" /> Walter Olson: April 2006 Archives

« February 2006 | Main | May 2006 »

April 8, 2006

Don't Steal This Book

[Review of Property Matters by James V. DeLong. Originally appeared in the Wall Street Journal, April 2, 1997]

In Schiller’s William Tell, the rural Swiss realize their ancient liberties are in danger when the new bailiff rides up to accost one of them for the offense of erecting a dwelling on his own land. “I am the Regent in the Emperor’s stead/And will not have the peasants building houses/Of their own will and living lives as freely/As if they were the masters in this country.” Before long, the villagers fear, the new overlords will turn their very forests and meadows into game preserves for the amusement of courtiers from the city.

Today it’s routine to read of a landowner denied permission to build a house, lay down a gravel path or rebuild an embankment. Much of rural America is in open revolt against the laws that require such permissions. Yet environmental spokesmen still profess to believe that developers are just pulling strings to simulate discontent. “To this day,” writes James V. DeLong, “neither environmentalists nor government officials seem to understand the anger of the landowners.”

They’ll have a better clue if they read Property Matters: How Property Rights Are Under Assault and Why You Should Care (Free Press, 390 pages, $27.50). Mr. DeLong, a Washington lawyer, aims to persuade his word-pushing neighbors that we all share a stake in safeguarding property against arbitrary confiscation, even if we hold assets in less earthbound forms such as pensions, condos and copyrights.

The federal laws and regulations preserving wetlands and endangered species, observes Mr. DeLong, fit a pattern. Preservationists identify some good or amenity that an affluent society might wish to buy more of. The next step is to draft laws simply commanding owners to go on providing it, often barbed with criminal penalties. Perusing testimony on the wetlands program, Mr. DeLong finds one witness after another assuming that if he has shown that swamps or tidal marshes are ecologically valuable, he's proved the case for ordering their owners to maintain them forever at whatever sacrifice. “The equivalent would be for an admiral to say that because the United States needs a navy, the government can take your land for a dockyard without paying you.”

It used to be that Uncle Sam would buy land when he expanded a national park or set aside a wildlife refuge. That’s the method contemplated in the Bill of Rights, whose Fifth Amendment reads, in part, “nor shall private property be taken for public use without just compensation.” Now officials have learned the trick: leave title with the owner and freeze use. Does the plot’s value fall by 50% or 95% once its owner is forbidden to do much more than hike on it? Tough: Absent physical invasion there’s been no taking, so not a dime is owed. Or that’s what officials keep arguing with a straight face.

For some decades the Supreme Court banished the takings clause to what Judge Douglas Ginsburg has termed the “Constitution in exile” -- i.e., provisions too inconvenient to the modern state to enforce. In 1987, however, the landowners began winning a series of victories. Yet the court has declined to correct the regulators’ overreaching interpretions of their legal charters.

The law bans taking an endangered creature, which is now absurdly read to forbid altering habitat, very loosely defined: No trace of the species need ever have been seen on a property, for instance. Congress’s right to regulate the filling of navigable waters has spawned a wetlands program that reaches, according to a former regulatory chief of the Army Corps of Engineers, “depressions in corn fields, hundred-year floodplains, pastures and meadows, dry woods, weed-covered vacant lots, moist tundra, winter-wet grassland depressions, pine-palmetto flatlands, and dry desert washes.” Drafters of regulations, says Mr. DeLong, actually prefer vague prohibitions that force landowners into negotiations in which the agency bargains from strength. One result has been a huge transfer of power and wealth to lawyers on both sides.

A skilled explainer, Mr. DeLong sets himself a handicap by putting much of his drier material into his first hundred pages. He goes on to tackle an encyclopedic range of issues, from public-land grazing and forestry to irrigation and zoning. Though packed with valuable information and analysis, these sections also permit passion to dissipate, and by the time the author gets to intellectual property (where he finds the law in relatively good shape) readers may sense topic sprawl.

