, into a straight-out gift, which was not subject to such equitable modifications. My friend John Eason has a very good article on this, which was cited by the majority. The opinion's also interesting to me from a property perspective. The majority requires that the name continue as long as the building stands--which sounds a lot like an equitable servitude to me. (Vanderbilt must maintain the name "Confederate Memorial Hall" on the building.) Sounds like a nearly perpetual servitude to me. As I say, there's a lot in this rich opinion. I bet the case will be a staple of contracts (and maybe trusts) classes in the future.

But what is perhaps even more interesting to me (as a legal historian) is Judge William B. Cain's concurrence. For those of us interested in judges' thinking, the concurrence opens a window on the thought of Judge William Cain. It which consists in large part of a quotation from the memoirs of Union General Joshua Lawrence Chamberlain. Chamberlain is an important figure; he fought and was wounded at Gettysburg. Chamberlain accepted the surrender at Appamatox.

Before the War, he was a moral philosophy professor at Bowdoin College in Maine. (Moral philosophy professors were important in the years before the war. Stonewall Jackson taught moral philosophy at VMI, for instance. Moral philosophy was a class in applied ethics. I think we can understand much about antebellum judging by looking to moral philosophy texts, not because the lessons students learned in college controlled their behavior later, but because the texts give us an understanding of how people at the time thought. There's some fine work on moral philosophy recently, including Mark Bailey's Guardians of the Moral Order and Peter Carmichael's The Last Generation. Francis Wayland, who was president of Brown University before the Civil War, wrote an important moral philosophy treatise, wh