Having to pay for takings, suggests the author, imposes both a pragmatic and a moral discipline on those who wield power. “If you must pay, then it forces thought about what is really valuable and what is not. If the property is free, the outcome is obvious: take everything you can get your hands on.” As for the moral side of things, well, trading is ethically superior to stealing. “The pro-property forces should stand firmly where they belong, on the moral high ground.”

A Small Canadian Firm Meets the American Tort Monster

[Originally appeared in the Wall Street Journal, February 14, 1996]

Mississippi doesn't run a state lottery, but it won't ever feel the lack so long as its juries hand out $500 million jackpot awards like the one that just missed bankrupting Loewen Corp.

The British Columbia-based funeral-home chain has emerged from what Reuters called "a small company's worst nightmare" -- complete with stock crash to $8 from $41, publicity about its supposedly "seamy" practices and an extorted settlement on the steps of bankruptcy court. Founder-chairman Ray Loewen says that after surviving this "terrible travesty of justice," with its "outrageous" and "incomprehensible" damage award, his firm "will do everything we can to help the tort reform movement across the United States."

It all began in what seemed a routine contract squabble. The fast-growing Canadian firm, which had bought local funeral homes in Mississippi, found itself sued by Jerry O'Keefe, a former Biloxi mayor and owner of several funeral homes, after it ended his exclusive right to sell funeral insurance in the homes that Loewen had bought. The parties settled by agreeing to cut O'Keefe in on the action: Loewen would buy two of his funeral homes and the two rivals would combine funeral-insurance operations. But during the due diligence process Loewen backed out. The O'Keefe group went back to court, this time charging fraud and antitrust violations.

Things still seemed pretty low-risk at this point: Loewen estimates the funeral homes and related enterprises at stake were worth $ 8.5 million, and in fact turned down a chance to settle the case for a few million. Then what a Loewen exec calls "a very clever, percentage-fee lawyer" got his hands on the case. Peter Hyndman, Loewen's corporate secretary and legal officer, told the Canadian press that the strategy was to "incite" the jury. "Much of the plaintiff's case was not about contractual matters, but an attempt to paint our company as ruthless predators oppressing the poor people of Mississippi."

That strategy worked. After a seven-week trial, the jury picked $100 million and $400 million as suitable numbers for compensatory and punitive damages, sums that would wipe out most of the Canadian firm's net worth. The damage figure "is Alice in Wonderland -- it's beyond belief," goggled stock analyst David Jarrett of Gerard Klauer Mattison & Co. in New York. A bond downgrade and stock crash followed.

Defenders of the litigation biz like to point out that judges can reduce or set aside excessive verdicts. But presiding state judge James Graves Jr. refused to do either, and the Mississippi Supreme Court ruled that if Loewen wanted to pursue an appeal it would have to post a bond for 125 percent of the award -- $ 625 million -- within a week. Needless to say, Loewen decided it would be prudent to settle. To get out of the litigation, the firm agreed to pay well over $100 million -- $50 million cash, 1.5 million newly issued shares of its stock (which has recovered to $27) and annual payments of $4 million for 20 years. The threat of bankruptcy was what allowed the firm to settle even this cheaply.

Ambitious trial lawyers will wonder: How can I bring this kind of success to my own practice? Helpfully, the Vancouver Sun has published extracts from the closing arguments of winning plaintiff's counsel Willie Gary:

* Hype pain and suffering. Seasoned businessman though his client may have been, his damages included not only business losses but an "awesome" amount of mental anguish and emotional distress.

* Dump on outsiders. Decorated war veteran Mr. O'Keefe "fought for his country" and was now willing to "stand up for America" by suing this rich, foreign company. You'd have thought World War II was waged against the Mounties. The lesson wasn't lost on the Canadian press: "Mississippi and Alabama have developed reputations as dangerous places for out-of-state corporations" which "have been hit with large punitive damages in seemingly minor cases," observed the Montreal Gazette. In October, another Canadian company, Crown Life Insurance Co., under siege from a $50 million Texas jury verdict and two dozen other state-court suits, actually went so far as to declare itself a "foreign state" after a quick move in which the provincial government of Saskatchewan bought stock in its parent. If successful, the maneuver will let Crown get into federal court and avoid future jury trials.

Ironically, many Canadians already viewed Loewen as an American company in all but name: it reports financial results in U.S. dollars, reflecting the fact that 90 percent of its revenues come from south of the border, along with the great bulk of both its 10,000 employees and the investors who got dunked for such huge sums.

* Pound the table over conduct that couldn't have hurt your client. Mr. O'Keefe would have lost if Loewen had slashed prices, but instead the newcomer tried to move its homes upmarket by introducing more expensive caskets and the like. "Taking advantage of the needy and downtrodden" was the way plaintiff's counsel Michael Allred puts it, but somehow magically transmutable into damages payable to the affluent Biloxian and his lawyers.

* Play the race card. Loewen thought it might get points with the two-thirds-black jury by citing its exclusive cooperation arrangement with the largest black church group, the National Baptist Convention. This was naive. Mr. Gary simply established that other partners had negotiated more favorable terms. "This is money they're going to get off 8.2 million African-Americans, a contract that was clearly without question unfair to those members, and you know it."

* Cash in your "promise". In many state courts, lawyers screening prospective jurors can get them to "promise" they'll vote a certain way. Mr. Gary: "You said you'd do it, you did, members of the jury....I asked if anyone here, if you felt comfortable sitting on a case that could exceed $ 850 million, raise your hand, and without hesitation, all 12 of you, you raised your hands."

Amazingly, a federal advisory panel is actually proposing rules that could bring such state-court abuses to the federal courts by ensuring lawyers there a right to grill prospective jurors directly rather than, as is now usual, through a judge. March 1 is the deadline for written comments to be sent to Peter G. McCabe, secretary of the Committee on Rules of Practice and Procedure, Administrative Office of the U.S. Courts, Washington, D.C., 20544.

If anyone cares to prevent future outrages like the one that laid Loewen low, derailing this idea might be a good place to start.

How Employers Are Forced to Hire Murderers and Other Felons

[Originally appeared in the Wall Street Journal, "Rule of Law" column, June 18, 1997]

Viewers of Good Morning America and NBC Nightly News recently got to meet 25-year-old Hassan Smith, who wants to become a Boston cop but faces a small obstacle: Nine years ago he gunned down a young man on a Roxbury street in a gang dispute. Boston police commissioner Paul Evans vows "over my dead body" will the convicted killer get a city badge and 9-mm Glock.

But city officials may have no choice but to hire Mr. Smith, assuming he makes it past the exams. Not only does Massachusetts law appear to instruct cities to disregard juvenile records in hiring for public service jobs, but a variety of other laws make it legally hazardous for employers, public or private, to turn away job applicants with serious rap sheets.

Consider the trouble a Wisconsin nursing home ran into recently. Last October an ambulance rushed 23-year-old Melinda Belden’s newborn to the hospital after it had stopped breathing, police said, from inhaling fumes from the crack cocaine the mother had been smoking. When the Marquardt Memorial Manor in Watertown withdrew its job offer to Ms. Belden, she filed a complaint. In April the state civil rights agency found probable cause to support her claim, saying the nursing home had not done enough to establish that the pending charges of felony child endangerment were substantially related to a job at a nursing home -- helpless old people apparently being legally distinguishable in its view from helpless young people. The case was dropped when Ms. Belden failed to pursue it.

The federal Equal Employment Opportunity Commission has long considered unlawful any general employer policy of turning away persons convicted or charged with serious crimes. "Because it disproportionately excludes members of certain groups from being hired, it can be looked at as discrimination", the commission’s Kelly Goode told a Knight-Ridder reporter in 1995. Blacks and Hispanics are more likely to have records than whites.

Police forces are no exception. The police commissioner of Cambridge, Mass. made headlines a few years back by threatening to resign after City Hall leaned on him to hire eight recruits whose rap sheets sported such charges as assault and battery and receiving stolen property. "If you bypass someone for a minor criminal offense, that person can challenge you and get a restraining order, tying up the whole list," explained the city manager.

The EEOC supposedly lets employers take into account convictions that are recent, serious and "job-related". Thus it says a just-paroled embezzler needn’t be offered a bookkeeping job. But it takes an ultra-narrow view of what is job-related. In a 1989 case it demanded a trucking company hire felons to handle "high-risk" freight such as computers. It lost in court after federal judge Jose Gonzalez acidly noted that if applicants "do not wish to be discriminated against because they have been convicted of theft then they should stop stealing".

But few employers want to spend years and fortunes in court validating such a policy -- or risk a big back pay award should a court disagree with them. When it doubt, an employer has an incentive to take the applicant. Even asking about criminal records can get an employer sued.

Advocates of compulsory felon-hiring sometimes portray critics in the role of the vengeful Inspector Javert of "Les Miserables". To give employers more freedom in these matters would be to "deny someone a reason to earn a living forever," says Wisconsin state senator Gwen Moore (D., Milwaukee). "This says they can never be rehabilitated." That might be a fair criticism of a law that required employers to reject convicts. But the issue here is whether each employer should be free to weigh the pros and (so to speak) cons for himself.

Plenty of jobs will remain open to the jailbird gone straight, who needs to convince only one employer of his reformed character -- rather than, as at present, invoke legal compulsion to dodge such inquiries entirely. Thus in one early case a theft-plagued New Orleans hotel fought for years in court for its right not to employ as a bellman someone who’d been convicted of receiving stolen goods; yet it was happy to offer him a comparably paid job that did not involve access to guests' luggage and rooms.

Much of the American legal establishment staunchly backs criminals’ hiring rights. In Wisconsin the state bar recently sent out letters strenuously opposing any effort to give employers more freedom to consider records. Last year the state’s docket of 3,000 job-bias complaints included 51 complaining of discrimination based on convictions and 42 based on arrests.

Not that "unfortunate situations", to borrow Hassan Smith’s description of the murder he committed, won’t sometimes recur. Randy Don Landin, who worked for Honeywell Corp., strangled his girlfriend, a co-worker at the company, served four years in prison and was released. The company rehired him. Bad news for co-worker Kathleen Nesser. When she rejected Landin’s romantic overtures, he harassed and threatened her for weeks, then killed her with a shotgun blast in her driveway. Asked about the rehiring decision after the second murder, a Honeywell spokesman explained: "The philosophy we have is that we don’t discriminate when it comes to hiring practices".

Of course, organized lawyers have their own solution to such recidivism: big injury lawsuits against the employer by the victims or their families, thus helping to perfect the sued-if-you-do, sued-if-you-don’t regime we impose on hapless businesses. Such claims are "going to be a huge issue," predicted a New York City attorney who won a big settlement for a department store employee assaulted by a co-worker.

Boston feminists called for wider rights to file lawsuits after a case where a supermarket employee was raped. "We want employers to investigate the backgrounds of employees more thoroughly," said the head of the local chapter of the National Organization for Women, apparently unaware that NOW’s allies in the civil-rights movement had erected one obstacle after another to such investigations.

As she put it: "If an employer is not going to look out for the safety of employees, who is?"

Plaintiffs Lawyers Take Aim at Democracy

[Originally appeared in the Wall Street Journal, March 21, 2000]

In a brute triumph for litigation force and a grim setback for democratic governance, the Clinton administration and lawyers for city governments last week bullied the nation's largest gun maker, Smith & Wesson, into agreeing to a variety of controls on the distribution of its products that the administration hadn't been able to obtain through the normal workings of legislation. Glock and other gun makers appear likely to follow. [Note: this didn't happen, despite predictions in the early aftermath of the S&W announcement.]

With quaint if unintended humor, reporters describe Smith & Wesson's capitulation as "voluntary." In exchange for knuckling under to a long list of demands, which include the adoption of external trigger locks, the development of "smart gun" technology within three years, and extensive controls on the marketing of its products, Smith & Wesson was spared the threat of a direct federal lawsuit and promised a settlement of some of the 30-odd suits filed against it by municipalities. The sheer cost of legal defense against these suits, whatever their outcome, had grown ruinous: a company statement said the deal was aimed at preserving the "viability of Smith & Wesson as an ongoing business entity in the face of the crippling cost of litigation."

Using the deliberate infliction of litigation costs to obtain leverage over an opponent was once considered a breach of legal ethics, but times have changed. Litigators boasted that their attacks would bleed the thinly capitalized gun industry into submission. Housing and Urban Development Secretary Andrew Cuomo warned gun makers that unless they cooperated they'd suffer "death by a thousand cuts." Several makers have in fact gone bankrupt since the courtroom siege began.

Supporters of the new settlement seemed to treat as a virtue that it doesn't have to be run by Congress for approval. White House domestic policy adviser Bruce Reed said the agreement showed that "the public good doesn't have to be held hostage to legislative stalemate," while the New York Times reported that the deal has "opened a new avenue for regulating the firearms industry without action from Congress," where gun-control legislation has fallen victim to "partisan gridlock."

"Legislative stalemate" and "partisan gridlock" are merely pejorative terms for the normal workings of democracy. When the legislative process is working, measures that are passionately opposed by an important constituency within the majority legislative party do not tend to hurtle to a speedy enactment.

Advocates of the hire-a-lawyer brand of gun control make a habit of thumbing their noses at the constitutionally specified lawmaking branch ("All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives." That's hard to miss, being Article I, Section 1.)

"You don't need a legislative majority to file a lawsuit," proclaims Elisa Barnes, the chief plaintiffs lawyer behind a private federal suit against gun makers that went to trial in Brooklyn, N.Y. Miami-Dade County Mayor Alex Penelas, according to one news report, "said he was using the courts in an attempt to crack down on the gun industry because the Florida legislature refused to do so. 'Every year that I've gone to the legislature we have basically been told to take our case elsewhere,' he said."

Given the ordinary political instinct to protect one's turf, you'd think the Republicans who control Congress would unite in wrath at the Clintonites' invasion of their legislative prerogatives. Moderate and conservative congressmen would rise together, you'd think, to declare that -- whatever their differing views on the merits of one or another gun-control measure -- the use of litigation to bypass and subvert democracy is unacceptable. Yet they have been nearly silent. Rep. J.C. Watts of Oklahoma did comment, but his remarks were favorable: "We hail Smith & Wesson for taking a proactive approach to the problem of violence."

Likewise absent from the field, with a few honorable exceptions, has been the American business community. It would surely make a symbolic difference if a few CEOs of companies outside the gun industry chipped in personal checks to start a legal defense fund for small gun makers being bulldozed by the cost of litigation, to give them at least a hope of surviving to fight the suits on the merits. Or if they let it be known that mayors who've signed on to the gun-suit jihad should stop passing themselves off as "pro-business." Not long ago the mayor of Bridgeport, Conn., Joseph Ganim, a gun-suit mastermind who's considered ambitious for statewide office, was feted by a Chamber of Commerce in his local Fairfield County. Hey -- it's someone else's industry he's working to destroy, right?

Conflict-averse businessmen love to grab at the excuse that, well, guns are different. But tobacco and breast implants were different, too. In the next rounds, lead paint, latex gloves, violent videogames and managed-care insurance policies will be different too. Why, these companies' predicament has nothing to do with the litigation threats my industry faces! Thus do businesses wind up conforming to the First Law of Risk-Averse Public Affairs: Never head out to the rescue of anyone who's less popular at the moment than you are.

How unlike the wisdom of the trial lawyers themselves, who in their attacks on American industry have been keenly aware of the advantages of mutual cooperation. As they know well, each successful new round of assault litigation contributes new precedent, new revenue, new political alliances and newly honed techniques to assist in future rounds.

Thus the gun round built on the tobacco round in its modus operandi: Demonize the opponent from day one. Fly around the country signing up sympathetic plaintiffs, particularly governments. Shop for favorable judges and juries. File suits rapidly all over the place on different theories, on the assumption that something's bound to stick. Lavish resources on working the press and sympathetic interest groups. Wait for the chance to "turn" one of the defending companies against its competitors.

This is how important public questions get hammered out secretly in the back offices of influential lawyers and presented to the public as a fait accompli. So much for the integrity of democratic process.